Fed Chair Jerome Powell Interview Transcript: “We May Well Be in a Recession”

Savannah Guthrie: (00:00)
Congress is not alone in stepping up to try and rescue this economy. The Federal Reserve, the nation’s central bank, is taking emergency measures to help businesses and Americans alike, cutting interest rates, buying up hundreds of billions of dollars of debt, and offering trillions in loans to banks. And joining us now in a rare and exclusive live interview is Jerome Powell, who is chairman of the Federal Reserve. Mr. Chairman, good morning to you. It’s good to have you with us.

Jerome Powell: (00:24)
Good morning. Thank you, Savannah.

The Federal Reserve doesn’t exactly print money, but as one writer put it, you do have the ability to conjure money out of thin air. My question to you is simple. Is there any limit to the amount of money the Fed is willing to put into this economy to keep it afloat? Is it a blank check?

Savannah, we, in certain circumstances like the president, we do have the ability to essentially use our emergency lending authorities. The only limit on that will be how much backstop we get from the treasury department. We’re required to get full security for our loans so that we don’t lose money, and so the treasury puts up money as we estimate what the losses might be. But essentially, the answer to your question though is no. We can continue to make loans, and really the point of all that is to support the flow of credit in the economy to households and businesses.

But so you’re saying, “No, it’s not a blank check,” but yes, you’re prepared to spend an unprecedented amount.

We certainly are. It’s not a blank check in the sense that we are limited by the ability to take losses. But I would say that the number, effectively one dollar of loss absorption of backstop from treasury is enough to support 10 dollars’ worth of loans. So really the answer is, what’s happened is all over the world investors have pulled back to very less risky things. That’s understandable. But what that’s meant is that many places in the capital markets, which support borrowing by households and businesses … I’m talking about mortgages and car loans and things like that … Have just stopped working. So we can step in and replace that lending under our emergency lending powers, and we will do that. We will look, wherever there is in the capital markets, where credit is not flowing, we have the ability in this unique circumstance to temporarily step in and provide those loans. We will keep doing that aggressively and forthrightly as we have been.

The president has said he would like to see the country raring to go by Easter. He wants the country back open. Public health experts have resisted that timeline. Can the economy handle a months-long shutdown, if that is what the public health emergency requires and demands?

Well, this is a unique situation. So I think people need to understand, this is not a typical downturn. What’s happening here is, people are being asked to close their businesses, to stay home from work, and to not engage in certain kinds of economic activity and so they’re pulling back. At a certain point, we will get the spread of the virus under control and at that time confidence will return. Businesses will open again. People will come back to work. So you may well see significant rises in unemployment, significant declines in economic activity, but there can also be a good rebound on the other side of that. That’s actually one of the main things we’re trying to do by assuring the flow of credit in the economy and keeping rates low, is to assure that that rebound, when it does come, is as vigorous as possible.

I guess the issue though that’s been sort of raised in these recent days is, is the cure worse than the disease? Is shutting down the economy for the sake of public health doing lasting damage to the economy that may not be recoverable? So I guess you’re not a doctor, you’re an economist, but where do you come down on that debate? Is it better to solve the public health crisis and then let the economy bounce back, or do you think we should rush into opening the economy back up because frankly, the damage being done is worse?

So that of course is not … We’re not an expert. We’re not experts in pandemics over here. We don’t get to make that decision. I would say though that we would tend to listen to the experts. Dr. Fauci said something like, “The virus is going to set the timetable,” and that sounds right to me. I think the sooner we get the spread of the virus under control, people will regain confidence. When they become confident that that is the case, then they will very willingly open their businesses up, go back to work. The consumer will be spending. So I think the first order of business will be to get the spread of the virus under control, and then resume economic activity.

As you well know, a recession is a technical term. It means two straight quarters of negative growth. We’ve already had one quarter. Put it bluntly; do you think we are already in recession? Do you think it is inevitable that we will be in recession?

We may be. We may well be in a recession, but again I would point to the difference between this and a normal recession. There’s nothing fundamentally wrong with our economy. Quite the contrary. The economy performed very well right through February. We’ve got a 50-year low in unemployment for the last couple of years, so we start in a very strong position. This isn’t something that’s wrong with the economy. This is a situation where people are being asked to step back from economic activity, close their businesses, stay home from work. So in principle, if we get the virus spread under control fairly quickly, then economic activity can resume, and we want to make that rebound as vigorous as possible.

Yeah, a lot of people say that after a recession like this you could see a big bounce back. We didn’t see that in 2008. It wasn’t like the average recession where you see a drop and then you see a big bounce back. It was a slow and sluggish, uncertain recovery after 2008. But I think I hear you saying that once this public health issue is resolved, you expect a robust bounce back.

What I’m really saying is, we don’t know. And the sooner we get through this period and get the virus under control, the sooner the recovery can come. There’s no other … We don’t have comparable experiences to go back and look at. We know that economic activity will decline probably substantially in the second quarter, but I think many expect and I would expect the economic activity to resume and move back up in the second half of the year. Very hard to say precisely when that will be, and it will really depend on the spread of the virus. The virus is going to dictate the timetable here.

When we see some of the actions that the Federal Reserve has been taking, and they are extraordinary and in some cases unprecedented, I think some people will feel really kind of relieved and heartened and others might feel a little worried. What are the risks associated with taking some of these bold actions, pumping so much money into the economy? I mean, one issue of course would be worrying about inflation. Is there a long-term risk to the actions being taken now?

You know, we don’t really see that. What we see though is, what we see is small, medium and large businesses are not able to borrow through their normal channels to some extent, and so we step in and replace that. That’s a very healthy thing. That’s a positive thing. We’re providing relief. We’re providing stability to get us … We’re trying to create a bridge from our very strong economy to another place of economic strength, and that’s what our lending really does. It’s very broad. It’s across small, medium and large businesses. We are already helping state and local governments, and just places where credit is not being offered where it should be offered, where it’s really just a question of liquidity and credit availability, we can step in and make that happen. That’s a very positive thing and an appropriate thing to do in this highly unusual situation we’re in.

The other issue that comes up is whether or not you might run out of ammo, run out of bullets. And to that point, are you sorry that you didn’t raise interest rates a little more when the economy was strong, so you’d have more cushion now?

When it comes to this lending, we’re not going to run out of ammunition. That doesn’t happen. We set the interest rates in time at what we think is, given the economy, the right level of support. If we’d raised interest rates more it would have been higher than we thought, and economic growth would have been a little bit slower so it wouldn’t have mattered in the end. So we really are always setting our interest rates at the level we think is appropriate, and we’ve cut them to zero now. We still have policy room in other dimensions to support the economy, but the main thing we’re doing now is really with our lending programs. That’s the principle thing we’re doing now to support the economy, is through that channel.

And if I’m sitting at home right now and I lost my job, or I’m a restaurant owner and I laid off every single one of my workers, or I own a nail salon and I had to close up shop, does anything the Federal Reserve doing right now help me?

Yes. Well, so keeping rates low will reduce the interest burden on people. Keeping the flow of credit will help people. Principally though, I would look to the legislation that passed last night or this morning, really, which is going to direct aid to small, medium and large businesses, to low- and moderate-income communities, to the unemployed, to state and local governments, to the healthcare system. That’s really where the immediate relief is going to come from. The help from the Fed will be when the economy begins to rebound, then we’ll be there to make sure that that rebound is as strong as possible.

Mr. Chairman, I have to ask you. I’m sure you’re aware the president has been quite critical of the Fed and of you personally. I’m not going to get into all of it, but he has in tweets called you clueless, called the Fed pathetic, slow-moving. Does what the president says affect you and what you do? Does it make your job harder, or do you just ignore it?

You know, my colleagues and I here are totally focused on our mission of serving the American people. We know that what we do is important for all Americans, and we try to do our absolute best to serve them in a way that is completely nonpolitical nonpartisan, just to serve all Americans. That’s our only focus. We don’t let anything else get into our thinking, and I think that’s just the way it always is at the Fed. We have a very strong culture that’s deep in our DNA, and that just is the way it’s always going to be.

And finally sir, in the about 10 seconds I have left, we went back and looked. This show’s been on the air 60-plus years. I think it’s been 30 years since we had a Federal Reserve chairman on live, maybe longer, maybe never. It’s so rare to have an interview like this. I just was curious why you decided to speak out, and what is the message you want to send to Americans at this very difficult time?

So really the message is this, that this is a unique situation. It’s not like a typical downturn. We’ve asked people to step back from economic activity, really to make an investment in our public health. They’re doing that for the public good, and this bill that’s just passed is going to try to provide relief and stability to those people. The Federal Reserve is working hard to support you now, and our policies will be very important when the recovery does come, to make that recovery as strong as possible.

All right. Federal Reserve Chairman Jerome Powell, sir, I know these are busy times. I appreciate your time this morning. Thank you.

Thank you, Savannah. (silence)

Fed Chair Jerome Powell Interview Transcript: “We May Well Be in a Recession”

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