May 29, 2020

Fed Chairman Jerome Powell Princeton Online Forum Speech Transcript

Federal Reserve Chair Jerome Powell May 29 Princeton
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Federal Reserve Chairman Jerome Powell took part in a Princeton online forum on May 29. Read the full event & speech transcript here.

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Alan Blinder: (00:01)
I might add, we’re especially happy to have many members of Chairman Powell’s classmates from the Princeton class of 1975 on the Zoom. Just one quick logistical note, if you have a question, you’re welcome to submit it anytime you want, using the Q&A feature of Zoom, which you’ll find at the bottom of your Zoom window, it says Q&A. You may also opt for questions that you’d like to see answered, and we’ll take as many of these as we can. A full recording of the talk will also be posted on the Griswold Center’s website, and the talk is being livestreamed right now. I’m pretty sure that’s working. Yes, we’re alive.

Alan Blinder: (00:49)
Let me briefly introduce a man who needs no introduction, but we’re happy to welcome here today. J. Powell graduated from Princeton, which is relevant today, 45 years ago. 10 years after that he married his lovely wife, Alyssa, and this weekend, the two of them were celebrating the graduation of their daughter, Susie, as a member of Princeton’s class of 2020, which is sure to be a memorable year. So congratulations to you Chairman Powell. After Princeton, J. Powell attended law school at Georgetown, but he didn’t stick with the law instead opting for a successful career in investment banking, in private equity and a stint in the U.S. treasury among others.

Alan Blinder: (01:38)
In 2012, president Obama appointed him to the Federal Reserve Board, and in 2018, president Trump elevated him to the chairmanship of the board. Trump, as you no doubt know, has since complained many times that this was a terrible choice. Almost everyone else on the planet sees it as a fabulous choice. We are deeply grateful for having him running the Fed right now, and for spending some time with us this morning. So thank you very much for being here. I’d like to start with the most obvious question, it will surprise you. Are you sleeping well?

Jerome Powell: (02:23)
Thank you Alan. First, thanks for having me here today. It’s a great pleasure to be here. Welcome. I’d like to say hello to my fellow classmates from 1975. If you’ll permit me, I want to start this though by just noting that this is a difficult time for many Americans, people have lost loved ones, many millions of people have lost their jobs, there’s a great deal of uncertainty about the future. And I really think we ought to start by acknowledging that fact. And I’ll add that the Fed is strongly committed to using our tools to do whatever we can for as long as it takes to provide some relief and some stability now to support the recovery when it comes, and to try to avoid longer run damage to people’s lives through long spates of unemployment, or to their businesses through unnecessary insolvencies. So with that, let me get to your question. Sleeping well, better than I was sleeping in late February and early March. Let’s just put it that way.

Alan Blinder: (03:23)
Glad to hear that, because I’m sure you need to keep up on your sleep. We’re relying on you for that among other things. So this is your 45th reunion, and congratulations on that by the way. Did you take Economics 101 in Princeton, and do you remember who taught it to you way back then?

Jerome Powell: (03:44)
I did. Burton Malkiel taught it. I took a Micro and Macro as a matter of fact, my freshman year, those were the only Econ courses I took though.

Alan Blinder: (03:53)
Good, I think that’s two more than William McChesney Martin, but that’s great, and he did pretty well on that a job. Is there anything in your Princeton education that actually got you thinking about the Federal Reserves in a somewhat serious way, not dreaming that you’d be chairman of the Fed, although if that’d be interesting to hear, but just thinking about the Federal Reserve and what it does.

Jerome Powell: (04:17)
Well, the answer is yes, for whatever reason, by the time I was a senior at Princeton, I did have this idea. I didn’t have much of a plan, but I had an idea and that was that I wanted to have a career that was mostly a private sector career, but then to go in and serve in government at different times in my career, the model would have been Cyrus Vance, or George Schultz, or someone like that. Part of that was just growing up in Washington, D.C. not in the middle of all that, but on the outside looking in. So I definitely picked up, and I did major in politics ultimately, and I picked up that idea, and I strongly wanted to do public service. My dad had done public service in the war, and then he was a U.S. Attorney and a law clerk, he really wanted to serve again and couldn’t. While I was at Princeton, he had to turn down a job in an administration because he had six children’s tuition to pay. So that made me want to serve, do public service even more

Alan Blinder: (05:22)
I want to start with a few general questions about the Fed, and then get more down to some of the specific things you’ve been dealing with. So at the general level, strange as it may seem to those in the financial world, not every American spends every minute of every day thinking about the federal reserves. So could you maybe start us off by talking a little bit about where and how you see the Fed fitting in in the more general scheme of American government, and by the way, while you’re doing that, maybe you could reveal the secret handshake.

Jerome Powell: (06:03)
I’ll be glad to. So the Fed is an institution. It’s a great American institution. It’s founded about 107 years ago, and it’s an interesting institution from the standpoint of its federated nature. There’s a board of governors that exists here in Washington, D.C. The members of the board of governors are nominated by the President, confirmed by the Senate, and serve long terms of 14 years, although your term as chair or vice chair, as you know, is only four years, but your underlying term as governor is long. And that’s meant to keep you out of the political cycle. So we’re not synced up with the political cycle, and so we’re supposed to operate in a very nonpolitical way.

Jerome Powell: (06:48)
We also have 12 reserve banks around the country, and the presidents of those reserve banks also serve on the federal open market committee, which is where we set interest rates. And those are appointed by their private sector boards with the consent of the board. So it’s a way of making sure that we don’t have the sort of group think that could result from having everyone in one building, in one part of the country. We instead have institutionalized diversity of perspectives from all around the country. The Fed is present in every community in one way or another all around the country.

Jerome Powell: (07:22)
So what do we do? We do a few things. We look after the overall stability of the financial system, and we have tools to do that. We, we set interest rates in an effort to support economic activity when it needs support, and we supervise and regulate banks, we operate large parts of the payment system. So we have a lot of different roles. All of them are meant to be undertaken in a strictly nonpolitical way that serves all Americans. The last thing I’ll say is that we do have this precious grant of independence as all Central Banks in major advanced economies do, but with that comes the obligation of transparency and accountability. So we are directly accountable in our system of government, to the oversight committees that report to in Congress. And we work very hard to keep their trust, to understand what’s on their minds, to explain what we’re doing as a way for us to maintain our democratic legitimacy in a system where most of the authority is vested as it should be in elected people, not in appointed people like us.

Alan Blinder: (08:30)
As a somewhat real specific followup to that. Do you worry either generically, or especially these days when so much is going on, that the public, the markets, the Congress, the White House, take your pick, hold exaggerated beliefs about what the federal reserve can actually accomplish? Mission creep is one thing, and you’ve been asked to creep your mission for sure, giving your mission possible is something rather different. So what do you think about that?

Jerome Powell: (09:08)
I think we do have this precious grant of independence, and that really means that we need to stay in our lane and just do those things that Congress assigns us to do. If we’re going to roam all over the landscape, then we shouldn’t be independent, we should be part of the elected branch of government. So that means we stick to our knitting, I would say. We do have though, we have tools that can be used in the financial system only in emergency situations, such as the global financial crisis of a decade ago, such as the pandemic. And those tools can only be used now with the approval of the secretary of the treasury. This is under statute passed by Congress, this was under Dodd-Frank.

Jerome Powell: (09:52)
So we do use those tools and they’re very powerful, but they have quite a limited use, and again, only to be used in unusual and exigent circumstances with the permission of the treasury secretary, who of course is part of the administration. So I think we need to stress, and we try to stress all the time, that we have tools that we can use, but they’re not for general times. Particularly now, what I would say is that the tools that we’re using now are lending tools, not spending tools. So we don’t have the ability to make grants of money to particular groups of people, no matter how directly they’re, or companies, affected by the pandemic. That is a job for elected officials who control spending and taxation. It’s not a job for appointed officials like us. So there is a need to underscore the limits of our powers. Although our authorities are very strong, and at a time like this you’re seeing how strongly they can be.

Alan Blinder: (10:55)
One of the ways to draw a line between lending and spending, as you just put it, is to make, let me say, only loans that will be paid back, you might say with a hundred percent certainty, if there was such a thing in the world. That’s generally been a dictum of the Fed. You’ve been directed during the pandemic, not you personally, the Fed has been directed to make loans in places where the Fed has not gone before, and maybe they’re not a hundred percent guaranteed to payback. Do you see that as this, I was talking a minute ago about mission creep or mission impossible or something like that, does that kind of thing worry you?

Jerome Powell: (11:50)
This is an emergency of a nature we haven’t really seen before. And at the beginning of this, my colleagues and I really saw that we needed to be using our tools to their fullest extent, that it would be very hard to explain to the public why we would hold back from doing that at a time when we saw a 50 year low in unemployment turn into an 80, 90 year high in unemployment in the space of 60 days. We saw the economies around the world shutting down. And we felt called to do what we could, and so we crossed a lot of red lines that had not been crossed before, and I’m very comfortable that this is that situation in which you do that, and then you figure it out afterward. So that’s how I would look at that.

Alan Blinder: (12:42)
Thank you. In line with that, as you were called to do a lot of things, the Fed has stood up in a very short period of time, a veritable alphabet soup of special lending facility, some of which look like what happened in the financial crisis, but many of which look very different from that. Could you just give us a sense institutionally, how hard a task that was? You alluded to my first question that you weren’t sleeping much in March, and I can sympathize with that, but if you could give us a sense of how different and how difficult it was for the institution.

Jerome Powell: (13:26)
I think it is an extraordinary institution. We are lucky to have a large number of highly dedicated, highly capable people, many of whom were here and live through the global financial crisis and were critical players in implementing the facilities that were put in place then really to prevent the collapse of the global financial system, very different set of problems. So I think we benefit from that experience, and all of us, of course, as you have, have studied the lessons of the financial crisis a great deal. So I think we knew a lot.

Jerome Powell: (14:05)
So I would break it into a series of phases. First, what happened was that as the pandemic, as it became clear a week or so before the end of February, that the pandemic was going to be a global phenomenon, that any hope that it would be contained in a meaningful way in a province of China was gone, and markets began to struggle with processing that, how do they think about it? It’s unknowable really what will be the effect on the global economy. So markets became extremely volatile, investors fled from any kind of risk, and really market stopped functioning in a broad sense, so that companies and households couldn’t borrow, couldn’t roll over debt, and markets kind of closed.

Jerome Powell: (14:46)
So what we did was we came in in the first instance and we tried to restore market function through a variety of ways. We purchased a lot of treasury securities to get that market working again, the short term money markets, which are systemically important to many private corporations, they stopped working, so we did some facilities there. Then we turned to the provision of credit, to corporations, and to municipalities and States, that’s something we really had not done in modern history at all, but this is not the global financial crisis. That was about weakness in the financial system. This time the financial system is in good shape, relatively. It’s got strong capital, much better risk management, high levels of liquidity. This was a problem in the real economy, in the private sector of companies not being able to finance themselves.

Jerome Powell: (15:40)
So we announced the setup of a facility to backstop that market. And as we backstop these markets, even before we began actually lending, they start to work again, there’s a confidence factor that we’ve seen in real force here. So it was a remarkable time it’s a great honor to serve in these jobs. Sometimes they’re not easy, but we never forget how important it is, and really what an honor it is to be able to be in a job at this time when you’re really needed.

Alan Blinder: (16:16)
Well, let me pursue one particular aspect of that, which I guess is still incipient, or maybe it’s just started, you know better than I, which is these main streets, so-called main street lending programs. I remember when main street was first announced, thinking that this was an assignment that pushed the Fed into a place where no Fed had ever been, even more so than the ones that you were just speaking about. Can you comment a bit on the special difficulties the Fed has encountered in standing up these so called main street lending programs?

Jerome Powell: (16:56)
I’d be glad to. The main street facility is for small and medium sized companies, companies that aren’t large enough, or in some way, don’t have the ability to have access to the capital market. So they don’t issue public bonds or public equity, meaning that the way they get their financing in their operations is really through the banking system and through non-banks. So we have a facility that deals with companies that have access to the bond market, and Congress has done a lot for smaller companies that are under 500 employees with the paycheck protection program.

Jerome Powell: (17:34)
So this is for the companies that are in the middle, and it is very challenging because it’s an extraordinarily diverse space, the credit needs of different kinds of companies in different industries are extraordinarily diverse. Some of them borrow against assets, some against cashflow, some are much more volatile than others. So it’s quite diverse, and trying to figure out the right credit products for that market is challenging. In addition, the world of bank credit is a world in which every credit agreement between a borrower and a bank is negotiated. So each credit agreement is a little bit different, so that it doesn’t have the degree of standardization, for example, that the bond market has where there are forms of indentures and forms of prospectuses, and it’s much more routine than it is.

Jerome Powell: (18:25)
So it’s challenging to get in there, but nonetheless, get in there we will. So we’re days away from making our first loans in main street. We have three facilities that are part of it. They’re meant to reach out to different parts of that broad space. And in the meantime, many of those companies are finding that they can borrow from banks. Others are waiting for us to get our facility up and running. It is far in away the biggest challenge of any of the 11 facilities that we’ve set up, or the three main street facilities. The last thing I’ll say is, as we’ve shown, we’re very willing to learn from experience, we put out a term sheet, proposed term sheet, we get.

Jerome Powell: (19:03)
To learn from experience. We put out a term sheet, proposed term sheet we get. We’ve got a couple of thousand letters from people on the first Main Street term sheet. We turned that around. We’ve consulted actively with all different kinds of companies and experts. We’ve now released the documents and do expect to start making loans on Main Street in a few days.

Alan Blinder: (19:21)
In a few days. Well, congratulations. Are you envisioning these loans to be a million, half a million? I mean, that was me speaking. You speak. What size loans are we talking about?

Jerome Powell: (19:34)
The current structure is that the smallest loans would be about a half a million and the largest ones could be over a hundred. That’s for the larger companies. We’re working with companies that have as many as 15,000 employees and 5 billion in revenue. There’s no limit on the bottom end. I can imagine us expanding on either end too.

Jerome Powell: (20:01)
I mean, the whole nature of this exercise that Congress has given us is go find companies that have employees. Really, it’s all about creating a context in which employees will have the best chance to either keep their job or go back to their old job or ultimately find a new job. That is the point of this exercise is, it’s all about those 25 million people or so who’ve been laid off, the ones who may not be laid off, but may ultimately be laid off. So that’s what this is about. We’re looking for companies in any part of the economy that have employees that are not able to get credit that would have been able to get credit in 2019. So we’re looking back at companies that were in good, solid financial shape before the pandemic. We’re trying to find those companies and we’re trying to create credit products that work for them. That’s the nature of the exercise.

Alan Blinder: (20:56)
It’s a tough job. Thank you. Let me finish up before opening up to questions with one or maybe two more nitty gritty monetary policy questions. You’ve had all of these before. Quite a few European central banks and Japan pushed their overnight interest rates into negative territory quite awhile ago, in some cases years ago, and have kept them there. Yet the Fed, even before you were chair, has made it quite clear that it doesn’t have any intention of doing that. Can you explain why? Is this some aspect of American exceptionalism that’s not so obvious? Just generally why.

Jerome Powell: (21:43)
Maybe I’ll give a little context. The problem of… We set a policy rate, which is the Federal Funds Rate and we lower it of course when the economy is weak. We raise it when the economy is stronger. Inflation was more often a problem and we would often raise it. It hasn’t been a problem in a while, but we’d raise it then to sort of prevent the economy from overheating. It hasn’t been a problem recently.

Jerome Powell: (22:06)
So in the nineties, mid and late nineties, I guess just after you were at the Fed, Alan, Japan hit the effective lower bound, hit zero. The question came to the fore, what do you do now? Since really then, it’s more than 20 years now, central bankers and economists have been working on the problem of what can central banks do when they hit zero? Are they out of ammunition? The answer is no.

Jerome Powell: (22:32)
During the global financial crisis, the Fed got to zero and we did two things. One, we effectively promised to hold our policy interest rate at zero for a long period of time. That affects short, medium and longterm interest rates. That supports economic activity because borrowers borrow all across the curve. We also bought, this was what became known as quantitative easing, longer-term treasury securities and other fully guaranteed securities guaranteed by the US government in order to lower longterm yields.

Jerome Powell: (23:03)
Those are the two principle tools that we use during the financial crisis. We feel that we understand them. We no longer think of them as nonstandard tools. We think of them as in the toolbox because we are in an era of much lower interest rates. We do expect part of the time to be at the effective lower bound of zero, which we are in fact now.

Jerome Powell: (23:24)
Some banks decided in addition to that, to use negative rates. We don’t think that that’s an inappropriate tool here in the United States. I would say the evidence on whether it actually works is mixed. There are clearly some negative side effects as there sometimes are with these things. It’s just not clear to my colleagues and to me on the Federal Open Market Committee that this is a tool that would be appropriate to deploy here in the United States.

Alan Blinder: (23:55)
If I can push you on that for just like one more [inaudible 00:05:02]. Because what’s different in the United States compared to, I don’t know, pick at the Eurozone?

Jerome Powell: (24:09)
Well, a couple things. One, first, I don’t see that the evidence… This isn’t really a difference. This is a difference in understanding. There are many central bankers around the world who feel this way. The evidence on whether it actually helps is pretty ambiguous because one thing it does is it interferes with the process of credit intermediation that banks undergo. They take in deposits. They lend it out to the extent the policy rate is negative. You’re crushing down on bank margins and that makes them lend less. There are other possible negative effects there. I think the evidence is mixed. It’s not clear either way.

Jerome Powell: (24:52)
We also have institutional arrangements here that would not work with negative rates. I wouldn’t say those are decisive things like the money market funds fund industry, which a lot of companies of various kinds use to fund themselves in which individuals look upon as a place to put their money.

Alan Blinder: (25:11)
Thank you very much. Let me turn to some questions that have come in from people listening. Pardon my squinting a little. I’m reading this off my screen with my… I won’t even mention my age, it’s older than yours, eyes. Here’s a question that starts from Frank Brosens thanking you for your extraordinary job. The question is, how sensitive is the Fed to the very difficult time, that in particular, the lower end of the economic spectrum is experiencing these days compared to the extraordinary strength in the equity market that Wall Street has seen? Does that affect policy at all? Or is it just a necessary side effects that even if you aren’t rooting for, it just happens?

Jerome Powell: (26:05)
Let me say hello to Frank and say that we know that, I guess, everyone is affected by the pandemic in a negative way to one degree or another. But the burdens are falling very strongly on those who can least afford to bear them. The unemployed come very largely, so far, come very largely from parts of the service economy, which involve dealing with large groups of people that are tightly together. So that’s restaurants, it’s bars, it’s travel, it’s hotels. It’s a lot of places. Many of the jobs that have been lost at least temporarily are relatively low paid service industry jobs. You can just see that those are the people that are being laid off who have the least financial resources.

Jerome Powell: (27:00)
For example, in our SHED survey, Survey of Household Economic Decision Making, which we released a week or so ago, it looks like if you were someone who made $40,000 or less annually, the chances of you being laid off in the last month or so approach 40%. So almost 40% of those people have lost a job if you’re making 40,000. So this is falling, secondly, falling on women to an extraordinary degree. This is falling on women, to some extent are in those jobs. There’s tremendous inequality in the way the pandemic is affecting our population.

Jerome Powell: (27:39)
Now you ask, does that affect our policy? Look, it does affect our policy. Although essentially, part of our mandate is maximum employment. It’s maximum employment and stable prices are our monetary policy mandates. So we’re very focused on the full range of employment and doing whatever we can to really, as I mentioned earlier, to try to get those people back to work or in a new job. Some of those jobs may take a while to come back. It’s important that those people be protected from this event. This is not something that was anybody’s fault really. This was a natural disaster. So it’s important that they receive support, and they have received a very high degree of support so far.

Alan Blinder: (28:27)
Thank you. This next question comes, I think from variants from several people, but in particular came first from Gilchrist Berg. The question is, what if there’s another big wave of COVID-19 in the late fall and the Fed is asked to react again? How big of balance sheet can you manage before it gets to be a problem? One of the problems he asked in the question is inflation, or maybe you see other problems. But just in general, is there any limit to how big you can make the balance sheet?

Jerome Powell: (29:11)
Let me start by saying that we’re not experts on epidemiology, the spread of pandemics, or anything like that. We talk to experts and the main answer they give you is that things are highly uncertain. We don’t know anything that the general public doesn’t know if you’re listening to the experts about how this will go. There is clearly a risk of that, a risk of a second outbreak or a second wave. That would be challenging. We, of course, would continue to react. We’re not close to any limits that we might have, I would say. We would continue to have some authority to react. But I would worry almost more that a second outbreak would undermine confidence. I mean, a full recovery of the economy will really depend on people being confident that it’s safe to go out and safe to engage in a broad range of economic activities. That’s how the economy will recover.

Jerome Powell: (30:10)
You see people testing the limits now probably every day. All of us are doing things we might not have done two months ago. You’re just seeing how that works. We’re watching the data nationally. So that’s what’s going on. I think a second wave would really undermine public confidence and might make for a significantly longer recovery and weaker recovery.

Jerome Powell: (30:35)
In terms of the balance sheet. First, the inflation concerns for now are to the downside. The risks are to the downside, not to the upside. We see prices moving down. That’s because in a lot of parts of the economy, people are cutting prices. So you’ll see weak inflation data for awhile. We’ve been dealing with disinflationary forces for a long time, actually globally. One thing that’s happened since 1975 is inflation was really the big economic issue, really since another Princetonian Paul Volcker, one of the great public service servants of our lives, what he did at the Fed and his colleagues did, inflation has really been under control. The upside risks to inflation is not great. I would say of course our balance sheet can’t go to infinity. I would say that I’m comfortable with where we are now and the path that we’re on and don’t see risks based on what we’re doing right now to inflation or to financial stability.

Alan Blinder: (31:46)
Thank you. We have a couple of variants on this question. I’ll read the one that came from Roseanne Harford. It reads, once the Fed has done purchasing fixed income security, so it’s anticipating going down the road you were talking about a little further. What’s the plan for managing the portfolio? I read the question as saying, it will have more than fixed income or it might have more than fixed income securities in it.

Jerome Powell: (32:15)
Well, we tend to… With the things that wound up on our balance sheet during the financial crisis, we held them to maturity. These are relatively short term loans of four years. So far that’s what we’ve been doing. So the plan would be not to sell them but to hold them to maturity. I would say we do not desire to have an active role in managing the portfolio. We’re not the right ones to… Once the facilities have done the lending that they’re going to do, then the decisions about what to do about covenant defaults and things like that will not be something that we will want to be involved in on a day to day basis. Those are arrangements that we’ll work out. We of course have a financial advisor on each of these facilities and in some way or other, that will be managed in a commercially reasonable way but not by Fed policy makers.

Alan Blinder: (33:11)
Okay, thank you. That’s very useful. There’s a generic question from Judy Jang about how would the Fed go about communicating with the public on these emergency tools and in particular, in an effort to avoid some of the misunderstandings that took root after the emergency measures of the financial crisis about a decade ago? That proved, as you well know, not to be too popular with the public even though it was tremendously successful.

Jerome Powell: (33:47)
Well, the first thing is that we’re disclosing just a lot of information, much more than the law actually requires us to disclose. We’re disclosing, for all of the facilities under the Cares Act, we’ll be disclosing the name of the borrower or the amount, and we’ll be updating those on a very regular basis. So I’d like to think that disclosure will really help because, I mean, I read things in the paper that are supposedly happening and I know they’re not happening. I mean, one reason they’re not happening is we actually haven’t made very many loans yet. I read that we’re extending tons of credit to this industry or that. Actually, we haven’t really made a lot of loans in the corporate credit facilities. We haven’t started the municipal facility yet. So transparency is really important.

Jerome Powell: (34:37)
I also think we have to just… And this is something we’ve been focused on. Alan, you were at the very beginning of the transparency revolution and one of its principal authors. I think the old theory was tell them nothing. There should be a lot of mystery around central banking. Alan and a bunch of other researchers really flipped that completely around. Now the view has been for some time that transparency is your friend, that markets will do the work for you if they understand what you’re doing.

Jerome Powell: (35:09)
We work very hard to explain ourselves to the general public and particularly focused on the general public’s elected representatives in Congress. We work really hard to stay in communication with them, the ones who were on the committee, the ones in leadership, the ones that were not on the committee, just so. And also we try to communicate publicly through a lot of outreach so that we explain what we really are doing and try to avoid misunderstanding. Also by the way, listen to feedback. We listen. We did this round of events over the last year or so called Fed Listens, which was really such a successful program, where we listened to people from all different walks of American life talk about how they think about the Fed and monetary policy. I will tell you, it really informed the work we’ve been doing in sort of reviewing the way we do what we do.

Alan Blinder: (36:05)
Just as a footnote to that, I’m happy every time you draw the distinction between lending and spending but a warning… I wrote a whole book on the crisis, as you know. The public left that with no distinction, thinking that the Federal Reserve had spent all this money and the Treasury had spent all this money, even though virtually every penny of it was lending, not spending. This is something that… Don’t think I have a magic solution to how you explain this to the average American, but it’s a huge task. In the case of the financial crisis, they never really got the distinction. So good luck with that.

Jerome Powell: (36:51)
Alan, I would just say, most people have better things to do in their life than to understand the details of central banking. I think working at the Fed, you get that from day one. But our obligation is to be as transparent as possible and to patiently and clearly explain ourselves to the public that we serve. We just work really hard at that, and that’s part of the job. It’s part of how we retain our democratic legitimacy.

Alan Blinder: (37:21)
Thank you. I think I have time for a few more questions. I’m squinting at the screen to try to read them. Michelle [Lou Petkoff 00:00:37:34] asks, are the latest Fed… This is a bit related to a previous question. Are the latest Fed policies likely to lead to more income inequality in the United States?

Jerome Powell: (37:47)
Absolutely not, and I’ll tell you why. As I mentioned, the pandemic is falling on those least able to bear its burdens. It is a great increaser of inequality. If you just look at the labor market reports-

Jerome Powell: (38:03)
Of inequality. If you just look at the labor market reports that the Bureau of labor statistics puts out, you will see that it is low paid workers in the service industries who are bearing the brunt of this. It’s also women to an extraordinary degree, as I mentioned. So everything we do is focused on creating an environment in which those people will have their best chance to keep their job or get a new job, maybe go back to their old job if they’ve been furloughed. And how does that work? So take a company that, for example, I won’t give a name, but just as an example, a company that was investment grade on March 22nd, but that’s now been downgraded to so-called junk, a non-investment grade company, but that has tens and tens of thousands of employees. Now, why would we include that company in one of our programs? These are very large companies, and there are many of them that would fit that description.

Jerome Powell: (38:56)
I’m not thinking of any one. Well, the reason is this. If a company like that doesn’t have market access and can’t roll over its debt and can’t have enough cash on hand to deal with its obligations, what they’re going to do is they’re going to lay people off. They’re going to cut costs. They won’t have any choice. That is the choice they will make. Let’s put it that way. So by announcing our facility and including those companies, the ones who actually need the credit or needed the credit in March, those companies have now been able to go out and finance themselves and have now lots of cash on their balance sheets. And for the most part, these are companies that are not so directly affected as some of the service industry companies are that deal directly with the public in large numbers. They’ve been able to avoid big layoffs. So that is the point of all this. And I think we have to keep our focus really tightly on that goal of the labor market and supporting the labor market and not get distracted by other goals.

Speaker 2: (39:59)
Thank you. I think this will be the last question. This takes us outside the boundaries of the United States. Catherine Rampell asks, as the FED looks at the global economic situation, what are you thinking about what’s happening both in the pandemic economics in some of the poorer countries in Asia? And she lists India, Pakistan and Indonesia as examples.

Jerome Powell: (40:31)
So this is a very challenging time for those countries. They don’t have the kind of medical infrastructure that we have. They don’t have the policy space, as we say. They don’t have the ability to provide support to their economy, either through fiscal policy or monetary policy, that we do. So it’s a very, very difficult, challenging time for many of those poorer countries, and the International Monetary Fund and the World Bank are doing everything they can to get more resources and try to help those countries. But there’s no question, for all of the suffering that’s going on in the countries like the United States, Western Europe, you’re seeing even worse outcomes in many of the poorer countries. And it’s something that those international organizations are going to need a lot of support from nations like the United States and have been getting it to deal with.

Speaker 2: (41:35)
I have one final question from an extremely important person, very important person. Susan Powell asks, and she starts phrasing it Chairman Powell, do you have a favorite child? And should that favorite child be congratulated on anything?

Jerome Powell: (41:59)
I love all my children equally, but I certainly think Susan Powell deserves special congratulations here today for graduating the class of 2020. So thank you. Thank you, Susy.

Speaker 2: (42:11)
All of us here join that congratulations, Susan. The class of 2020 will long remember the end of its senior year and is going to get two graduations, as probably most people on the call don’t know, a virtual one happening soon, and then another physical one in a year’s time. So Chairman Powell, on behalf of the Griswald Center, if I may take the liberty, although I’m not a member, on behalf of a class of 1975, on behalf of the entire Princeton University community, and indeed the citizenry of the United States, I want to thank you for your service. I want to thank you for spending the time with us this morning. We are deeply in your debt, and really glad that you are the chairman of the federal reserve. So thank you.

Jerome Powell: (43:12)
Thank you-

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