Thank you. Please take your seat. The program will begin soon.
Please take your seat. The program will begin soon. Oh Please take your seat.
The program is about to begin. The Dallas Regional Chamber sent Marshall. Good afternoon everyone.
Are you out there? Okay, because I can't see you, but hopefully you can see me. Welcome, we're so glad that you're here. I am so proud to serve as the 2024 chair of the Dallas Regional Chamber, the National Chamber of the Year. Give it up for the National Chamber of the Year.
And like all of you, I am so excited to hear from the chair of the Federal Reserve of the United States, Jerome Powell. How fortunate are we to have one of the top policymakers in the world here with us today. Thank you, Dale and the Dallas Regional Chamber team who made this event possible by working with our friends at the Federal Reserve Bank of Dallas and our friends at the World Affairs Council of DFW.
These three great organizations worked with nonprofits and educational institutions to invite community leaders and students to experience this rare opportunity. Chair Powell's decision to come to speak to us underscores that the Dallas region is a key player in shaping the national economic conversation. Here are a few examples of that.
Dallas-Fort Worth is currently the fourth largest market in the United States and is on pace to pass Chicago in 2028 to become the third largest market in the country. Yes. Over the past five years, the Dallas region has led the nation in job growth.
And that's been going on for some time. Since 2010, 1.3 million new jobs. Let me say that again. 1.3 million new jobs have been created here. Since 2010, 276 companies have established their headquarters right here, including six Fortune 500 companies.
companies. If Dallas-Fort Worth were a country, and we already think it is, our economy would be ranked 23rd in the world. And today, right here in this room, many of the leaders and companies that they lead helped create that prosperity.
We have an incredible business community. Give it up for our business community. At the Dallas Regional Chamber, the team works hard every day to help make the Dallas region the best place in America for all people to live, work, and do business by driving progress in four key areas. prosperity and economic development, education, talent, and workforce, public policy, and diversity, inclusion, and community engagement. We believe one of our greatest strengths in achieving that mission is the ability to make is acting as the connector of our region, connecting people and companies to each other, connecting the public, private, and nonprofit sectors to address opportunities and narrow opportunity gaps in our region, connecting the present to our future, and connecting our community to great opportunities such as today's event.
What great timing to have Jerome Powell speak to us at this moment in time. As head of the Federal Reserve, Chair Powell's decisions have profound effects on every part of our lives and businesses, shaping our economy, impacting industries, and touching communities in ways both big and small. Today is one of those special days we will long remember, and I hope you are excited as we are about the program today. Now, to introduce today's program, I am happy to introduce Dr. happy to introduce my good friend, Liz Browsford, President and CEO of the World Affairs Council of DFW.
Liz? Thank you for that warm welcome scent and good afternoon everyone. I'm Liz Brailsford, President and CEO of the World Affairs Council of Dallas-Fort Worth. The council is an engaged community of diverse speakers.
and speakers focus on educating our business leaders and citizens of this region about matters of international national and local importance that impact your personal lives and business operations not only here not just here at home, but abroad. We take great pride in our partnership within the community, united to enrich the Dallas-Fort Worth area, and to that end, I want to thank Dale and team at the Dallas Regional Chamber, and Lori and team at the Federal Reserve Bank of Dallas for this wonderful collaboration. I want to tell you about two upcoming events.
One is on December 3rd. We're hosting Sir John Grant. He's the former UK permanent representative to the UN, and he's going to be talking about the European view on US foreign policy. and all the geopolitical affairs that we have going on right now. And then on December 4th I'll be in conversation with former Secretary of State Rex Tillerson and he's part of our CEO series and it's focused on The Journey, Inspiring Success Stories, and American Journey Series.
If you're not a member of the World Affairs Council yet, please join us. You can join us as both an individual and a business, and we'd love to welcome you to our community of engaged citizens. A small reminder to please silence your cell phones and any other electronic devices that you have, so thank you for that. And now it is with great... pleasure that I introduce today's speakers.
Jerome H Powell took office as chair of the Board of Governors of the Federal Reserve System on February 5th 2018 for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23rd of 2022. Mr. Powell also serves as chairman of the Federal Open Market Committee, the system's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028. Mr. Powell served as Assistant Secretary and Undersecretary of the Department of the Treasury under President George H.W. Bush, with responsibility for policy on financial... financial institutions, the treasury debt market, and related areas.
Prior to joining the Bush administration, Mr. Powell worked as a lawyer and investment banker in New York City. In addition to service on corporate boards, he has served on the boards of charitable and education institutions, including the Bendheim Center for Finance at Princeton University and the Nature Conservancy in Washington, D.C. and Maryland.
Moderating the conversation is opinion columnist at the Washington Post, Katherine Rample. Catherine frequently covers economics, politics, public policy, and immigration, with a special emphasis on data-driven journalism. She is also a politics and economics commentator for CNN, a special correspondent for PBS NewsHour, and a contributor to the public radio show Marketplace. She serves on the advisory board for the Journal of Economic Perspectives. Catherine previously worked for the New York Times as an economic reporter and editor and columnist.
columnist for the Sunday magazine's It's the Economy column. She also wrote theater reviews for The Times. Catherine received the 2021 Online Journalism Award for Commentary, the 2010 Weidenbaum Center Award for Evidence-Based Journalism, and is a seven-time Gerald Loeb Award finalist. She grew up in Florida and graduated Phi Beta Kappa from Princeton.
And now, as we begin the moderated conversation, I ask you that you you join me in welcoming Federal Reserve Chair Jerome Powell to the podium. Thank you very much. Good afternoon.
Thank you to the World Affairs Council, to the Federal Reserve Bank of Dallas, and to the Dallas Regional Chamber for the kind invitation to be with you today. I have just a few brief comments on the economy and monetary policy. before we move to our conversation. So looking back, the U.S. economy has weathered a global pandemic in its aftermath and is now back to a good place.
The economy has made significant progress toward our dual-mandate... goals of maximum employment and stable prices. The labor market remains in solid condition. Inflation has eased substantially from its peak, and we believe it is on a sustainable path to our 2% goal. We are committed to maintaining our economy's strength by returning inflation to our goal while supporting maximum employment.
The recent performance of our economy has been remarkably good, by far the best of any major economy in the world. Economic output grew by more than 3% last year and is expanding at a stout 2.5% rate so far this year. Growth in consumer spending has remained strong, supported by increases in disposable income and solid household balance sheets.
Business investment in equipment and intangibles has accelerated over the past year. In contrast, activity in the housing sector has been week. Improving supply conditions have supported this strong performance of the economy.
The labor force has expanded rapidly and productivity has grown faster over the past five years than its pace in the two-gauge two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating. The labor market remains in solid condition, having cooled off from the significantly overheated conditions of a couple of years ago, and is now, by many metrics, back to more normal levels that are consistent with our employment mandate. The number of job openings is now just slightly above the number of unemployed Americans seeking work.
The rate at which workers quit their jobs is below the pre-pandemic pace after touching historic highs two years ago. Wages are still increasing, but at a more sustainable pace. And hiring has slowed from earlier in the year.
The most recent jobs report for October reflected significant effects from hurricanes and labor strikes, making it difficult to get a clear signal. Finally, at 4.1 percent, the unemployment rate is notably higher than a year ago, but has flattened out in recent years. in recent months and remains historically low. Turning to inflation, the labor market has cooled to the point where it is no longer a source of significant inflationary pressures. This cooling and the substantial improvement in broader supply conditions have brought inflation down significantly over the past two years from its mid-2022 peak above 7%.
Progress on inflation has been broad-based. Estimates based on the consumer pricing Index and other data released this week indicate that total PCE prices rose 2.3% over the 12 months ending in October, and that, excluding the volatile food and energy categories, core PCE prices rose 2.8%. Core measures of goods and services inflation, excluding housing, fell rapidly over the past two years and have returned to rates closer to those consistent with our goals. We expect that these rates will continue to fluctuate in their recent ranges, and we're watching carefully. to be sure that they do, however, just as we are closely tracking the gradual decline in housing services inflation, which has yet to fully normalize.
Inflation is running much closer to our 2% goal, but it's not there yet, and we are committed to finishing the job. With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2% objective, albeit on a sometimes bumpy path. Given progress toward our inflation goal and the cooling of labor market conditions, last week my Federal Open Market Committee colleagues and I took another step in reducing the degree of policy restraint by lowering our policy interest rate by a quarter percentage point.
We're confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2%. We see the risks to achieving our employment and inflation goals as being roughly the same. in balance and we are attentive to the risks to both sides.
We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. We're moving policy over time to a more normal setting, but the path for getting there is not preset.
In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we're currently seeing in the economy gives us the ability to approach our decisions carefully. Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve.
We remain resolute in our commitment to the dual mandate given to us by Congress, maximum employment, and productivity. price stability. Our aim has been to return inflation to our objective without the kind of painful rise in unemployment that has often accompanied past efforts to bring down high inflation. That would be a highly desirable result for the communities, families, and businesses we serve.
While the task is not complete, we've made a good deal of progress toward that outcome. Thank you very much, and I look forward to our discussion. Thank you Chair Powell for those remarks.
I will note that you are not the only Fed official who is giving a public speech today. Your colleague, Governor Coogler, gave remarks this afternoon, excuse me, earlier today in Uruguay about the importance of an independent central bank. No particular reason, I'm sure, that that was the topic of the day.
We have a lot of students here today. I'm wondering if you could just explain in general why there is this bromide about it's important for the central bank to be politically independent. Sure, I'd be glad to.
Let me say what we mean by independence first. So what that really means is that the decisions that we make about monetary policy, about interest rates, cannot be reversed by any other part of the government except of course Congress. Congress created the Federal Reserve by statute and can do what it wishes to do by statute, but our decisions are not reviewable by any other agency.
And we are charged to make those decisions with regard to the medium and longer-term well-being of the public that we serve. So we're not thinking as we make our decisions about the well-being of any political party or anything like that. So we're just looking at the macroeconomics and doing the very best we can.
There's been a lot of research about central bank independence, and what it shows is that central banks who are independent, meaning... independent from the other parts of the government, do a better job on inflation. And that makes a lot of sense because, you know, we're thinking really just of getting inflation under control while keeping the labor market strong, and we're not thinking of political factors, which would frankly be a distraction to the already difficult work that we have to do the main job.
So the academic research is very clear globally, by the way. This has been a global trend for more than the past 50 years. There's advanced economies like the United States economy around the world.
all have central bank independence of one part or another, in one form or another. The other thing I'll add is that what comes with that, on our part, is an obligation to be highly transparent about what we do, to explain ourselves to the public, to Congress. Congress has oversight over the Federal Reserve in our system.
So we spend a great deal of time talking to the oversight committees and the broader Congress in the House and the Senate, explaining to them why we're doing what we're doing. I do. I testify as a matter of statute two times of the year in each of the House and Senate.
So that kind of gives us the accountability that we need to be democratically legitimate in a situation where we do have some independence. The macroeconomic conditions that you just described in your remarks sound tantalizingly close to a soft landing. I know you're not willing to declare victory yet. To what extent do you think the fact that the Federal Reserve is credibly independent is responsible for the good outcomes that we've had so far?
So the credibility is really everything in our work. And I think, as you know, inflation spiked really globally all around the world as the economies around the world reopened after the pandemic shut down. And on the back of a lot of fiscal and monetary stimulus, we saw a burst of inflation all around the world. And what happened is... We raised interest rates to bring that down, but the public had faith.
We measure inflation expectations many different ways, surveys and based on market-based instruments, and they all kind of showed the same thing, which is the public all through all this believed that we would get inflation down, that we would restore price stability, which we define as 2% inflation. And that's ultimately the key to it. Inflation is a social phenomenon. If people believe that inflation will be higher than it is, then it probably will be. And if they believe that inflation will come down, then people who make and take prices and wages, they will make sure that it does come down.
So it's absolutely critical that we be credible. And part of that is that we responded so forcefully when it became clear that inflation needed a response from us. We responded quite forcefully, and we think that helped keep inflation expectations anchored, as we say.
And then one last question, and then we can move on. I promise on this. There have been times in U.S. history when people look back and say that the Fed was not seen as terribly independent.
What did we learn from those episodes, in your view? Well, if you go back to the period of the high inflation, which I'm old enough to remember, it was during my college years, kind of lost faith that the Fed would restore price stability. of very high and very volatile inflation, quite difficult business conditions, difficult for people on a fixed income. Think what that does.
You may have felt it. If you're on a fixed income and prices go up 20%, you're just in trouble right away. So inflation is worst for people at the lower end of the income. spectrum and the wealth spectrum.
So we've seen it here in the United States in the 1970s, actually. And it's not a pretty picture. So, you know, I think this is very widely, by the way, understood and supported.
You know, I've spent a lot of time on Capitol Hill, and I think where it really matters on both sides of Capitol Hill, the Senate and the House, in both political parties, there's a broad understanding that an independent central bank is very important in just serving the public. as best we can. We're not perfect.
Everyone makes mistakes, but you'll get the best results if you have people who are just focused on that task and separate from politics. Thanks. A little bit more elaboration from what we heard last week at the press conference on this question. In that press conference, you basically downplayed the impact of the election on FOMC policy.
You said we needed to kind of wait and see, but that does stand in contrast to how the FOMC... behaved at the December 2016 meeting, when roughly half of committee participants, according to the transcripts, upgraded their economic forecasts based on expected changes to fiscal policy under a Trump administration, and in particular, a previous trifecta in which the Republicans controlled both chambers of Congress and the White House. You were, in fact, one of the policymakers who made changes to your forecast, finding that the staff's assumptions around a tax cut was a reasonable placeholder. which gave you greater confidence in the outlook.
Does that approach seem reasonable in the current circumstances? That basically, you know, since the FOMC has been starting to judge some downside risks to the growth outlook, does the election and the results that we have today remove or at least substantially mitigate downside risks to growth? So does it? That's your question?
So I think it's too early to reach judgments here, and I'll tell you why. So staff, the job of staff is to go, you know, and be very nimble and make assessments in real time, much like capital markets do. You know, the markets are pricing in assessments of what policy changes will be made and what their effect on the economy will be.
And staff will do all of that. I think policymakers are going to wait longer to see what the actual effects will be. And so for sure at our December meeting will be.
Staff will present what we know, but the thing is we don't actually really know what policies will be put in place. We know that policies in several areas will change. We don't know how much.
We don't know over what time frame. When it comes to fiscal policy, it takes quite a long time to get a bill through Congress, and I think this year what we're looking at is something that doesn't need to get done until the end of the year and therefore probably won't and won't have any. any economic effects this year, but it'll be more or 25, it'll be 26 or 27. So I think we have time to make assessments about what the net effects of policy changes will be on the economy before we react with policy. That's not to say we won't be doing quite a lot of analysis.
And the analysis we do, by the way, is informed by the best research, the best thinking, the best experts, and there's a lot of research on the effect of policy changes on the economy. We'll make those assessments, but I think we'll be careful about changing policy until we have a lot more certainty. You've spoken before about federal debt as being at unsustainable levels and the potential consequences for growth. Do we get to a point where deficits and debt get so high that it makes your job harder, essentially, that it makes it harder for the Fed to achieve its goals?
So we're not at that point now. I want to be clear that... we're not in any way taking into account fiscal issues when we make our let me say it this way.
The debt issue is not an issue that is guiding us in making our economic judgments. Fiscal policy can, of course, affect the economy. You know, first of all, it's not we do not have a role of supervising the elected branches that do fiscal policy. In fact, it's the other way around.
So we don't give them specific advice. But as I have often said in as all of my predecessors have. have noted the U.S. federal government budget is on an unsustainable path. It's not that the debt we have is at an unsustainable level.
It's not. It's that we're on a path that's not going to be sustainable. We have a very large... deficit at a time when we're at full employment. And I would just say, we know that we're going to need to address that.
And it's going to need to be done sooner or later. And sooner is better than later. But I leave it at that.
In addition to the potential long-term risks that higher deficits and debt present for growth, are there also risks to the functionality of the Treasury market when shocks hit the market? And if so, how might the Fed respond? Well, the functioning of the Treasury market is incredibly important, and it does function very well. It's the most liquid and most important probably financial market in the world, certainly one of the most important. So, you know, we did see some at the beginning of the pandemic, you may remember that the treasury market market loss function because normally normally in an emergency money flies into the treasury market.
But the pandemic was such an unusual event. People people didn't want to own longer term securities. They only wanted to own effectively cash.
And so we had to jump in and and support that. I think more broadly than that, it's just important that that the treasury market. remain well regulated and that companies have an incentive to do intermediation in the treasury market. It's relatively low risk.
It's very important for the economy. And it's important that that be the case. In the March 2020 episode that you're referring to, the Fed ultimately had to step in as a lender of last resort.
Would the Fed do that if there were similar disruptions in the initial issuance of treasuries that was in the secondary market as i recall you know we're we're not a fiscal actor so that that was a situation where we have a we have a mandate that we share with other agencies to to look after the financial stability after financial stability and part of that is if really important markets break down and they kind of all broke down at the beginning of the pandemic they just stopped working and so we set up a series of facilities to backstop those markets, but they actually didn't get used because just the fact that we had the facilities restored credibility and the markets started working on their own. It was remarkable. So in the case of a financial stability event like that or the global financial crisis where really the whole global financial system was at risk given the failure of a number of large financial institutions around the world, in those kinds of things we can use use these emergency tools, but they're not for every event. They're really for financial stability events.
You mentioned that it's a little bit too early to know what policy beyond the remit of the Fed would look like. We don't know exactly what the fiscal picture will look like, but we do know directionally that tariffs are likely to go up, right? Even if we don't know how much, we don't know necessarily if it'll be exactly what was described on the campaign. And I'm wondering how you're thinking about that. about that.
If you, well, go on, sorry. So what matters for us is, we don't stand in judgment over these policies in any way. What matters for us is, to what extent will new policies have an effect on our mandate goals of maximum employment and price stability, and do we need to change our policy because of these changes in order to achieve those goals? And that's, the answer to that question is not obvious. So let's say that there will be some tariffs.
We have no idea what that's going to look like. That's one thing. Another thing is, what about retaliation?
That changes the picture. In addition, that's happening at a time when there could be fiscal policy, which could be supportive of the economy. So what's really the net effect?
We don't take one piece of this. We're looking at the whole economy. In addition, remember, this is way over a $20 trillion economy.
Many, many things affect the economy all the time. It's not that common that changes in government government policy have immediate effects in the achievement of our goals. That could be the case.
And of course, we will use our tools as we're supposed to do to foster the achievement of maximum employment and price stability. That's what we do. That's what we always do.
And we'll do it here. I'm just saying, we're going to be careful to wait and better understand the net effects of these things as those things affect the achievement of our goals. If you look back to the previous round of trade wars under Trump's first term.
The Fed staff prepared a report in the 2018 Tealbook where they basically talked about whether the Fed should be looking through any price increases that result from tariffs and assume that they're, you know, it's a one-time step up in prices as opposed to self-perpetuating inflation or not. And the staff said at the time that the Fed should look through the tariff increases so long as, one, you think it's going to be a one-time adjustment and not a series of adjustments. and two, so long as inflation expectations are anchored.
It's not obvious that either of those conditions will hold the next time around, right? Back in 2018, we had had decades of very low inflation. Now we've had a much more recent experience with higher inflation. And as you point out, there could be a series of retaliations in tariffs and counter-tariffs and counter-tariffs. So are the risks bigger this time that a price shock could...
feed into trend inflation they're different and we're in a different situation the debt situation is has changed substantially uh and you're right we're not uh you know six years ago and such the inflation was really low and inflation expectations were low now we've come way back down but but uh we're not back where we were it's a different situation inflation is still running above two percent we'll take all of that into account i i tell you though the the answer isn't isn't obvious until we see the actual policies. And even then it's not obvious. So I just think we reserve judgment until we actually know what we're talking about.
And I don't want to speculate. I don't want to guess. I think it's more important that we wait and see what actually happens. Last time around, as you suggested, there were mixed consequences.
There were mixed effects. And as I recall, during these previous trade wars, the Fed actually cut rates several times because there were a lot of consequences for growth and investment and confidence. So how does the Fed respond if higher tariffs result in both higher prices and slower growth? Do you have the tools to respond to that? Well, so you're absolutely right.
So in 2000 and I guess it was 19, we cut rates three times, and that was right after there had been fiscal change. stimulus there had been tariffs and so it really was because the net effect of what was happening and and and what was happening around the world too there was global growth was really soft there was a feeling that the US economy was softening we actually cut rates three times I guess beginning mid-year and and that that kind of worked you know that restored confidence we felt at the end of 2019 we felt like that what that had really worked and that And that situation was quite a good one. Of course, then the pandemic arrived and none of it mattered.
So that's the way it happened. But that's exactly my point, though. You know, we had a meeting the prior December, and it briefed us on what might happen. But what actually happened was something quite different. So I don't want to talk about the pandemic.
I just mean the way that played out, I don't think we started that year thinking that it would be appropriate to cut rates three times. So just know that we will do. what we believe is the right thing. That's what we're always going to do.
But I think it's really important to reserve judgment and see how this plays out. We don't even have, we're still months away from a new administration, let alone knowing the real details of what's going to happen and then being able to project what will be the net effects on the economy. Another major factor in the economy in the past year or so, you have said, is immigration.
That immigration is a strong reason why supply and demand have become have gotten closer into alignment. In the past few months, we've already seen big decreases in immigration. What effect do you think that is likely to have on the macroeconomy in the near term? So before I answer that, I do want to say that immigration is a question to be addressed by political authorities using such values as they deem appropriate.
We're looking at the macroeconomic effects and reporting. We're not, it's not a question of judging. We don't have a view on the right level of immigration. That is for the voting public and their elected representatives. Okay.
But what we saw over 2023 and 24 was, you know, a surge in immigration and also a surge in the labor force, and it certainly pushed up economic growth, and it may or may not have had some effect on the labor force. on getting the labor market to work. Mark it back into balance, you know, it'll take time to really understand that, but it's certainly made for a bigger economy. And, you know, we're coming off the back of a severe labor shortage, so there was room at that time for people to get work, and they went to work at...
roughly the same level as non-immigrants went to work. So that happened. Then the rules changed.
The prior minister, the current administration, the Biden administration changed the rules a few months back, and we've seen that come down. These are judgments that get to be made by elected people about what the right thing for the country as a whole is, not by us. You know, but you ask what the effects will be, you will see really there have been two supply side things that have been pushing up U.S. potential output and actual output. One of them is just more workers, and the other one is productivity.
And the more workers part of it is probably diminishing in its effects. And so that won't be something that's pushing up overall output. At the same time, the number of job openings.
has come way down, so it's not clear what the overall effect will be on that. There's about one job opening for every unemployed person now. In terms of productivity, productivity is incredibly important.
That's just output per hour. And if you think about it, higher output per hour is really the only way for incomes to go up over time among the public. And we've actually had, for the first time in a while, a few years of higher productivity, going back five years now.
This is incredibly important and very positive. and we hope it continues, and there's no reason why it can't. I will say, though, that over the past 50 years, if you have one or two or three years of high productivity, it tends to revert to the trend really quickly because it tends to be driven by longer-run things like evolving technology and evolving educational levels and things like that.
So you don't tend to get big increases of productivity that are sustained very often. It's quite rare. although it has happened. I do want to ask you some more questions about productivity, but just one follow-up on the immigration point. So, yes, economic growth is about the size of the workforce and how productive that workforce is.
I asked before about the consequences of decelerating immigration. What happens if the workforce actually shrinks as a result of, for example, mass deportations, which may be in the offing? You know, I'm not going to be comfortable speculating. calculating on potential policies. It's not our job to be a commentator.
No, I'm not asking whether it's good or bad. I'm just asking what does it mean if the workforce shrinks? I think we can do the arithmetic. If there are fewer workers, there will be less work done.
But it gets too close to, you know. I just don't want to go there. This is getting me into political issues that I really want to stay as far away from it. as I possibly can.
All right, so let's talk about productivity. You're right that productivity has been above trend. I think eight out of the last nine quarters, GDP growth has been above trend, largely because of productivity.
To what do you attribute that? So this is something people will be arguing about. decades from now, but I would give you four or five candidates.
So one of them is that in the pandemic, people started a lot of businesses, a lot of businesses, and many of those fail fairly quickly or don't turn out. turned out to matter. But when there's a burst of activity in starting businesses, there tends empirically to be higher productivity, because many of these are technologically driven, or the use of technology is pushed out into the society.
So that's one. Another is that unlike a lot of our, for example, European countries, where they kept the labor force in place, here, people had money from government transfers and also from forced savings. They couldn't travel.
They couldn't go to restaurants. And so they quit their jobs. and they went and found other jobs. And so there was this huge reallocation of people from jobs that they actually didn't want that much to jobs that they wanted more.
And we think that's a real factor in this. In addition, given the tremendous labor shortages, a lot of time and effort went into supplementing people's technological capabilities in ways that substituted for labor. So there was a lot of that. Can you give an example of what you mean? Thank you.
Sure. I mean, just call centers. You know, there's lots of ways to, you know, you can now do call centers, so they're much more automated. We're getting to a place where call centers will be done by, you know, by artificial intelligence probably.
But also just, you know, we go to a fast forward. food restaurant, which of course I never do anymore at my age. But if you go to, I'm told, if you go to a fast food restaurant, you know, a lot of that is, and I've seen this in airports actually, you don't necessarily need somebody to take your order.
You've got a nice menu, you punch a screen and the food appears. So, and there was tremendous incentive to do that when there weren't any workers. You saw stores that didn't have very many people in them and that sort of thing. So I think that's an example. that we saw.
I don't think I heard you mention in that response anything about like generative AI. I'm wondering, do you think that that could be part of a new era of productivity acceleration? You know, artificial intelligence, pre-generative AI is used all the time by big companies and modest-sized companies too, and it's certainly having an effect on productivity. Generative AI is just in the early stages.
And certainly the companies and the banks in particular that we deal with are not really using it yet. They're not really deploying it yet, and they're very aware of the risks in it. But over time, you can find estimates from credible organizations that generative AI will create a burst of productivity, a large burst of productivity in the next decade. You can also find skeptics.
very credible skeptics who think that that's hugely overdone. The history has always been that there's innovation, there's technology, it doesn't show up in the productivity statistics at all, and then it shows up a lot, but much later. So it's usually later and bigger than we expect. That may be the case here, because this really, it is an extraordinary set of developments, and the ability to replace a lot of work that's currently done by humans, including well-educated.
humans is obvious. How does that influence your thinking about monetary policy? You know, it really doesn't in the short term. We keep extremely close tabs on the labor force.
If you think about it, monetary policy is trying to move, trying to keep the economy at maximum employment and price stability, trying to use our tools to do that. And that's a meat, you're thinking, you know, two or three years out, the kind of things that drive longer run productivity. and that matter for the longer run are really not tools that are in our hands. The best thing we can do for technological evolution is to create macroeconomic price stability, by which I mean price stability and a good, strong, stable labor market so that people don't have to worry about inflation, volatile or high. And so that's the most that we can do, I think, the best thing we can do.
You mentioned that a lot of the financial institutions that you regulate or you oversee are also... also experimenting with these new technologies with AI. Given that so much AI is not explainable, you know, it's sort of a black box. A lot of the time, the software engineers or others who work with it cannot explain how it came to the decision that it did. Does that make it harder to regulate in the sense that there might be blind spots for certain kinds of systemic risk, right, if banks don't necessarily know how they're coming to the decisions that they're coming to?
And there could be some... hurting that may not be obvious. It raises just that kind of question.
Many different questions like that. I would say the good news is in terms of the institutions we supervise, we understand that, but they understand it very well. I think people are treating AI very carefully, and they're not just loosing it, at least among the regulated banks, they're not just loosing it on their customers. and on the problems they face.
They're being very careful and thoughtful, we believe, or at least I believe, about how they implement it, doing lots of work, but they're keeping it carefully under wraps and not deploying it so much yet in their business. And everyone's working to understand the technology, where it's going, what it's capable of, what the risks are. And you mentioned that.
It's making decisions, and we often don't know why it makes these decisions. these decisions. So how do you get after things like discriminatory outcomes in lending if you don't know why it's making its decisions? So it's going to be challenging, but I would say we're well aware of that, and so are the banks.
You have a five-year strategic review coming up. How has your experience over the last five years made you reevaluate, if at all, the strategy adopted in 2020? You know, we...
We had a strategic review and we changed, we have a document called our statement on longer run goals and monetary policy strategy. It's one page. The type is getting really small, so I think we're going to go to two pages next time.
But we were, remember, that was the first time we had a review. That was the era where for a long time after the global financial crisis, rates around the world were incredibly low. For example, major European countries, their longer-term debt was yielding negative 30 basis points and things like that. How do you even understand that?
So rates were very, very, very low in the economy. And that's a problem for central banks because we can't cut rates meaningfully below zero. And cutting rates is what we do to support the economy.
So we actually like having significantly positive interest rates like we do now. All right. So what we did is we said there was a whole literature on how you deal with, in monetary policy, how you deal with having interest rates stuck at the low end. at zero, in effect, and you can't cut.
You're kind of stuck. You can't support the economy. You get into this trap where growth is low, inflation is low, unemployment is high, and you can't get out of it without fiscal policy, and fiscal policy is challenged.
So there was a lot of research done on it, and we took a pretty mainstream, fairly vanilla approach to that, which is, I won't go into all the details, but it was to have a make-up strategy so that we would promise ex ante to let inflation run a little bit high if it were running too high. too low. And the thought was, if people believe that you'll do that, if that's credible, then inflation won't run low. So that's all we did.
Four months after we announced that the pandemic hit, and then inflation a year after that came up. So the change, you know, 20 years of low inflation ended sort of four months or a year and four months after we did the framework. So the question we'll be asking in this framework five years later is really it revolves around how do we think about the problem of the the zero lower bound now. Now the interest rates are substantially higher than they were. Substantially higher.
Is that going to be a... So the question you're asking is, do we... In a world where we review the framework every five years, shouldn't we change the framework to reflect that interest rates are higher now so that some of the changes we made are probably not necessary or in any case shouldn't be the base case anymore.
They might be a case that we have that remedy at the... handy, but at the same time, the base case should be more like a traditional reaction function where you don't promise an overshoot, you just target inflation. We haven't made any decisions, but those are the questions we'll be asking. You mentioned the prospect of long-term rates being higher, the neutral rate being higher.
You've said many times when asked by journalists, among others, about how we know when we fit the neutral rate that we know it by its works, right? Which almost sounds like ecclesiastical or something. How long does it take to evaluate whether we've hit it?
When do we know? If there are lags between the time that we hit the neutral rate and then we can see it in its works, does that increase the risk for policy errors? Let me just take a second and explain. So we move interest rates up and down, but what is high and what is low?
you know, compared to what is the question. You have to have an estimate of something that's kind of neutral, something that in a level of interest rates that's neither pushing the economy up, supporting it, or dragging it down, which would be higher restrictive policy. And we fully acknowledge that there is no, there's no sort of either theoretical or empirical way to arrive at an estimate of what the neutral rate is that you can really have a lot of confidence in. So, what does that argue? for it.
It argues for moving carefully. So in our current situation, we feel like our policy is restrictive. We can't say exactly how restrictive it is. By that, I mean it's weighing on economic activity and lending, hiring, and all that, because the economy was overheated, and now it's cooling down, and it's moved pretty much as we had hoped it would, which is that we've had a gradual cooling in the labor market.
Inflation's come down a lot, and the labor market's not quite stabilized, but it's in a good place. So it's actually worked very well. So we've started the process of cutting rates and moving back down toward neutral. I think the right way to find that level is carefully and patiently.
You don't want to move too quickly. You may have to move quickly because if the labor market were to begin to deteriorate in a serious way, we would want to get ahead of that. But we're not seeing that.
So I think what it tells you, as Catherine pointed out, we think that policy works with long and variable lags. Milton Friedman. Policy does have effects on economic activity, hiring and all that, but with long and variable lags. And that makes it all that much more difficult to know how far to go.
I think in this situation, what it calls for is us to be careful, move carefully, and as we sort of reach the range of, or get... near the plausible range of neutral levels, it may be the case that we slow the pace of what we're doing, just to increase the chances that we get this right. You know, we're navigating between, as I mentioned in my- remarks, the risk that we move too quickly, the risk that we move too slowly. We want to go down the middle and get it just right so that we're providing support for the labor market but also bringing and helping enabling inflation to come down.
So going a little slower, if the data let us go a little slower, that seems like the smart thing to do. So you say that interest rates are still restrictive right now. But if you look at the CPI numbers that have came out recently or today's PPI numbers, you know, core CPI is over 3%.
I think When I looked, the one-month rate is higher than the three-month rate, which is, I believe, higher than the 12-month rate. The economy is booming. The market is on fire.
Core PPI came in above expectations today. Business formations are up. You know, why are we cutting rates? It seems like the economy is doing pretty well.
The economy is doing very well, and that's a great thing. We totally welcome that. But look at the labor market.
So what we've seen is a lot of the great data. data that we've seen has been because of the expanding supply side. Unemployment has moved up from 3.4 to now 4.1. By a significant number of indicators, it's still cooling.
Our mandate is not for growth. It's for maximum employment and price stability. But on the inflation data, so we do see inflation continuing on that bumpy path I mentioned.
Today's reading was slightly more of an upward bump than we had expected. But I would would say the broader trend, if you look back over the last 18 months, we think that's still intact. We're going to tear this report apart and look at all the details.
We'll get another report in December before the December meeting. We'll get another labor report. We'll get the final numbers for October by the end of this month, and we'll look at all that, and we'll make our assessment.
We do believe policy is restrictive, and again, I would point to the labor market, but it's not clear how restrictive it is. That's a very fair point, and we're well aware of that. And I think we're mindful of the risk that we go too far too fast, but also of the risk that we don't go far enough. It doesn't seem like that's where we are either. It seems like we're right where we need to be.
I mean, I do feel like the U.S. economy is in a very good place, and I feel like our policy is in a really good place. We've got a lot of space to cut rates if the economy weakens. In the meantime, we can take the process of reducing rates. we can be careful about that and that's what we're planning to do.
I know we're short on time so one last question. There has been an idea floated to announce who will succeed you as Fed Chair in order to possibly exert more influence over monetary policy. A sort of shadow chair two popes idea. Your term on the Fed's board runs until January 2028. Beyond your term as Chair, which ends in May 2026, under what circumstances, if any, would you consider remaining on the Fed's board after your term as chair ends, as Mariner Echols did for a few years after he was no longer chair? So, you know, I would just say I'll certainly serve to the end of my chair term, and that's really all I've decided and all I'm thinking about.
We're very focused just on, you know, getting the job done for the American people. That's enough of a job for us to do, and we're focused on that. All right. Well, thank you so much, Chair Powell.
I really appreciate it. And thank you all for attending. Thank you, Catherine. We now have some closing remarks from President Logan.
Good afternoon. Thank you, Catherine, and thank you, Chair Powell, for joining us this afternoon for such an engaging and timely conversation on the national and global economy. Jay, it's just always great to see you. And I'm especially excited for the opportunity to bring you here to Dallas, to introduce you to our community, and for you to see the abundance of opportunity the great 11th Federal Reserve District offers. I've had the great privilege of working alongside Jay for many years now.
And one of many... One of the things I've admired is his ability to communicate with audiences of all sizes, from all backgrounds, and on intricate topics with such depth and clarity that everyone comes out of the room learning something new. This is just a small part of what makes him such a great leader, and I'm thankful for the chance to see this work in action on a regular basis like we all did here today, and to work alongside him to support the Federal Reserve's mission and in service of the American people.
people. As the Federal Reserve navigates a new economic landscape, I could not think of a better leader to relaunch the Dallas Federal Reserve Bank's Global Perspective Speaker Series. We initiated the Global Perspective Speaking Series in February 2016 to provide the community an opportunity to connect with thought leaders in policy, academia, and business for a conversation on key economic issues.
Community engagement is a priority for us at the Dallas Fed, and we appreciate any chance to grow our local presence, to bring new perspectives to the table, and learn more about economic conditions across the district. And we're grateful for the opportunity to bring new, diverse perspectives to the region and learn how these insights shape their understanding of the region, national, and global economy. These conversations are also a critical part of building community partnerships, and I would like to thank our partners at the World Affairs Council and the Dallas Regional Chamber for co-sponsoring today's great events.
Community partnerships played a valuable role in bringing this speaker series to life, and I'm excited to officially announce the continuation of Global Perspectives in 2025. On January 16th, we'll be partnering with the United Way of Metropolitan Dallas to bring KindSnacks founder and executive chairman Daniel Libetsky to Dallas. I'd especially like to recognize Jennifer Sampson and her team at the United Way. Our two organizations have partnered together on a wide range of events for a long time.
time now. I think as of this year, a hundred years we've been partnering. And I look forward to working together once again for this special Global Perspectives evening in January. We'll also partner with other community organizations to welcome former President and CEO of the Southwestern Graduate School of Banking at SMU and now President of the Kansas City Federal Reserve Bank, Jeff Schmid, back to Dallas on April 16th. Governor Adriana Kugler from the Federal Reserve Board of Governors.
We're going to bring her back to Houston on October 9th. Governor Kugler was a professor of economics at the University of Houston for several years, and she continues to maintain close ties with many leaders in our district. And Gretchen Watkins, president of Shell Oil Company, we're going to be bringing her to Houston on November 18th, and that will bring together our 2025 series. More information will be available soon on our website, and I hope to see you all there.
there in Dallas and in Houston for these special events in 2025. So before we conclude, I'd just like to make a few acknowledgments. First, an administrative note. There will be a reception in the Crystal Terrace just outside the theater doors, featuring light bites and some great conversation. I hope you'll be joining us for the reception. And importantly, there just are so many people to thank for their work in making today happen.
And first I'd like to thank our team at the Dallas Fed. It's an enormous amount of work to put together an event like this and I'm grateful for all of their work. I'd also like to thank Liz Brailsford of the World Affairs Council and Dale Petroski of the Dallas Regional Chamber. and both of your teams for collaborating with us to bring this event to the beautiful Fair Park. These partnerships are important to us at the Dallas Fed because they help make events like today possible, allowing us to serve the public by bringing some of the best in the world to the public.
some of the perspectives that inform and influence monetary policy here to the 11th District. Thank you to St. Marshall of the Dallas Regional Chamber Board for kicking off today's event. And thank you to Catherine Rample of the Washington Post for moderating a dynamic conversation. this afternoon.
And most of all, thank you to Chair Powell for sharing his perspective with us, and I'd like to thank him for his leadership over the last several years. Our economy is in a very different place today than it was two years ago, and that is because of his unwavering leadership. And finally, thank you all for joining us to relaunch the Global Perspective Speaking Series.
I hope you enjoyed the afternoon, and I look forward to seeing you in the reception. Thank you very much.