Editors note: click on each paragraph to jump to the corresponding part of the video. Please forgive that the timestamp is a fuzzy match.

Summary

Opus

In an interview, Fed Chair Jerome Powell emphasized that while inflation has been coming down, the central bank wants to be more confident before cutting rates. He stated, “we haven’t reduced interest rates. What we’ve said is we want to be more confident before we take that step.”

Despite keeping rates at 5.3%, the highest in decades, Powell highlighted that the economy saw “very strong growth” in 2023. He remains optimistic about the labor market, with unemployment under 4% for more than two years.

On the balance sheet, Powell said the Fed is slowing the pace of runoff to avoid being disruptive, emphasizing that it’s “not at all in any way related to a concern about the economy.”

While acknowledging challenges in the commercial real estate sector, particularly for small banks, Powell believes the banking system is “definitely in a good place” overall.

The strong performance of the U.S. economy compared to other developed nations gives the Fed “the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates,” according to Powell.

GPT4

In a conversation with Kai Ryssdal, Fed Chair Jerome Powell outlined the Federal Reserve’s deliberate pace in adjusting monetary policy, despite signs of economic buoyancy. “We haven’t reduced interest rates…we want to be more confident before we take that step,” Powell shared, indicating a cautious but optimistic outlook. He referenced the core PCE inflation at 2.8%, aligning with Fed expectations, as a signal that policy moves must be data-dependent. Powell highlighted a strategic stance on interest rates, emphasizing the necessity for further inflation moderation before considering rate cuts. Despite the economy’s “very strong growth” and a resilient labor market, with unemployment below 4%, Powell stressed the importance of patience and data reliance in policy decisions. He reassured that the Fed’s balance sheet strategies aim for transparency and stability, not indicating concern but rather prudence in monetary policy. Powell’s dialogue with Ryssdal underscores a commitment to maintaining economic strength while closely monitoring inflation trends, prepared to adjust strategies as needed for sustained growth.

Transcript

Kai: Good morning and good morning Chair Powell.

Jerome Powell: Good morning.

Kai: Thank you for taking the time. We have give or take 45 minutes, so I’m going to jump right in with the data of the morning. PCE came out this morning, you had it yesterday. 2.8% at the core. Here’s my question - you saw it yesterday, what was your first thought?

Powell: My first thought was that the report that came out this morning is pretty much in line with our expectations. So core PCE, as you mentioned, is at 2.8% on a 12-month basis. Headline is at 2.5%. That's what we were expecting, and it's good to see something coming in in line with expectations.

Kai: So as you and your colleagues at the Fed and at the regional banks have been saying, we want more data, more good data. Is this in that bucket?

Powell: Well, let's take a step back. Over the course of the second half of last year, we got what I would definitely consider good data. Over the course of seven months, and then in January of this year, we got a very high reading, much higher reading on inflation. And so February is lower, but it's not as low as most of the good readings we got in the second half of last year. But it's definitely more along the lines of what we want to see.

What we said is that we don't see it as likely to be appropriate that we would begin to reduce interest rates until the committee, the Federal Open Market Committee, is confident that inflation is moving down to 2% on a sustained basis. And what do we need to get that confidence? It's just more good inflation readings like the ones we were getting last year.

Kai: With all possible respect, you all have been saying the same thing for now six months, right? We want more good data. What do you suppose it does to the listening public and to the professionals who are listening to this when you keep saying the same thing?

Powell: So we're steady, our hand is a steady hand in this. We've been saying all through last year and this year that we're making progress. We've noted that progress, we haven't overreacted to it. We didn't overreact to the good data we had in the second half of last year. You heard us saying that this is good, but we need to see more.

And you won't hear us overreacting to these two months that are higher. The reason that's important is that the decision to begin to reduce rates is a very, very important one, because the risks are two-sided. If we reduce rates too soon, there's a chance that inflation would pop back up and we'd have to come back in, and that would be very disruptive, that would not be a good thing for the economy. There's also a risk that we would wait too long, and that that would, you know, in that case it could be unnecessary, unneeded damage to the economy and perhaps the labor market.

Kai: Why would it be terrible if you reduce interest rates by, you know, 25 basis points, quarter percentage point, and then the data changes and you have to change your mind? Why is that terrible?

Powell: It wouldn't need to be terrible, and you're right, we always have to be humble that we, the outlook is always much more uncertain than most people think, including us. The economy can and often has recently performed in unexpected ways, so we're ready for that. And if that's what happens, that's what we'll do.

But it's important to get this right. The other thing though is, with the economy, you know, growth is strong right now, the labor market is strong right now, and inflation has been coming down. We can and we will be careful about this decision, because we can be.

Kai: Say more about it, because you can be, you got nothing but time, basically is that what...?

Powell: No, the economy is strong. We see very strong growth, we had growth for last year over 3%. Many forecasters see growth coming down to around 2% this year, that that's about what roughly what the first quarter looks like. That means that we don't need to be in a hurry to cut. It means we can wait and become more confident that in fact inflation is coming down to 2% on a sustainable basis.

Kai: So this is kind of a subjective question, but then why do you think people are screaming, not for your heads, but close, but for you to cut interest rates so much?

Powell: Well, I mean we have, I would say we've divided our critics into sort of equal-sized piles at this point. There are plenty, there's plenty of people who think that, you know, that we shouldn't be cutting now. But the point is this - we haven't reduced interest rates. What we've said is we want to be more confident before we take that step. And I think I actually think we are, monetary policy is well-placed to react to a range of different paths for the data. And that's really what you want, you want to be in a position where you can react not just to the base case, but if you get a case where inflation progress slows or where the economy weakens, you're also in a position to react to that, and we are.

Kai: When you sit around the table at the Fed, or on your Zooms or however you're doing it now, do you have conversations about how your desire to be more confident is received by, yes, the markets and analysts fine, but everybody else?

Powell: So I'd say, yeah, the answer is yes, of course. But the main focus is on getting it right, getting it right is the most important thing by orders of magnitude. If you get it right, then everything else falls into place.

So I mean, you're talking about market reaction and things like that, you know, we look at that of course. But ultimately, monetary policy works with a lag, and you want to make the right decisions. And you want the committee to be in a place so that if things work out differently than the base case, you're not out of position. And I, as I said, I think we're in position now where we can handle whatever case comes.

Kai: Can we talk briefly about that first cut, which you mentioned, right? That's going to be significant. It came up at your last press conference after the meeting. How important is unanimity to you on that?

Powell: Unanimity as such? So I don't know any Fed chairs who were hoping for dissents. It's not something you want. But at the same time, what, the way I think about it is this - you talk to people, I talk to all the people on the committee before each meeting in depth, and you listen to people, you hear them, you try to get in their thinking and understand, and you try to incorporate that to the maximum extent you can in the decision and the way we talk about it.

And if you do that, you know, people generally feel they feel consulted, they feel that their views are being considered and reflected, and they may choose to dissent. That happens all the time, it's not a problem when people dissent, it happens, and you know, life goes on.

Kai: Do you literally like go knock on their doors or call them on the phone? Like you call Mary or whoever?

Powell: Yes, I have, well I have scheduled calls with every voter and non-voter on the FOMC before every meeting. And not infrequently I'll have another round of calls before that. And not infrequently I will have just calls, I just talk to various people on the committee during that six or seven-week intermeeting period.

Kai: Let's talk about the Fed as an institution then for a second, since we're talking about the people and how it all happens. It is, some may argue, one of the significant economic institutions in this government that actually works, right? Congress is a whole different deal, the president is concentrating on his re-election campaign.

The Fed as an institution works, and you said to Scott Pelley I think on 60 Minutes, you know, "Integrity is all we have." How mindful are you of the Fed's credibility at a time which is precarious for you?

Powell: So the Fed is, to me, is a very important American institution that serves all Americans on a non-political basis. And what people can expect from us is that we will do our work with painstaking care, we'll understand the theory, we'll understand the data, we'll think about the outlook, and we'll make our decisions based on that and on nothing else.

We will not be making decisions, particularly about political calendars or anything like that. We'll, all we, you know we don't always get it right, no one does. But that's what we'll do. So integrity is, it is, is everything for ultimately in life, integrity is everything. But for us, integrity is everything because even if, even when we don't get it exactly right, people have to believe, and it's true, that we're doing the absolute best we can in a very transparent way, based on the data, based on our understanding of the economy and the outlook for the economy.

It's tremendously important that people understand that about the Fed, and that we're working to serve all Americans, not any particular set of Americans or political parties or leaders.

Kai: You've talked previously about humility. You've said the word humble already this morning once. I was talking to Neel Kashkari at the Minneapolis Fed the other day, and he said, you know, this economy is really tough to diagnose, so it's hard for us to know what's going on. Talk to me about humility in the face of, and we were talking about this backstage, about an economy that is still really, really hard to figure out what's going on.

Powell: Yeah, the pandemic era has of course been full of surprises. If you go back to the beginning, I think almost all of mainstream macro analysts thought that this, that this was different and that because of the obvious supply-side problems, the collapse of the supply chains and things like that. There was a group who didn't diagnose it that way, but if that's the case, then we thought that our very dynamic economy would recover pretty quickly, that people would go back to work, kids would go back to school, and the economy would be fine and there wouldn't be any much of a need for us to intervene except sort of during that early period to get the economy, you know, keep it from collapsing during the actual intense phase of the pandemic.

So that didn't happen, inflation came up, stayed up, and it took a long time to heal. And then it didn't really heal, the supply side didn't really heal in 2022, and we were thinking well, maybe it's not going to heal. And then it did, and you, so the labor force, labor force participation, workers came back into the labor force in 2023. And also the supply chains healed in 2023, so right about the time we were thinking maybe this isn't going to happen, it really happened a lot in 2023, which is part of the story of why the economy did so well last year, was supply-side healing.

So now we have, I mean it just, it's been surprising over and over again. So I think we have to be unusually humble about our ability to foresee the future and be ready for different plausible outcomes.

Kai: I've told you this story I think the last time you and I spoke about a conversation I had with Yellen, it was between her time as chair and Treasury secretary. And I asked her why the Fed hadn't been able to get inflation up to where it wanted, she wanted it to be, where the committee wanted it to be. And she literally looked at me and went, "I don't know." And I guess my question is, would it be a bad thing for you to say, "We don't know, we're doing the best we can"?

Powell: So we say that all the time in one way or another. I'll give you an example - we had high inflation in January, somewhat less high inflation in February, and we've been saying that we expect inflation to move down to 2%. But on a path that is sometimes bumpy.

So the question then is, are those just bumps or are they something more than bumps? Is inflation, is progress on inflation going to slow for more than, you know, two months? And that's a question, and honestly, we're just going to have to let the data tell us that. There isn't anybody who knows.

And so we're, our position is we don't know. We'll tell you what we will do if inflation does come down, and that's sort of the base case, that is what we expect. We expect inflation to come down on a sometimes bumpy path to 2%. But if that doesn't happen, then obviously our rate policy will be different. And we, for example, we can, we can hold rates where they are for longer, and that's what we would do of course, if inflation doesn't come down, if we don't see the progress we're looking at. So we kind of say that all the time.

Kai: Consensus now is rates are going to be higher for longer, they may or may not come down this year depending on what the data says. Do you think this economy is ready for a four and a half-ish percent, inflationary, sort of economy, right? Not inflation 4%, but your rates at, you know, 4.6, which is where your projections have them?

Powell: So this is one of the things, you know, we've had our policy rate at 5.3%, which is the highest rate in more than decades, for some time. And all through the course of 2023 we saw very strong growth. So it's, and that's partly because we, it's this has happened in a context of supply-side healing, which makes, makes its own growth, you know, make, when potential output goes up.

So we don't really know where rates are going to go back to when this whole thing is over. For many years if you go back to before the global financial crisis, it wasn't unusual to see the longer-term rates in the fours. And so are we going to go back to, whereas between the global financial crisis and the pandemic, rates went lower and lower and lower, and it wasn't unusual to see in other countries long-term rates below zero, even in Europe they never went that low in the United States, but they went very low.

So are they going to go back up to those higher levels of the pre-global financial crisis? We really don't know. We, so we think that the factors that led rates to really came down over a 40-year period, mostly related to big, slow-moving things like demographics, aging population which saves more, and productivity, low productivity and things like that. Those things don't jump around, they're sort of slow moving objects.

But the truth is we don't know. My own expectation is I don't think rates will go back down to the very, very low levels they were at before the pandemic. But where they will turn out to settle out, it's hard to say. This economy doesn't feel like it's suffering from the current level of rates, although in if you look at things like inflation-sensitive spending, then those parts of the economy are really feeling the high rates.

Kai: Not to pick a scab, but what I hear you saying is, while inflation may or may not have been transitory, rates are not actually going to be transitory, they're going to be higher for a while and people just need to get used to that.

Powell: They, that might be the case. I don't, no, I don't think rates will go back to the very historically low rate levels that they were at before the pandemic hit. I do think rates will come down from, or likely to be lower than they are, at least short-term rates are lower than they were right now. But I mean, we're going to let the data, we're going to have to let the data tell us the answer to that.

Kai: I want to go to the labor market for a minute. Something you said at your last press conference sort of caught a lot of people's ears, and that was when you said, "We are very attentive to both sides of the mandate," which is to say full employment and stable prices. And people picked up on that because you had been very keyed in on the price stability aspect. And I guess I wonder now why you're becoming more aware or publicly saying you are more aware of unemployment?

Powell: I'll tell you why. So if we have, we have two mandates as you know, maximum employment and price stability. And when one of those mandates is far from its goal, then, and the other one isn't, you focus on the one that's far from its goal. And that's actually in our document that codifies the way our framework.

So that was the case from the middle, late 2021 until, as until inflation started coming down. And so we focused very hard on inflation, and you heard us talking about inflation. But headline inflation just a year ago was, was I guess 5.2% on a 12-month basis, now it's 2.5%. And core I think has come down from 4.8 to 2.8. So you've seen really significant progress. Just as a natural thing, then the work's not done, our goal is 2%. But as that happens, the risks to the two goals come into better balance, they're coming into better balance. And that means we are a dual mandate bank under law, that means that we now, we now that that thing we were doing, we were adjusting, thinking about inflation, that's no longer appropriate. So we're thinking about both, we're thinking about the risks to both now.

And we should be, that's our job under the law. And so, you know, we, I, we're very committed to getting inflation down to 2%, having it down to 2% is critical if we're going to have the kind of long expansions that really benefit all Americans in the workplace. At the same time, if we were to see unexpected weakness in the labor market, then that's something that we would be looking at carefully and could draw a policy response as well.

Kai: Clearly, yes. What's the monster under your bed? What keeps you up at night, other than inflation? You don't get to say inflation.

Powell: No, I would say this - we are at a place where the economy is strong, without question. The labor market's in a good place, we've got inflation, sorry, unemployment under 4% for more than two years now, for the long time in 50 years. And we've had progress on inflation. So we want to use our tools in a way that keeps the strength in the economy and in the labor market, but allows for further progress in inflation. That's our focus.

And you know, we clearly have a chance at that outcome, and you know, we're all very, very focused on doing everything we can to deliver that outcome. It would be a great outcome for the American people, and it would be testimony to how unusual the circumstances are.

Kai: Soft landing, transitory - words that I imagine you don't let be said in your presence very much. Here's another one that hasn't been said at a press conference that you've had since December - recession. Do you think a recession's off the table?

Powell: So there's always an unconditional probability of a recession in the next year. And so the real question is, if you look through history, it's not possible to rule a recession out for a long period of time. So granted, but you know what I meant, right?

The real question is, is the possibility of a recession elevated at the current time? And I would say no, I don't, and I don't see forecasters disagreeing with that. Growth is strong, as I mentioned, the economy is in a good place, and there's no reason to think the economy is in a recession or is at the edge of one. But humility understood.

Kai: Last time you were on the hill, somebody asked you whether there was going to be, whether you were going to come out and declare victory, you're going to say yeah we did it, we're done. And you said absolutely not, that's not what we do. Will you not at some point though, when you get inflation to 2%, say inflation's at 2%, we've done our job, things are stable and life is good?

Powell: I don't want to speculate about that, you know, we'll jinx it. I'm a superstitious person. But no, look, we'll always, we'll always say, we'll always tell you what we're seeing in the economy. And if we get to that place, that'll be great, that'd be a great outcome for the public, that's the main thing.

Kai: We talked very briefly backstage about after the Fed, what you're going to do, because you have two years left, give or take. As we sit here in the Yellen Conference Center at the San Francisco Fed, where do you think the Powell Conference Center is going to be? And what do you think your legacy is going to be? First line of your New York Times obit?

Powell: I'll tell you the thing that I care about the most, and is the Federal Reserve as an institution. As I mentioned, is an incredibly important American institution, especially right now because, you know, we are that place, we aspire to be that place that transcends politics, divisive politics. And I think in a way we are helping hold this thing together by doing what we do the way we do it. And I, I feel accountable and responsible for the institution and delivering it to the next generation of leaders and people in a way that it can still serve the American public the way the Fed does.

Kai: So I wasn't actually going to go to politics this morning because you have a well-practiced answer to that question. But I feel like I kind of have to now that you brought it up twice. It is possible, that the Fed is likely even, that the Fed is going to become more politicized this year.

And the first time you and I spoke in 2018, you were in the crosshairs of the president and the administration. And I asked you about it, and you said, you know what, control the controllable, can't do anything about it. So the question is not what are you going to do about the politics of it, the question is what is your fear for the economy if the Fed becomes politicized?

Powell: It just wouldn't, we wouldn't be the Fed. And but the good news is we are the Fed. You look at other countries basically. And what you see is there's no credibility, credibility on inflation and on sticking to your knitting is everything. Because if people believe that you are, that you will accomplish your goals and that you won't deviate from them for reasons like that, then it'll be easier to do so. Markets will react appropriately and in people's thinking, inflation should be around 2%, and if that, if they think that way, then it probably will be around 2%.

If you look at other countries, at I think of more emerging countries where they have weaker independence or a lack of independence, it's just, you know, it's, it's hard to have price stability or maximum employment. So that's what would happen if that were to happen. But it's, I'll insist upon saying that's not the world we live in.

Kai: Fair enough. One more question along those lines and I'll leave it be. You don't comment on fiscal policy, this is not a question about fiscal policy. It's a question about what the Fed will do if our current fiscal path, which many have called unsustainable, including Chair Yellen when she was chair, and in the interim. What do you do if our fiscal path continues? What does the Fed have to think about?

Powell: We're always going to do what we need to do with our policy tools to achieve the goals Congress has assigned to us, and that means maximum employment and price stability. So we're not going to be thinking, "Gee, we shouldn't raise rates for fiscal reasons." We're never doing that.

We're always going to use our tools and we're always going to assume that fiscal authorities can run their side of it and can get it under control. And I, I mean, I think it's, what I said and what Ben Bernanke said and what Janet said, and I'm sure Alan Greenspan said before him, is we're on an unsustainable fiscal path. That's an uncontroversial statement. And the sooner we get back on that path, the better.

Kai: A word here about the balance sheet. You said you're going to slow the runoff and sort of keep an eye on things and how they go. Does it suggest a worry about the economy that you're going to slow the run off of the balance sheet?

Powell: Not at all. So we published, the thing about the balance sheet is we want to be highly transparent and predictable. It's not the main story about monetary policy, the main story is interest rates.

What happens is when we get into a very difficult situation like the pandemic or the global financial crisis, we buy Treasuries to lower interest rates and to support the economy. And then we're left with a bigger balance sheet, and we start to then, when the time is right, let it run off and shrink back to where it needs to be.

So that's what we're doing. And what we said was at a certain point we would slow the pace. And the reason is, it's moving down quickly, we've decreased the size of the securities portfolio by a trillion and a half dollar over the course of the last while, year and a half, not even year and a half. And so we, we've said that we would slow the pace.

And what we're trying to do there is try to actually get further without being disruptive. The last tightening cycle for the balance sheet ended when we suddenly found ourselves that we'd gone too far and it was very disruptive to markets, and we had to buy Treasuries to create more reserves in the economy.

So we, this time, we tried to learn from our first experience with shrinking the balance sheet. And this time we said we would slow at a certain point. But that's, we're going to get to the same point or even lower than we would have. And it's not at all in any way related to a concern about the economy. It's our plan.

Kai: On that word transparency, which you've mentioned a couple of times, and on your policy and your predecessor's policy and those of the committee and the Board of Governors of transparency and giving forward guidance and letting everybody know what you're thinking and what your plan is - why?

Powell: So this, the old school was tell them nothing, you know, be mysterious about it. And then a bunch of scholars 40 years ago, people like Alan Blinder and others, thought about it and said, you know, if the public understood your reaction function, the way you would react to different kinds of data, then that'll make your job easier. Because markets will, they'll go "Oh, I see, the data came in, let's say some data comes in hot, the Fed will do X." So we'll react that way.

So in effect, the markets and the public will understand what you're doing is a good thing. And that was very novel. So that so the path went from tell them nothing, the Fed didn't even announce what it did at an FOMC meeting until 1994, the first post-meeting statement saying "Hey, we raised rates" or "We didn't" was 1994. So from there you have a straight line really of increasing transparency to the point where you are now, where you see a lot of transparency.

Some people say it's too much, but the, that's the idea. And I think you've gotten to a place where we try to be so clear in what we're doing that the public will understand what we're doing and why. And that actually helps our policy be more effective.

Kai: Humor me - what happens if, in, well everybody's anticipating a cut in June, but what happens if you guys out of nowhere came out and at 11:00 Pacific time, I know it's different for all of you in different time zones, the statement came out and said we cut 25 basis points today without having given anybody a heads up? What do you think happens?

Powell: Nothing good. I mean, I think we would seriously, well "Yay, rate cut!" No, no, but we would, you know, look, our, we are careful, thoughtful. We're a steady hand. If we did things like that it would be very much not the way we do business.

Kai: No, it wouldn't. But play it out for me, what's supposed to happen?

Powell: Seriously, humor me. I think if we did something like that, markets would would say "We thought we understood the Fed. We've spent years..." Someone would go on TV and said "I've spent 30 years watching the Fed and I don't understand this at all. Why'd they do it?" In other words, doing an off-cycle rate cut at a time like that, it's just something that would never happen.

I mean, if there were a reason... So we, you know, when the pandemic hit, all bets were off. We did two off-cycle meetings in one cycle, and then we canceled the actual meeting. So just, and look what happened then.

Kai: Well, that was, that was because there was a pandemic, that was what needed to happen.

Powell: That's what needed to happen, do you worry that the Fed gets covered too much? Especially now when we're all trying to parse your every word, gets covered too much? Like a horse race kind of, there's a little bit of "Who's in front? Poll say this, what are they going to do?"

Powell: Yeah, I do worry about that. You know, I think that the things that really matter for our economy over the long-term are not the Fed's interest rate decisions, that which really have no impact on the, over the things that matter on the... Say that again, seriously, say it for the cameras.

The things that matter for the United States economy over the medium and longer term are not the decisions the Fed makes. The Fed tries to guide the economy to maximum employment and price stability through a business cycle and can react, we do critical things during crises, we're very, very important in crises.

But things that add to the productive capacity of the United States, things that give people more skills so they can contribute more to the economy, things that increase productivity so that an hour's work is worth more output. That's, that's the evolution of technology, it's also the skills that people have. Those things, investing in those things, that's what drives the longer run growth and the longer run economic well-being of our citizens, not the things that the Fed does.

What we do is very important in maintaining stability and smoothing out the business cycle and also crisis response. But we don't work on those really far more important longer run issues.

Kai: Apologies to those of you on the live stream and who are going to hear this later on the radio. Is Professor Swanson in the room, sir? I'm sorry, I'm going to steal your thunder here. There's a panel coming up this afternoon, sir, at 1:25, the title of which is "Speeches by the Fed Chair are more important than FOMC announcements: An improved high-frequency measure of US monetary policy shocks" by Professor Swanson at the University of California, Irvine and some others. Agree or disagree? Pass?

Powell: No, I look forward to, I saw that on the agenda. I look forward to, I'm not going to come in here and embarrass you by being here, but I will read the paper.

But to that general point, do do you get too much press? It's not for me to say, but I do think it is for you to say. Literally for you to say.

Powell: I think there's, I do, I absolutely think there's too much focus. If you if you think about the things that are really important in the economy, things like trade, and what we should be doing, some of the things that we're doing that the Administration has done, they're far more important over the medium and longer term than monetary policy is. Although it's important that there be a Fed that has a good framework of monetary policy that's well understood, very important that we do our job.

But don't get me wrong, it is important, but absolutely the other things are more important over a long period of time for the people we all serve.

Kai: I around the last time you and I spoke in 2022, I also talked to Chair Bernanke about his book. And I asked him whether you two ever talk on the phone and he said "Yeah, you know, he calls me every now and then, mostly I imagine as a courtesy to him. And I said, "Well, Jay Powell's a good guy, he probably just calls you." And he said "You know, when Jay was new to the Fed, he used to come down to my office on a Saturday morning with another Governor or two and we were just talk about monetary policy as he was trying to learn." And I guess my question is, do people come to you now?

Powell: Well, they don't necessarily, I don't go to the office on Saturday anymore. But Ben used, Ben was in the office on Saturday. And when I was a new governor, so was I. So, and I took advantage of the fact that he was there in his office and we could chat. It's a much more relaxed way. I talk to people, I work at home now on the weekends, and I talk to all kinds of people all weekend long.

Kai: Who do you go to though for counsel?

Powell: Well I talked to my colleagues on the FOMC, I talk to senior staff, I talk to the formers, I talk to, you know, Janet is now Treasury secretary, so that's a different thing, but I check in with Ben, I check in with other former Fed people. I can't, you know, you can't, the group of people that you can really talk to is pretty small, but I do take advantage of that. Why wouldn't I?

Kai: Back to Kashkari for a minute and the interview I did with him, explain that, what the little chuckle, he said "Back to Kashkari..."

Powell: You said "Back to Kashkari...

Kai: Well, you know, Neel's an interesting guy.

Kai: One of the things we were talking about was consensus. I mentioned that before. Do you worry about group think around the table? Talk to me about the strength of the conversations, I guess that's the question.

Powell: So this, the robustness of the debate, this is a virtue of our federal system. So we have 12 Reserve Banks, each Reserve Bank has its own economic staff and they have traditions, some that they follow or don't follow, but in any case, you have, you sort of have a guaranteed institutional diversity of perspectives. Institutionally guaranteed diversity of perspectives. People come in and they're going to have different views. And I think that's absolutely critical.

And I do think it, you know, the fact that we were able to get a unanimous decision on something doesn't mean there weren't different views. Also remember, before the vote, there's a lot of discussion that goes on to try to arrive at a plan that people can get behind. So it's not, you know, that that also tends to minimize, sorry let me just pick up on that, is it is it baked before you guys get in the room on the Tuesdays and Wednesdays?

Powell: It's not fully baked. But yes, you do a lot to, of course, my part of my job is to know what people think and to come to the committee with something that has really broad support. And that's part of the thing that I do. But we do have different perspectives and that that's really healthy.

You know, I was an investor for quite a while and you know, when everyone agrees that something is a great investment, you got to really worry. You want somebody who's really smart to explain why it's not, so that you can go through the process of hearing the case against. And I think it's really helpful to hear different views so that you can sort of test your own perspective. If everybody agrees, you know, it can be kind of flabby, it hasn't really been tested.

Kai: Mary Daly in the introduction was was talking about your special talent, that you're a listener, you're a consensus builder. What what is your special talent? Why do you think you have this job?

Powell: Why do I have this job? Don't ask me. You know, it, when I got to the Fed in 2002, I didn't, I of course I had no idea what was to come.

You know, I will say what I try to do on listening is, I think if you again, if you if you do listen to people and they understand that you're hearing them and not just kind of explaining things to them and they get that and they feel listened to and heard from, for most people most of the time that's going to be enough for them to go along even if they don't like a decision.

It also builds relationships. So you know, I've spent, I spent a great deal of time with our oversight committees and beyond that on Capitol Hill, and more so than my predecessors. And I think, you know, they see the Fed as I want them to see the Fed, as what it is, which is this non-political agency that doesn't run talking points at them and isn't political and is just doing our work and staying out of the political issues. And you know, I'm in their offices listening to what they say and I think they really appreciate that.

Kai: Yeah, but do you think it's working? What your effort to get them not to see you as a political agency and just doing the the best by the American...

Powell: Much better than you would think. I mean, I think there's a certain amount of low noise on that subject. But if you talk to people privately, I think they, I think that the Fed, an independent Fed has very broad support in both parties on both sides of the Hill.

Kai: I'll appreciate you're going to want to be discreet on this question. But what's running through your head when you're at the green table in front of a Senate or a House committee? I'm trying to, your internal, hard to find the question, and you know, sometimes the questions are more like speeches and or they're not really questions or they're not quite the right question. And I so I try to find the good question and give the good answer to that question.

Also respect, you know, they, we in our system of government, they are our oversight and our democratic legitimacy runs right through transparency and right through their actions of holding us accountable and and

Powell: Being explaining to them what we're doing and why. So we we answer any and all questions that they that they may have and that's so I work hard to get ready for those with a lot of help from people and we take them very seriously.

Kai: Banking regulation - new regulations are in the works, banks are not happy about it from, excuse me, from Wall Street down to community bankers that I talk to. What's your confidence level about first of all about the banking system right now, and then about the need for more regulation? Can you fix what you think is wrong?

Powell: Sure. So I would say the banking system is in a good place now. A little over a year ago we had a period of stress. I think things have settled down significantly. I think banks are lending. I think, you know, we focused a lot of attention during that period and since on banks that had things like commercial real estate losses or perhaps funding structures that needed to be supported more.

And we've worked with a ton of banks to address those issues. And I so I think that I think the banking system is definitely in a good place. I think the commercial real estate problem will be with us for some years. But it is a question that some banks, and it's mostly small banks, it's definitely not the very large banks, have concentrations of commercial real estate. And it looks like they will be realizing losses over time. And we're working with them to make sure they have enough capital, that they do understand the losses, so that they can work through this. And so that's what we're doing.

And you know, again, that process will play out and I think that'll be okay. You know, I talk to a community banker every now and then up in Seattle and she basically, I think she, I don't want to put words in her mouth, but I will, I don't think she would characterize it as working with. I think she would characterize it as the Fed's telling us what to do. And I guess I wonder what your response is to that.

Powell: Well, supervisors, you know, we have a job which is to make sure that banks are understand and can manage their risks. And it can be either of those things. It can sometimes certainly supervisors have to at some point say you got to do this. And that's that's one of the lessons of the Silicon Valley Bank situation was a need to be forceful when when it's appropriate.

Kai: Sorry, let me dig in on that just a little bit. Forceful is one thing, well let me phrase it a different way. Do you need to convince the banks that you're working with them or can you just say you got to do it?

Powell: So I think, I've never worked as a bank supervisor. But what I believe is this - bank supervision can tend to be pretty process oriented and you know, there's a playbook, there's a checklist. And that's a good thing because you want the banks, it wants to be transparent so that they know what's expected so they can do what's expected.

But it can also be slow when it needs to be fast. And so the art of it, and there there's definitely an element of art in in this thing, and some people are just very, very good at it and others less so.

But you can see, the art of it though is for the banks to understand, generally banks, you know, that banking is different from many other industries. They, it is a heavily regulated and supervised industry. And they, particularly the larger institutions, they have ongoing daily interactions with their regulators and supervisors.

What's important is that the banks are well capitalized, that they understand their risks and they can manage them, that they have adequate liquidity, that they have good resolution plans. And our job is to is to make sure that that's the case. The more the banks take that on themselves and and do a great job at it without us pushing them, the less we need to push.

Kai: The international situation - the United States is doing better than every developed economy I believe in the world by a good measure. What do you make of that and how does it affect your decision-making?

Powell: So I do a fair amount of my job is going to these international meetings either in Basel or whoever is running the G7 or the G20 in a given year. And that is what people are talking about, is the sort of exceptionalism right now of the US economy, how strong the US economy is.

And there's no question that we are performing very well. I think it, you know, part of it just is, I mean productivity is a key thing. The Europeans are very focused right now on not just their short-term low productivity, but you know, what can they do to have greater productivity growth over time. This is a big focus for the European economic officials at the highest level. Mario Draghi is doing a report on it. And finance ministers that I talked to from the big countries, this is their focus.

And so it's of tremendous importance. And so people are thinking about what can we do, some of the things they're looking at doing are sound like the United States, like having a flexible labor market and having a very active financial sector that can fund, you know, early stage or small companies well. So it's very important.

And so yeah, the US is doing, the performance of the US economy the last year or so has been quite strong. Does that affect how you do your job?

Powell: Yes, it does.

Kai: Discuss.

Powell: Well, as I mentioned earlier, the fact that the US economy is growing at such a solid pace, the fact that the labor market is, you know, still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates. And so we're not going to take that step until we are confident, we don't think it'll be appropriate to do so. But that's that's the way it plays into what we're doing.

Kai: Over to you, boss.

Host: Okay, thank you very much, gentlemen. That was a terrific conversation. I appreciate it.

Kai: Appreciate it. Thanks, Mary.