Places. Watch American History tv tonight and over the weekend on cspan3. Up next, Federal Reserve chair Jerome Powell talks about the u. S. Economy and his agencys response to the coronavirus pandemic at a Virtual Event hosted by princeton university. Okay. Hello, everybody. I now have the signal that the technology is working. Fortunately nobody would put that in my domain. I dont take any responsibility for that. Im professor of economics and Public Affairs here at princeton university. Thank you for joining us on this special reunion event with Federal Reserve chair jer powell. Sponsored by princetons griz wald center. Were happy to have many members of chairman powells classmates on the princeton class of 1975 on the zoom. Just one quick logistical note, if you have a question, youre welcome to submit it any time you want using the q a feature of zoom which youll find at the bottom of your zoom window. It tez q a. You may also upload questions that youd like to see answered and well take as many of these as we can. A full recording of the talk will be posted on the griz wald centers website and the talk is live streamed right now. Im pretty sure thats working. Yes, were live. Okay. Let me introduce a man that needs no introduction. Were happy to welcome here today. Jay powell graduated from princeton which is relevant today. 45 years ago. Ten years after that, he married his lovely wife alyssa and this weekend the two of them are celebrating the graduation of their daughter suzy as a member of princetons class of 2020 which is sure to be a memorable year. So congratulations to you. After princeton, j. Powell attended law school at georgetown. He didnt stick with law and opt ford a successful career in investment banking, in private equity and a stint in u. S. Treasury among others. In 2012, president obama pinlted him to t appointed him to the Federal Reserve board and President Trump elevated him to the chairmanship of the board. Trump as you know has since complained many times that this was a terrible choice. Almost everyone else on the planet sees it as a fabulous choice were deeply grateful to have him run the fed right now. And for spending some time with us this morning. So thank you very much for being here. Id like to start with the most obvious question that wont surprise you. Are you sleeping well . Thank you. Id like to say hello to my welcome classmates. If you permit me, want to start this though by just noting that this is a difficult time for many americans. People have lost loved ones, many millions of people have lost their jobs. There is a great deal of uncertainty about the future. And i really think we ought to start by acknowledging that fact. And ill add that the fed is strongly committed to using our tools to do whatever we can for as long as it takes to provide some relief and stability now to support the recovery when it comes and to try to avoid longer run damage to peoples lives through long periods of unemployment or through unnecessary insolvency. So with that, let me get to your question. Sleeping well . Better than im sleeping in late february and early march. Lets put it that way. Glad to hear. That im sure you need to keep up on your sleep. Were relying on you for that among other things so this is your 45th reunion. Congratulations. Did you take economics 101 at princeton . Do you remember who taught it to you way back then . I d burton malkial taught it. I took micro and macro. Those are the only econ courses i took. I think that is two more than William Mcchesney martin and did he pretty well. Is there anything in your princeton education that actually got you thinking about the Federal Reserve in a somewhat serious way . Not dreaming youd be chairman of the fed, although thats that will be interesting to hear. But just thinking about the Federal Reserve and what it does . Well, the answer is yes. For whatever reason, by the time i was a senior at princeton, i did have this idea. I didnt have much of a plan. I had an idea. And that was that i wanted to have a career that was mostly a private sector career but then to go in serve in government at different times in my career. The model would have been vfrmevance or shultz. Part of that is growing up on washington, d. C. I definitely picked up and i did major in politics ultimately. And i picked up that idea and i strongly wanted to do Public Service. My dad had had done Public Service in the war. And then he was a u. S. Attorney and a law clerk. He really wanted to serve again and couldnt. While he was at princeton, he had to turn down a job in administration because he had six childrens tuition to pay. Dad made me want to do Public Service even more. I want to start with a few general questions about the fed and then get more down to some of the specific things youre dealing with. So at the general level, strange as it may seem to those in the financial world, not every american spends every minute of every day thinking about the Federal Reserve. Could you maybe start us off by talking a little bit about where and how you see the fed fitting in in the more general scheme of American Government . And by the way, while youre doing that, maybe can you reveal the secret hand shake. Ill be glad to. So the fed is an institution. Its a Great American institution. Its founded about 107 years ago. And its an interesting institution. There is a board of governors that exists here in washington, d. C. The members of the board of governors are nominated by the president , confirmed by the senate and serve long terms of 14 years. Although your term as chair or vice chair is only four years. But the underlying term as governor is long. And thats meant to keep you out of sort of the political not sy political cycle. We have 12 reserve banks around the country. The president s also serve on the federal open Market Committee which is where we set Interest Rates. And those are appointed by their private sector boards with the consent of the board. So its a way of make shoog you are th arei are not having the same group think in one part of the country. We have diversity from around the country. The fed is present in if every community in one way or another all around the country. So what do we do . We do a few things. We look after the overall stability of the Financial System and we have tools to do that. We set Interest Rates in an effort to support Economic Activity when it needs support. And we supervise and regulate banks. We operate large parts of the payment system. So we have a lot of different roles. All of them are meant to be undertaken in a strictly nonpolitical way that serves all americans. The last thing ill say is that we do have this precious grant of independence as all Central Banks and major advanced economies do. But with that comes the obligation of transparency and accountability. So we are directly accountable in our system of government to the oversight committees that we report to in congress. As, you know, a way for us to maintain our democratic legitimacy in a system where most of the authority is vested as it should be in elected people, not in appointed people like us. As a somewhat specific follow up to that, do you worry these days when so much is going on that the public, the markets, the congress, the white house, take your pick, hold exaggerated beliefs about what the Federal Reserve can actually accomplish . Mission creep is one thing. Youve been asked to creep your mission for sure. This is something rather different. So what do you think about that . You know, i think we do have this precious grant of independence and that really means that we need to stay stay in our lane and just do those things that congress asigns us to do. If were going to roam all over the landscape, we shouldnt do that. We stick to our netting, i would say. We do have, though, we have tools that can be used in a Financial System only in emergency situations. Such as the Global Financial crisis of a decade ago, such as the pandemic. And those tools can only be used now with the approval of the secretary of the treasury. This is under statute passed by congress. This is under dodd frank. We do use the tools. Theyre very powerful. But they have kuwait a limited use and, again, only to be used in unusual and other circumstances with the permission of the treasury secretary who, of course, is part of the administration. I think we need to stress and try to stress all the time that we have tools that we can use but theyre not for general times. Particularly now what i would say is the tools that were using now are lending tools, not spending tools. So we dont have the ability to make grants of money to particular groups of people no matter how directly theyre affected by companies or affected by the pandemic. That is a job for elected officials. They control spending and taxation. Its not a job for appointed officials like us. So there is a need to underscore the limits of our powers. Although, our authorities are very strong. Youre seeing how strong they can be. One of the ways to draw a line between lending and spending is put it is to make, let me say, only loan thats will be paid back. You might say with 100 certainty if there was such a thing in the world. Thats directed to the fed. The youve been directed during the pandemic, you personally the fed has been directed, to make loans in places where the fed has not gone before. And maybe theyre not 100 guaranteed to pay back. Do you see that as i was talking a minute ago about Mission Creep or Mission Impossible or Something Like that. Does that kind of thing worry you . You know this is a this is a emergency of a nature that we havent really seen before. And at the beginning of this, my colleagues and i really saw that we needed to be using our tools to their fullest extent. That it would be very hard to explain to the public why we would hold back from doing that at a time when we saw the, you know, the 50year low in unemployment turn into an 80, 90year high in unemployment in the space of 60 days. We saw the economies around the world shutting down and we, you know, i think we felt called to do what we could. And so we crossed a lot of red lines that had not been crossed before. Im very comfortable that is that situation in which you do that. And then you figure it out afterwards. So thats how i would look at that. Right. Thank you. In line with that, as you were called to do a lot of things, the fed stood up in a very short period of time, alphabet soup of special lending facilities. Some of which look like the what happened in the financial crisis but many which look very different from that. Can you give us a sense how asked that was. You eluded in the first question that you werent sleeping much in march. Can you give us a sense of how difficult it was for the institution . So i think it it an extraordinary institution. Were luck dwroi have a large number of highly dedicated, highly capable people mshgs of whom were here and live through the Global Financial crisis and were, you know, critical players in implementing the facilities put in place then to prevent the collapse of the global Financial System. Very different set of problems. But so i think we benefit from that experience. And all of us, of course, as you have studied the lessons of the financial crisis a great deal. So i think we knew a lot. I think i would break it into a series of phases. First, what happened was that as the pandemic, as it became clear sort of week or so before the end of february that pandemic was going to be a global phenomenon, that any hope that it would be contained in a meaningful way in a province of china was gone. Markets began to struggle processing that. Its unknowable. What will be the effect on the Global Economy . Markets became extremely volatile. Investors fled from any risk and really market pz stopped functioning in a broad sense so companies and households couldnt burrow, couldnt roll over debt. And markets kind of closed. So this was what we did is we came in the first instance and we tried to restore market function through a variety of ways. We purchased a lot of treasury securities to get that market running again. The short term money markets which are important to many private corporations, they stopped working. So we did some facilities there. Then we turned to the provision of credit to corporations and to municipalities and states. That was about weakness in the Financial System. This time the Financial System is in good shape. It has strong capital, much better risk management. This was a problem in the real economy, in the private sector of companies not being able to finance themselves. So we set up we announced the setup of the facility to, you know, to backstop that market and as we backstopped the markets, even before we began actually lending, they start to work again. There is a confidence factor that weve seen in real force here. We understand what an honor it is to be in a job like now when you need it. Let me pursue one particular aspect of that which i guess is still insipient which is the main street, socalled main Street Lending programs. I remember when main street was first announced. Thinking that this was an assignment that push the the fed into a place where no fed had ever been. Even more so than the ones that you were just speaking about. Can you comment a bit on the special difficulties the fed has encountered in standing up to the main Street Lending programs . Id be glad to. St the main street facility is for small and medium size companies. Companies that dont that arent large enough or in some way dont have the ability to have access to the capital market. They dont issue public bonds or public equity meaning the way they get their financing in the operations is really through the Banking System and through nonbanks. So we had we have a facility that deals with companies that have access to the bond market and theres congress has date of birth done a lot more Smaller Companies with under than 500 employees with the paycheck protection program. So this is for the companies that are in the middle. And it is very challenging because its an extraordinarily diverse space. The credit needs of different kinds of companies and Different Industries are extraordinarily diverse. Some of them borrow against assets and some against cash flow. Some are much more volatile than others. So its quite diverse. And trying to figure out the right credit products for that market is challenging. In addition, the world of bank credit is a world in which every Credit Agreement between borrower and a bank is negotiated. So each Credit Agreement is a little bit different. So it doesnt have the degree of standardization, for example that, the bond market has where there are forms of presideo ins us and its challenging to get in there but get in there we will. Were day as way from making our first loans in main street. We have three facilities that are part of it. Theyre meant to reach out to different parts of that broad space. In the meantime, theyre finding they can borrow from banks. Others are waiting for us to get our facility up and running. It is far and await biggest challenge of any of the 11 facilities that weve set up are the three main street facilities. But, you know, i would the last thing ill say is as weve shown, were very willing to learn from experience. We put out a term sheet propose the term sheet. We got a couple thousand letters from people on fist main street term sheet. We turned that around. W we consulted actively with experts and, you know, we now released documents and expect to make loans on main street in a few days. You envision the loans being a million, half a million . Is what size loans . The current structure is the smallest loans would be about a half million. The largest ones could be, you know, over 100. And thats for the larger companies. Were working with companies that have as many as 15,000 employees and five million in revenue. And there is no limit on the bottom end. You know, i can imagine us expanding on either end too. The whole nature of this exercise that congress has given us is go find companies that have employees, really, its all about creating a context in which employees, a climate in which employees will have the best chance to either keep their job or go back to their old job or ultimately find a new job. Were looking for companies in any part of the economy that have employees that are not able to get credit. That would have been able to get credit in 2019. So were looking back at companies that were in good solid financial shape before the pandemic. Were trying to find those companies and were trying to create credit products that work for them. Thats the nature of the exercise. Tough job. Thank you. Let me finish up before opening up to questions with one or maybe two more nittygritty Monetary Policy questions. Youve had all of these before. Quite a few european Central Banks and japan pushed their overnight Interest Rates into negative territory quite a while ago, in some cases years ago. And kept them there. Yet, the fed, even before you were chair, has made it quite clear that it doesnt have any intention of doing that. Can you explain why . Is this some aspect of american exceptionalism that is not so obvious . Just generally why . Maybe ill give a little context. So the problem of we set a policy rate which is the federal funds rate. And we lowered, of course, when the economy is weak. We raise it when the economy is stronger. Inflation was more often a problem and we would often raise it. It hasnt been a problem in a while. We raise it then to sort of prevent the economy from overheating. So in the late in the 90s, i guess just after you were at the fed, allen, japan hit the effective lower ban. Hit zero. And the question came to the fore, what do you do now . And so since really then its more than 20 years now, central bankers and economists are working on the problem of what can central bank dozen when they hit zero . Are they out of ammunition . The answer is no. So during the Global Financial crisis, the if fed got zero. Question two things. One, we effectively promised to hold our policy Interest Rate at zero for a long period of time. That affects, short, medium and long term Interest Rates and that supports Economic Activity. Borrowers borrow all across the curve. We also bought this is what became quaun take theive easing. This is other fully guaranteed securities guaranteed by the u. S. Government to lower long term yields. Those are the tools we use during the financial crisis. We feel that we understand them. We no longer think of them as nonstandard tools. We think of them in the toolbox because we are in an era of much lower Interest Rates. With dough expewe do expect ite at the lower bound of zero. So some banks decided in addition to that to use negative rates. We dont think that is an appropriate tool here in the United States. I would say that the evidence on whether it actually works is mixed. There are some negative side effects. It is not clear to our committee that this is a tool that would be appropriate to deploy here in the United States. Id like to push you on that. Whats different than the United States compared to, i dont know, pick it, the eurozone . Well, a couple things. One, first, i dont see that the evidence this isnt real why i dafrns. This this isnt a difference. There are bankers around the world that feel this way. The evidence on whether it actually helps is pretty ambiguous. One thing it does is it interferes with the process of credit intermediatation that banks undergo. They take in deposits. They lend it out to the extent the policy rate is negative. Youre crushing down on bank margins. That makes them lend less and there are other, you know, possible negative effects there. I think the evidence is mixed. Its not clearly the way. We also have we have institutional arrangements here that would not work with negative rates. The money market funds, Fund Industry which a lot of companies and various kinds use to fund themselves and individuals look upon as a place to put their money. Thank you very much. Let me turn to some questions coming in from people listening. Ill have to pardon my squinting a little. Im reading this off my screen with my i wont even mention my age. Its older than yours. Heres a question that starts from frank thanking you for your extraordinary job and the question is how sensitive is the fed to the very difficult time than in particular the lower end of the economic spectrum is experiencing these days compared to the extraordinary strength in 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 arent 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 least afford to bear them. The unemployed come very largely so far come very largely from parts of the Service Economy which involve dealing with large groups of people in that are tightly together. So thats restaurants, bars, travel, its hotels. Its a lot of places. And many of jobs that have been lost at least temporarily are relatively low paid Service Industry jobs. So you can just see that those are the naem welco are the people being laid off that have the least financial resources. For example, in our shed survey, survey of Household EconomicDecision Making which we released a week or so ago, i looks like if you were someone that made 40,000 or less annually, the chances of your being laid off in the last month or so approach 40 . So almost 40 of those people have lost their job. If youre making 40,000. So this is falling. Secondly, falling on women to an extraordinary degree. This is falling on women to some extent are in those jobs. And so there is tremendous inequality in the way the pandemic is affecting our population. Now you asked does that affect our policy . Look, it does affect our policy. Although essentially part of our mandate is maximum employment. Maximum employment and stable prices and Monetary Policy mandate. Were very focused on the full range of employment and doing whatever we can to really, as i mentioned earlier, to try to get those people back to work or in a new job. Some of those jobs may take a while to come back. Its important those people be protected from this event. This is not something that is anybodys fault. This is a natural disaster. 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 gi gilchrist burg. What if there is another wave of covid19 in the late fall . And the fed is asked to react again. How big a Balance Sheet can you manage before it gets to be a problem and one of the problems he asked in the questions and inflation or maybe you see other problems. But just in general, is there any limit to how big you can make the Balance Sheet. Let me start by saying were not experts on epidemiology, the spread of pandemics or anything like that. We talk to experts and the main answer they give you is that things are highly uncertain. So we dont know anything that the general public doesnt know if youre listening to the experts about how this will go. So there is clearly a risk of that. A risk of a second outbreak or second wave. And, you know, that will be challenging. We, of course, would continue to react. Were not close to any limits that we might have, i would say. We would continue to have some authority to react. I would worry almost more that a second outbreak would undermine confidence. A full return to a full recovery of the economy, were really depending on people being confident, that it is safe to go out and safe to engage in a broad range of economic activities. Thats how the economy will recover and you see people testing the limits now probably every day, all of us are doing thing wez may not have done two months ago. It would undernine Public Confidence and make for a longer, you know, a significantly longer recovery and weaker recovery. In terms of the Balance Sheet, first inflation is inflation concerns for now are to the down side. The risks are to the down side not to the up side. We see prices moving down. Thats because, you know, a lot of parts of the economy people are cutting prices. Weve been dealing with these for a long time globally. One thing that happened since 1975 is inflation was really the big economic issue. Really since another person from princeton, one of the great Public Servants of our lives, what he did at the fed and his colleagues did, inflation is really been under control. I cant go to infinity. Im comfortable with where we are now and the path that were on. And dont see risks based on what were doing right now from to inflation or to financial stability. Thank you. We have a couple of variance on this question. Ill read the one that came from ro roseanne. Once the fed is done going down the road you were talking about further, what is the plan for managing the portfolio . I read the question as saying, you know, might have more than fixed income securities. Well, we tend to with the things that wound up on our Balance Sheet during the financial crisis, we held them to maturity. These are Short Term Loans of to you are years. The problem is not to sell them but to hold them to maturity. I would say we do not desire to have an active role in managing the portfolio. The decisions about what to do about covenant defaults and things like that is not something that we will want to be involved in on a day to day basis. And those are arrangements that will work out. We have a Financial Adviser on each of these facilities. And in some way or another that will be managed in a commercially reasonable way. But not by fed policymakers. How would they avoid the misunderstandings that took root after the emergency measures of the financial crisis about a decade ago . That proved as you well know not to be too popular with the public even though it was tremendously successful. Were diz closing more than they require us to diz close. Were disclosing for all the facilities under the c. A. R. E. S. Act, were disclosing the name of the barrower, the mment, and well be updating those in a very regular basis. So i like to think that disclosure will really help because, i mean, i read things in the paper that are supposedly happening and i know theyre not happening. One reason theyre not happening is we havent made very many loans yet. I read that were extending tons of credit to that industry. We havent really made a lot of loans in the corporate facilities. We havent started the municipal facility yet. So i think transparency is really important. I also think we have to just this is something weve been focused on allen, you were at the very beginning of the transparency revolution and one of the principle authors. I think the old theory was tell them nothing, you know, there should be a lot of mystery around central banking. Allen and a lot of other researchers flipped that completely around and now the view has been for some time the transparency as your friend that markets will do the work for you if they understand what youre doing. We work very hard to explain ourselves to the general public and particularly focused on the general publics elected representatives in congress. We work really hard to stay in communication with them. The ones who are on the committee, the ones in leadership, the ones not on the committee. Just so and also we try to communicate publicly through a lot of outreach so we explain what were really doing and trying to avoid misunderstanding. And also, by the way,a f. list feedback. We listen. We did fed listens which is such a Successful Program where we listen to people from all different walks of american life, talk about how they think about the fed and Monetary Policy. I will tell you, it really informed the work weve been doing in sort of reviewing the way we do what we do. They are not spending. So this is something that im not dont think i have a magic solution of how you explain this to the average american. But its a huge task. And in the case of the financial crossices, they never really got the distinction. So good luck with that. I would just say, most people have Better Things to do in their life than to understand the details of central banking. I think working at the fed you ghaet fr get that from day one. We want to be as transparent as possible and patiently and clearly explain ourselves to the public that we serve. And we just work really hard at that. And thats part of the job. You know, its part of how we retain our democratic legitimacy. Im squinting at the screen to try to read the questions. Michelle asks, are the latest fed this is a bit related to a previous question. Are the latest fed policies likely to lead to more income inequality in the United States . Absolutely not. 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 inequality. If just look at the labor market