Steve Inskeep: Jerome Powell is on the line. He is the chair of the Federal Reserve Board charged with helping to manage the world's largest economy. One year ago, the Fed was effectively printing enormous amounts of money, unprecedented amounts, creating trillions of dollars to help avoid economic collapse in the early stages of the pandemic. Now things look different and the Fed recently upgraded its economic forecast. Jay Powell rarely does interviews, but has continued a trend at the Fed toward greater transparency. And he's back on the program. Mr. Powell, welcome.
Jerome Powell: Thanks, Steve. Great to be with you.
What caused you to think that 2021 is going to be even stronger than you'd previously thought?
You know, in a nutshell, it's a combination of better developments on COVID, particularly the vaccines and also economic support from Congress. That's really what's driving it. We've seen something like 85 million Americans have now had at least one shot. Daily shots are running at two and a half million. And that's going to enable us to reopen the economy sooner than might have been expected. And then the second thing, of course, is Congress has significant support for economic activity, which will promote hiring as well.
Meaning the $1.9 COVID relief package that was passed and signed recently, that is a factor in all of this?
Well, I would point to all of it, really. It goes back to the CARES Act and then the law that was passed in December and the new law and, you know, we don't comment on particular laws, but just at a high level, the amount of fiscal support the economy has received is historically large. And that's going to result in higher economic activity and hiring.
I want people to remember, Chair Powell, if they don't, that your institution created money, effectively printed money to buy government bonds, to give aids to companies. We're talking about trillions of dollars here. Money that you pumped into the economy when it was needed. Now that things are getting better, I have a question: Are you able to draw that money back out of the economy any time soon? And does it matter if you do?
Yes, I mean, we — the tools that we used during that acute phase of the pandemic crisis were emergency tools, and we have moved to deactivate the lending facilities that we created. Over time, we will, as the economy recovers and we've provided guidance to the public about this, as we make substantial further progress toward our goals, we will gradually roll back the amount of Treasury and mortgage-backed securities we're buying. And then in the long-- longer run, we've set out a test that will enable us to raise interest rates. So we will very, very gradually over time and with great transparency, when the economy has all but fully recovered, we will be, you know, pulling back the support that we provided during emergency times.
Does it ever scare you, the sheer amount of money that you pumped out there? The layman is troubled, even if the expert thinks they know what's going on?
You know, we do. We have two jobs from Congress. One is price stability and the other is maximum employment. And we're using those two tools to achieve those things. There was a time when the actual quantity of money was very important in determining inflation. That is less so the case and has been for several decades now. But we do. We are strongly committed to inflation that averages two percent over time. And we wouldn't if it were to be higher or lower than that, then we'd use our tools to move inflation back to two percent.
OK. Now I want to ask about a different category of money here. Money that the federal government spends: taxes and spends, or borrows and spends. We mentioned the multitrillion dollar COVID relief packages. And now President Biden is talking of an infrastructure bill that is said to have a price tag of perhaps $3 trillion. People didn't used to talk about multitrillion dollar legislation. Now we do it all the time. Are we anywhere near the limit that the United States can safely borrow?
Well, I would put it this way: First, the first thing I need to say is that the Fed doesn't play any role in fiscal policy. We're not an adviser to Congress or the administration on fiscal policy. That is in the hands of elected people. So I wouldn't comment on any particular law that may or may not be proposed. You know, but in terms of the overall fiscal sustainability of our federal government, we're on an unsustainable path, meaning that the debt is growing faster than the economy. That doesn't mean that the level of the debt today is unsustainable. It's not. Given the low level of interest rates, there's no issue about the United States being able to service its debt at this time or in the foreseeable future. But nonetheless, there will come a time, and that time will be when the economy is back to full employment and taxes are rolling in and we're in a strong economy again, when it will be appropriate to return to the issue of getting back on a sustainable fiscal path. And we will need to do that. But that time is not now.
Now, the infrastructure bill is expected to focus in part on climate change, encouraging investments that are consistent with fighting climate change. We now have a president who is very focused on climate change. The reality of climate change is a lot more obvious, as you know, and as some people may have seen, Chair Powell, the Fed is taking this issue on, talking even of climate stress tests for banks. Why is climate your business?
So climate change is an important issue that we're going to be dealing with for a long time. And it is likely to have significant implications for the economy. And you may well ask, as you have, why it's an issue for the Fed. Of course, it's not mainly an issue for the Fed, although we do have a role to play. Society's broad response to climate change will need to be decided by democratically elected representatives in Congress and the executive branch and for that matter, in state and local governments. So what's our role? We've got a pretty narrow but important set of responsibilities, and the ones that are relevant here are really regulating and supervising banks and some other financial institutions to assure that they understand the risks that they run and that they have appropriate plans and tools to manage those risks. And that includes risks from climate change. We see it as something that we're taking on as part of our traditional regular statutory mandate. And those risks are expected to build up over time, physical risks from changing weather patterns, wildfires, floods and the like, and also transition risk, which means risks that may arise as an economy transitions over time to a lower carbon state. So that's really what our role is. It's not to be climate policymakers or to lead the debate here. It is to just perform our traditional function under our existing mandate as it relates--
It's telling banks to think about climate as they consider where to loan money, how to invest. Could we reach a point where it's a bad idea for the banks you oversee to be making long-term bets on fossil fuels, for example?
You know, the interesting thing is that all of the large- and medium-sized banks are asking themselves these very same questions and so are non-financial corporations. Any company, any large company in the United States that does business internationally now is asking itself these very same questions. And that's a change in recent years. But it is the case. We are not — it has never been our role or our practice to tell financial institutions which legal businesses they can and can't, should or shouldn't lend to. We don't allocate credit at the Fed. That will be something that, again, elected representatives have to take on over time. That comes under the heading of society's overall reaction to climate change.
Let me ask about something else here. We've talked in the past about inequality. I know the Fed is more focused on different forms of inequality. And I want to ask at this point about racial inequality. I know from your congressional testimony and other sources that you're thinking differently about Black unemployment, which moves in different ways than white unemployment. But I'd like to ask about inequality within the Fed, Chair Powell.The New York Timesrecently found that of 417 economists at your board in Washington, only two were Black. And that was just one statistic that they looked at. What did you think about when you read numbers like that?
Well, it's very frustrating because we have had for many years a strong focus on recruiting a more diverse cadre of economists, including racially diverse and diverse along other lines, too. And we've worked very hard at it. We — and I have to say, not at all satisfied with the results. It's been very challenging. But we're going to keep doing what we're doing and we're going to do a lot more, too, because we need to get better results. You know, we talked to undergrads at historically Black colleges and universities and Hispanic universities as well, and encourage them to study economics. We recruit, you know, all over the country at different institutions to try to attract diverse talent, including racially diverse talent. And it's been a challenge. And, you know, we're trying hard and not at all happy with where we are on it, but we'll keep at it because it's a very high priority. As an institution, we want to be a leader in diversity. And my own experience, in the different things I've done in life, is that institutions that focus on diversity and do it well are the successful institutions in our society.
We just got about a minute left, Chair Powell, but I'd like you to reflect, if you can, as I'm sure you have on the past year, when you look at the Fed's role in propping up the economy over the past year, do you feel that you did everything right?
We almost certainly didn't do everything right, but we knew at the very beginning that we should use all of our tools and use them as aggressively and extensively as we needed to. And then, we knew that we would never be able to explain in such an emergency situation where we hadn't used our tools that way. So we did. And we knew that in hindsight we would, there would be learning that we would get that we could do things better. But I think that strategy — I liken it to Dunkirk, you know, when it was time to get in the boats and get the people, not to check the inspection records and things like that, just get in the boats and go. And that's what we did. I think overall it was a very successful program and I think history will treat it well. But I'm sure that we'll learn some things we could do better
In a few seconds, would you do it all the same way?
As of now, I would. I mean, I could think of if you give me some time, I think of some things that we could do better this time or not do. But ultimately, I think in a crisis, I think what we did, it served its purpose in staving off what could have been far worse outcomes. And by the way, I'd want Congress to get the bulk of the credit here with the CARES Act, which really was essential to the recovery as well.
Jerome Powell is chair of the Federal Reserve. Chair Powell, thanks very much for the time. Always a pleasure talking with you.
Thanks. My pleasure.
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