Jerome Powell Fed Press Conference Speech Transcript June 10

Jerome Powell: (00:00)
Thanks for joining us. Our country continues to face a difficult and challenging time as the pandemic is causing tremendous hardship here in the United States and around the world. People have lost loved ones. Many millions have lost their jobs. There is great uncertainty about the future. At the Federal Reserve, we are strongly committed to using our tools to do whatever we can and for as long as it takes to provide some relief and stability, to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy.

The most important response to this crisis has come from our healthcare workers. And on behalf of the Federal Reserve, let me express our sincere gratitude to those dedicated individuals who put themselves at risk day after day in service to others and to our nation. Let me also thank the many other essential workers across the country who have helped meet our basic needs for goods and services in these difficult times. The virus and the forceful measures taken to control its spread have induced a sharp decline in economic activity and a surge in job losses. Indicators of spending in production plummeted in April. And the decline in real GDP in the current quarter is likely to be the most severe on record.

Even after the unexpectedly positive May employment report, nearly 20 million jobs have been lost on net since February. And the unemployment rate has risen about 10 percentage points to 13.3%. As was highlighted by the Bureau of Labor Statistics, this figure likely understates the extent of unemployment accounting for the unusually large number of workers who reported themselves as employed, but absent from their jobs would raise the unemployment rate by about three percentage points. The downturn has not fallen equally on all Americans and those least able to shoulder the burden have been the most effected.

In particular, the rise in joblessness has been especially severe for lower wage workers, for women and for African Americans and Hispanics. In recent weeks, some indicators suggest a stabilization or even a modest rebound in some segments of the economy, such as retail merchandise and motor vehicle sales. Employment rose in many sectors of the economy in May. And the unemployment edge down as some workers returned to their jobs from temporary layoffs. With the easing of social distancing restrictions across the country, people are increasingly moving about and many businesses are resuming operations to varying degrees.

At the same time, many households have been receiving stimulus payments and unemployment benefits, which are supporting incomes and spending. Activity in many parts of the economy has yet to pick up, however. And overall has put as far below earlier levels. Moreover, despite the improvements seen in the May jobs report, unemployment remains historically high. Weak demand, especially in sectors most effected by the pandemic is holding down consumer prices. As a result, inflation has fallen well below our symmetric 2% objective. Indicators of longer term inflation expectations have been fairly steady. The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus. We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities.

The severity of the downturn will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery when the public health crisis passes. The Fed’s response is guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system. We are committed to using our full range of tools to support the economy in this challenging time. In March, we quickly lowered our policy interest rates to near zero where we expect to keep it until we are confident that the economy has weathered recent events, is on track to achieve our maximum employment and price stability goals. We have also been taking broad and forceful actions to support the flow of credit in the economy. Without access to credit, families could be forced to cut back on necessities or even lose their homes.

Businesses could be forced to downsize or close, resulting in further losses of jobs, and incomes and worsening the downturn. Preserving the flow of credit is thus essential for mitigating the damage to the economy and setting the stage for the recovery. Since March, we’ve been purchasing sizable quantities of treasury and agency mortgage backed securities in order to support the smooth functioning of these markets, which are vital to the flow of credit in the economy. Our ongoing purchases have helped to restore orderly market conditions and have fostered more accommodated financial conditions. As market functioning has improved since the strains experienced in March, we have gradually reduced the pace of these purchases to sustain smooth market functioning, and thereby foster the effective transmission of monetary policy to broader financial conditions. We will increase our holdings of treasury and agency mortgage backed securities overcoming months, at least at the current pace. We will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals.

The Federal Reserve is also undertaking programs to provide stability to the financial system and to more directly support the flow of credit in the economy for households, for businesses of all sizes and for state and local governments. These programs benefit the economy by providing financing where it is not otherwise available. In addition, by serving as a backstop to key credit markets, the programs can increase the willingness of private lenders to extend credit. Many of these programs rely on emergency lending powers that are available only in very unusual circumstances, such as those we find ourselves in today. We are deploying these lending powers to an unprecedented extent enabled in large part by financial backing and support from Congress and from the Treasury. We will continue to use these powers forcefully, proactively and aggressively until we’re confident that we are solidly on the road to recovery. When the time comes, after the crisis has passed, we will put these emergency tools back in the toolbox.

I would stress that these are lending powers, not spending powers. The Fed cannot grant money to particular beneficiaries. We can only create programs or facilities with broad based eligibility to make loans to solve entities with the expectation that the loans will be repaid. Many borrowers will benefit from these programs, as will the overall economy. But for many others, getting a loan that may be difficult to repay may not be the answer. In these cases, direct fiscal support may be needed. Elected officials have the power to tax and spend and to make decisions about where we as a society should direct our collective resources. The CARES Act and other legislation provide direct help to people, and businesses and communities. This direct support can make a critical difference, not just in helping families and businesses in a time of need, but also in limiting long lasting damage to our economy. At this meeting, my colleagues and I continued our discussion of approaches for conducting monetary policy when the federal funds rate is that its lower bound.

The measures we discussed, included explicit forms of forward guidance and asset purchases. We use these tools in the aftermath of the global financial crisis, and they have become a standard part of our toolkit. We also reviewed the historical and foreign experience with targeting interest rates along the yield curve. Whether such an approach would usefully compliment our main tools remains an open question. We will continue our discussions in upcoming meetings and we’ll evaluate our monetary policy stance and communications as more information about the trajectory of the economy becomes available. We also resumed our regularly quarterly summary of economic projections, or the SEP. The SEP is an input into our deliberations, not an outcome. And it does not represent a committee view. Rather, FOMC participants write down their individual views of the most likely path for the economy conditioned on each participant’s view of appropriate monetary policy.

We tabulate those submissions and we publish them as the SEP. Given the unusually high level of uncertainty about the outlook, many participants noted that they see a number of reasonably likely paths for the economy and that it’s not possible to identify with confidence, a single path as the most likely one. Nonetheless, we believe that regular publication of the SEP provides a useful perspective on the way FOMC participants are assessing the path ahead. What the June SEP shows is a general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero. Of course, my colleagues and I will continue to base our policy decisions on the full range of plausible outcomes and not on a particular forecast. This risk management approach is the best way we can promote our maximum employment and price stability goals in these unusually uncertain circumstances.

Finally, I want to acknowledge the tragic events that have again, put a spotlight on the pain of racial injustice in this country. The Federal Reserve serves the entire nation. We operate in and are part of many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality. I speak for my colleagues throughout the Federal Reserve system when I say that there is no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy.

These principles guide us in all we do from monetary policy, to our focus on diversity and inclusion in our workplace, and to our work to ensure fair access to credit across the country. We will take this opportunity to renew our steadfast commitment to these principles. We understand that the work of the Fed touches communities, families, and businesses across the country. Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Thank you. I look forward to our questions.

I look forward to our questions question.

Moderator: (10:48)
For the first question, Nick Timiraos.

Nick Timiraos: (10:52)
Yes. Hi. Thanks, Chair Powell. Nick Timiraos at The Wall Street Journal. I want to ask about the economic projections and I realized these are more of an educated guess at this point, but they suggest the committee sees quite a large output gap over the next two years. And yet, the committee did not take any steps to date to reinforce your forward guidance. And so my questions are first, what are you hoping to learn by waiting? Second, how might that change your response? And third, how close is the committee to reaching a decision on a more concrete forward guidance and whether yield caps might reinforce that guidance?

First, I would say that we think that monetary policy today is currently well positioned to support the economy in this challenging time. If we didn’t think that, of course we would change our policy now. As you know, we lowered our policy rate very quickly, quickly than others, to the effective lower bound. And we said that we’ll keep it there until the economy has weathered the effects of the virus and is on track to achieve our goals. You can see that in the dot plot, as I think you pointed out, that overwhelmingly FOMC participants expect, as their baseline expectation, no rate increase at least through 2022. And if you look at surveys of more forecasters and market participants, financial market prices, et cetera, those also appropriately reflect a long spell with rates at the effective lower bound. So the first thing is monetary policy is in a good place and that’s well understood in the markets. Secondly, we’ve also taken strong measures to support the flow of credit in the economy, as I mentioned. And third, we’re continuing asset prices in coming months at a relatively high level. So for all those reasons, we feel like policy is now in a good place. So as we look ahead, we see the path ahead for the economy is highly uncertain and continues to depend to a really significant degree on the path of the pandemic. So at this meeting, what we did was, as I mentioned, we looked in some depth at forward guidance and asset purchases and looked carefully at those.

We also received a briefing on the historical experience with yield curve control. And we’ll continue those discussions in upcoming meetings, and evaluate our stance and communications as more information about the trajectory of the economy becomes available. I would just say in terms of what we’re looking for, we expect to get a better understanding of the economy’s trajectory. And particularly how we should best deploy those tools to achieve those goals. So, that’s really what we’re looking to achieve. And as you can see, we’re actively at work on that.

Moderator: (13:57)
Okay, next. Jeanna.

Jeanna Smialek: (14:01)
Hi, Chair Powell. Thank you so much for taking our questions. I’m curious about your inflation forecast, which are pretty low across the forecast horizon. I guess just given how low you see inflation being over the coming years. Why is policy appropriate now and why not just kind of throw everything you can, everything and the kitchen sink at it currently? And I guess if you could just talk a little bit about what urgency you see in returning it back to that 2% target?

Our current policy stance is appropriate. And remember, we’re using our emergency 13(3) lending tools to an unprecedented extent. We have asset purchases and we’ve now said that we won’t go any lower than this, but that we’re prepared to adjust as appropriate. And rates are at the effective lower bound. So we have all of our tools in use in a strong way. And so what we’re waiting for is to learn more. I think actually, if you look at the May employment report, it’s a pretty good… Probably the biggest data surprise that anybody can remember. It’s a pretty-

… Data surprise that anybody can remember. It’s a pretty good illustration of just how uncertain these times are. The economy’s reopening. We’re going to learn a whole lot about the path of the economy in the next incoming months. So that’s really what we’re looking for. In terms of inflation, you’ll know that we had a 128 month expansion and we never did quite get inflation back to 2% on a symmetric, sustained basis. We got close for the last couple of years, but we never did quite get there. So I think we have to be humble about our ability to move inflation up. And particularly when unemployment is going to be above most estimates of the natural rate, certainly above the median in our SEP, well past the end of 2022.

So I think we’re in the right place now. We are looking carefully at what the … as we learn more and better understand the path of the economy, we will be assessing what’s the best way to deploy all of our tools to achieve our goals in the best possible way. And I’ll just say again, that we are … the May employment report, of course, was a welcome surprise. Very pleased. We hope we get many more like it, but I think we have to be honest that it’s a long road. It’s, depending on how you count it, well more than 20 million people displaced in the labor market, it’s going to take some time and we are going to be deploying our tools, all of our tools to their full extent in pursuit of those goals, however long it takes.

Speaker 1: (16:44)
Okay, Steve Liesman.

Steve Liesman: (16:56)
Thank you, Mr. Chairman. I think I understand how the Fed might react in the event things come out worse than expected. I think I don’t understand how you might react if things come out better than expected, kind of a variant on these other questions. How firm is the commitment to lower interest rates? And if things end up better, do you stick with these low interest rates as you projected them? Or is it specific points that you have in mind, for example, unemployment or inflation that is animating where you want to go, and what are those numbers that you’re looking for that might cause you to change about the policy as it now is projected?

[crosstalk 00:17:37] start. I would say, we just had a period of unemployment, as you know, that was well below 4%, hanging around 3.5%, that lasted two years. And during that period of time we saw a lot of great things happening in the labor market, things that we’d love to get back to. We didn’t see any problems with price inflation, price inflation didn’t react much.

So I would say we’d be looking to get inflation back up and we’d welcome very low readings on unemployment, just based on what we saw in the last expansion. So we’re not thinking about raising rates. We’re not even thinking about, thinking about raising rates. So what we’re thinking about is providing support for this economy. We do think this is going to take some time. I think most forecasters believe that. It would be great if we got a whole bunch of more months of job creation like that, not withstanding that, as I mentioned there are just a lot of people that are unemployed and it seems quite likely that there’ll be a significant group even after a lot of strong job growth that’ll still be struggling to find jobs and we’ll still be providing strong accommodation for that.

James Politi: (19:05)
Thanks very much, Chair Powell. There’ve been plenty of comparisons with the Great Depression of the 1930s, the crisis again, is that scenario sort of got more dire as [inaudible 00:19:21] comes out and we’re looking at a more traditional and sudden recession. Are you at all concerned that the performance, the strong performance in the stock market in the last few weeks is disconnected from economic reality?

[crosstalk 00:19:37] think that the Great Depression is a good example or a likely outcome or a model for what’s happening here at all. I really don’t. And there are just so many fundamental differences. First, the government response has been so fast and so forceful, the origin was quite different. This was an economy that was in a healthy place. Of course, every economy has longer run challenges. That includes our economy, notwithstanding that 50 year low in unemployment and the longest expansion in our history, and every reason to think it could continue. So, that’s different from what was happening around the time that the Great Depression started.

The financial system this time, it was in very good shape, much better capitalized. So it’s just not the right model. I would say we’re learning. Every month that passes, we’re seeing more, we’re learning more. And I think particularly the next few months will be very important in learning what the real story will be, because we’ll see the significant incoming data about the opening of the economy, the reopening of the economy.

And I would say, assuming that the disease remains or becomes pretty much under control, I think that what you see is a very weak second quarter, historically weak, and then an expansion that builds momentum over time. People will adjust probably a little bit gradually to some of the activities that involve getting together in large groups, in close quarters. Those will be the harder parts of the economy to recover, but ultimately we do see a full recovery over time. That’s really what I think I’m personally seeing.

You could see significant job growth in coming months as people return to their jobs, but you’re still going to face probably an extended period where it will be difficult for many people to find work, and that’s what you see in really many, many forecasts at this point. That doesn’t mean it’s right, but that’s sort of a broad expectation, certainly not the depression forecast.

Speaker 1: (21:49)
Thank you. Chris from the Associated Press.

Christopher Rugaber: (21:57)
Hi, thanks for taking our questions. Well, in the projections the policy makers didn’t change their forecast for long run unemployment, so that suggests that all of you so far don’t see necessarily prospects for longterm damage, but still, what kind of data are you looking at here to gauge the potential for longer term hits to the economy, even as we have something like the May jobs report still have at the same time people return from temporary layoff, there could still be permanent job losses. So what kind of data are you looking at to gauge that potential impact and what is it telling us so far?

This is a really important risk, and I think it’s not the risk for the next few months, but it’s the risk over time of lasting damage to the productive capacity of the United States. Typically, in two forms. One, through extended periods of unemployment, people lose contact with the labor force, they get out of touch with the skills that they need and they have a hard time getting back in. It’s very damaging to people’s lives and their working lives, and it also, in a way it can increase the unemployment rate, but it can also lower the labor force participation rate, which is almost worse in a way to have people dropping out of the labor force where we need them in the labor force working.

The other piece of it is just businesses. A shock like this that just comes in, it’s like a natural disaster. You wouldn’t want a lot of perfectly good businesses, particularly the smaller and medium sized businesses that may not have a lot of resources to sustain them, to go out of business permanently in a situation like this, where really there was no reason for it.

Of course businesses are going to go in and out. They’re going to fail all the time, and that’s a healthy thing in capitalism. That’s something that has to happen, but this is different. This is a [inaudible 00:23:54] potentially. So those are the things we’ve been worried about. You’re right that we didn’t change our longer run estimate of potential growth or of the unemployment rate. I would say in my thinking, the reason I didn’t change mine, is that I think we can avoid that or avoid much of that. Most of that even. We do that with measures that keep people in their homes, that support hiring, that support growth, that avoid unnecessary avoidable business insolvencies. That’s all the things that we’re trying to do.

Basically, if you look at what’s happened, as I mentioned, there’s something somewhere short of 25 million people have been displaced even after the good May employment report. What we’re trying to do is create an environment in which they have the best chance either to go back to their old job or to get a new job. That’s kind of the most important part of this exercise. And maybe these, it’s probably hopeful at this point to say that we won’t have a longer run damage to the economy and these numbers won’t change. So, but I think it’s way too early to be changing longer runs. These are not meant to be short run numbers. They’re called, they’re longer run assessments. So I have not changed mine, and I’m hopeful that I won’t have to change it.

Speaker 1: (25:11)
Heather Long.

Heather Long: (25:27)
Good afternoon, Chair Powell. I’m struggling with two things that I’m hoping you can provide some clarity on. First is the ongoing bond buying program. You say that it’s needed to continue the smooth functioning of markets, but I guess most of us aren’t really seeing [inaudible 00:25:42] instability in markets right now. So if you could kind of give us some clarity of what you’re seeing that needs to continue to be smooth at that level and that pace.

Heather Long: (25:51)
Second is you were just talking about Fed concerns about small and medium size companies going out of business during this. And I guess the main street lending program still isn’t running yet, when do you expect loans to start happening? And do you think that the two month delay has hurt the chances of some companies surviving?

There have been gains in market function, although not fully back to where you would say they were, for example, in February, before the pandemic arrived. We don’t take those gains for granted though. This is a highly fluid situation and we’re not taking those for granted. In addition, as I pointed out in my statement, those purchases are clearly also supporting highly accommodative or accommodative financial conditions, and that’s a good thing. So that’s why we’re doing that.

Turning quickly to main street. So I would say that what we’ve done on main street, I think to a greater degree, is we’ve listened to feedback. So we’ve been out repeatedly for feedback in trying to create a much more difficult product than really the other facilities. And I think this last set of changes we made have actually been very positive for the facility.

I think it’s going to be better able to achieve its goals, and so we’ve used the time well, I think. We are now in the final run up to starting the facility. What we did as you saw earlier, I guess it’s early this week or late … whenever we did it, in the last few days was we lowered the minimum loan size and we increased the maximum loan size. But I think even more importantly, we lengthened the maturity and we stretched out the repayment schedule significantly. So borrowers will get a two year delay until they have to make any principal repayments and a one year delay on interest.

So we had been hearing from both borrowers and lenders that these would be very helpful. We made the changes, we’re putting them through the facility. The next step will be to register lenders. At that time loans can begin to be made. Shortly after that, the facility itself will be up, and those loans can be sold. 95% of the loans, and it’s 95% across the board now in the main street facility can be sold. So all of that should happen quickly now. And I do think this has been a challenging project, but I think we’ve come to a better place. And by the way, we’re going to be prepared to adapt further if we need to, and that’s true of all of our facilities. These are unique. There’s no playbook here. You have to draw this up and then try it out. And we’ve been very willing to adapt and will continue to be.

Speaker 1: (28:48)
Matt from Bloomberg.

Matthew Boesler: (28:52)
Hello, Chair Powell. This is Matthew Bosely with Bloomberg news. I wanted to ask you about regulatory forbearance. There were some piecemeal forbearance measures put into place in various jurisdictions and also to a slice of the mortgage market to prevent banks from foreclosing on such debts amid the widespread financial hardships caused by the pandemic, and with many of those set to expire soon, and many businesses and households still in dire financial straits, I’m wondering if any consideration is being given at the Fed to more comprehensive regulatory forbearance measures or other regulatory measures to prevent businesses from going under just because they can’t meet those payments. There have, of course been some tweaks to the paycheck protection program on the fiscal side to address this, but I wanted to ask you about things you might be able to do on the regulatory side as well. Thank you.

We can make changes to bank regulation and supervision. I don’t know that we have the ability to make changes, for example, in mortgage payments, if that’s what you’re thinking of, or credit card payments. That’s something that could be legislative, or it could just be what the banks themselves are doing. There’s been a tremendous amount of forbearance on the part of the banks, and I guess …

… there’s been a tremendous amount of forbearance on the part of the banks, and I guess our role there would be to encourage it, but those are not decisions that we hold any legal authority to make, and by the way, we have encouraged those decisions. I hope that’s responsive to your question.

Speaker 2: (30:21)
Hey, Scott Horsley, NPR.

Scott Horsley: (30:26)
Thank you, Mr. Chairman. I know you’re loathe to weigh in too heavily on fiscal policy, but given your forecast for elevated unemployment rates, do you think it’s important that Congress extend the $600 a week extra unemployment benefits?

I think we try to keep our comments on fiscal policy at a high level, and I’ll come to your specific question, but I would just say this: this is the biggest economic shock, in the US and in the world, really, in living memory. We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months. Extraordinary. And appropriately, the response from fiscal authorities has been large, forceful, and very quick by the standards of these things. Roughly $3 trillion Congress has authorized, and that’s benefiting households, laid-off workers, small, medium, and large businesses, hospitals, state and local goverments. 14% of GDP, it’s in a class by itself in terms of both the size and the speed of it, and it’s also pretty innovative. Both the PPP and the unemployment insurance are quite innovative in American contexts, and there were difficulties in implementing it, but that’s really a function of their novelty, I think.

By the way, let me add, the Fed, also, we both innovated and acted proactively and aggressively as well. If you put those together, all of that is making a difference now. You look at the income data, the expanded unemployment insurance and also the stimulus checks have gone a long way to replacing lost income from job loss. I think you’re seeing it in the job market data, many are giving the PPP credit on that front, and in keeping small businesses going. So it’s, so far, it’s a good response and it’s having a big effect. You get to, the question is, it’s big, everyone can see that it’s big. Is it going to be big enough? And that is the question, and the question that I’ve been concerned about, really, is this issue of longer-run damage to the economy. We’re doing a fair job of getting through these first few months, more than a fair job. The question though, is, that group of people who won’t be able to go back to work quickly, what about them? And that could be many millions of people, who worked in parts of the economy that will be the slow ones to recover. We want those people back in the labor force, we want them getting jobs, and they’re going to need, possibly, probably will need, I will just say this. It’s possible that we will need to do more and it’s possible that Congress will need to do more.

In terms of the $600 unemployment insurance, I wouldn’t try to give Congress advice on the specifics of that. I know they’re looking at, I mean, I know from both talking to people and reading the papers that they’re looking at a whole bunch of different possible approaches going forward, and some of those seem kind of promising. So we’re happy to give advice if people ask for it, but probably not publicly.

Speaker 2: (33:50)
Thank you. David Gura.

David Gura: (33:54)
Thank you. Chair Powell, I’m going to pick up on what Scott Horsley was asking just a moment ago. You have been studious about threading this needle in the interviews that you’ve given and speeches and the colloquy that’s followed, not giving advice to Congress, but indicating that there’s likely to be a need for more fiscal stimulus or additional policy in the future, so I’m going to try a hypothetical here and you can rebuff it if you want, but if you were to find yourself in a senator’s office suite and he held up that May unemployment report, which you’ve described as unexpectedly positive and a welcome surprise, and if he or she said to you “Look, this is an indication that we can put on the breaks,” I wonder what you would say.

David Gura: (34:31)
Your message throughout this crisis has been one of how unprecedented it is, about how much urgency there is in dealing with this, and we’ve seen that from the Federal Reserve. I wonder if you worry that that sense of urgency isn’t being matched and what the consequences of that might be, if there’s a fear that the Fed could be seen as a Cassandra here as we look at that unemployment report and then through the summer, and you have more and more politicians inclined just to wait and see what happens here in subsequent reports.

David Gura: (34:58)
And a quick second question if I could, you’ve talked a lot about your fear about a second wave of this disease, and it strikes me, there’s a difficulty here with definition. You’ve talked about us weathering this crisis and getting through this storm, it seems to me as I listen to the chatter coming from the White House and from politicians and epidemiologists, there isn’t agreement on what getting through this means, and you have an administration now inclined to, if not direct, be content with states opening up their economies perhaps too early. How problematic is that from a policy perspective, not having agreement on what it means to have defeated this virus or gotten to a place where the economy can [crosstalk 00:35:35]-

[crosstalk 00:35:35] advice, but I will provide a little context for-

David Gura: (35:38)
Okay, som I’m not going to give your-

… I want to be clear about the picture, one way to look at the picture, really, and that is this. You can get at this by looking at the widest measure of unemployment, of labor market slack, if you will, is the U6 measure. The one we talk about all the time is called U3, by economists, and the one that has a much broader measurement of slack in the economy is U6. So in U6, the U6 level of unemployment has tripled from 7% to 21%. That amounts to 22 million additional people who’ve lost work in the economy, either by going to part-time or something like that. So that’s in the low 20s, and that’s post the May employment report.

You can get at it a different way, you can look at just the regular unemployment rate, you can take the 21 people who list as unemployment now, you can add more on for the ones who were miscoded, you can also take those people who are suddenly out of the labor force, you put those together, and that has gone up by about 24 million. So those are two different measures of what’s happened. So the question is, 22, 24 million people, got to get them back to work. Somehow we got to all, as a country, get those people back to work. They didn’t do anything wrong, this was a natural disaster, and I really, I do think the response so far have been great.

So that’s the way I would think about it. I would just, in terms of the May unemployment report, it’s so nice to see. I mean, I think what people were thinking was that you’d start to get those back to work kind of numbers in June and July and August, very few people saw them in May. I mean, almost no one saw that happening as early as mid-May, but it did. And so we don’t know fully what that means, whether it’s just a timing change or whether it will prove to be much more than that. We’re going to have to wait and see. As I mentioned earlier, it is clear evidence of just how uncertain things are, and how humble we have to be about our ability to really have confident predictions as opposed to just predictions.

So, bottom line, I would just say the key thing people need to understand is that there’s just a lot of work to do in the labor market. We’re going to stick with this and support that until the work is done. That is something we’re going to do with all of our tools, and I think it may require Congress to help as well. It may, but that’s going to be their decision.

Oh, and you also asked about the second wave. We have major responsibilities and powerful tools, but the decision about when to reopen the economy is one for elected officials at the state and local and federal level, and if they ask, we don’t have any particular expertise here at the Fed in pandemics or coronaviruses or anything like that. We talk to experts, but we don’t have anything special to add on that. I would just say it’s kind of self-evident, I think, that if it happens, the issue would be, first of all, people’s health, but secondly, you could see a public loss of confidence in parts of the economy that will be already slow to recover, so it could hurt the recovery, even if you don’t have a national level pandemic, just a series of local ones, of local spikes could have the effect of undermining people’s confidence in traveling, in restaurants and entertainment, anything that involves getting people together in small groups and feeding them or flying them around, those things could be heard. So it would not be a positive development, and I’ll just leave it at that.

Speaker 2: (39:37)
Thank you. Edward Lawrence?

Edward Lawrence: (39:40)
Thank you, Chairman Powell, for the question. [inaudible 00:39:43] lending facilities. In May, we saw at least 55 companies file for bankruptcy. Do you think that it is too late, first of all, second of all, the future of these facilities, is this a one-year impact to the economy, to these facilities, or is this a multiple-year? If so, how man years?

We have significant interest, we think. Also, remember, lots and lots of companies are getting financed, too. The banks are lending, the markets are open, you have a much better lending climate than, certainly than we had in February and March. We don’t think it’s too late, though, and we do expect it to be up quite soon.

In terms of the timing of these things, so we’ll leave them open for new loans as long as they need to, that’ll be a decision we make, of course, with our colleagues at the Treasury Department, and at a certain point there won’t be a need for further loans, and then the assets will be there. So if that’s, I don’t know if that’s part of your question too, but I would just say that at that point, the useful role of the Federal Reserve is probably close to an end at that point. We don’t have any expertise in managing pools of credit assets, loans, if you will, or bonds, and we don’t really want to be part of the decisions that have to be made to manage such a portfolio, so we’d be looking to have that done either someplace else or by a third party or at the Treasury Department or something, and we’re working on ideas for that. But our real focus now is on getting these facilities going and getting them to do the job that they need to do.

Speaker 2: (41:38)
Thank you. Jonnelle, with Reuters.

Jonnelle Marte: (41:43)
Thank you, Chair. So I have two quick questions. One is, if we have hit bottom to the economy, and the second question is regarding the way that the pandemic has exacerbated racial inequality. I wanted to ask to what extent do you think you can factor in both disparities when you’re thinking about [crosstalk 00:42:04]-

I would say that many forecasters had been expecting a bottom for the economy around the middle of the year, with a huge range of uncertainty. I think the labor market, the evidence of one jobs report is that the labor market may have hit bottom in May. We don’t know that, we’re going to see. And many forecasters widely expect a recovery over the second half of the year, so it is possible. But the thing is, we’re not going to overreact to a single data point. We’re going to be very careful about reaching any conclusions about good data or bad data, so I think we’re going to be here with our tools supporting this economy for as long as it’s needed. But I think there’s a possibility that the bottom has come in the labor market, but we don’t know that yet. We’ll know more as we go forward.

So in terms of the effect of the pandemic on inequality, what you see, the pandemic, of course, hits everybody, but in an economic sense, it hits those industries that involve groups of people in tight groups, either in places where they’re, it’s the travel, leisure, restaurant, bars, those kind of service economy jobs, and so a lot of the lost jobs were from people who work in the service economy, dealing with the public, for example, and relatively, compared to other jobs, relatively low wages. If you just look at what that is, unemployment has gone up more for Hispanics, more for African Americans, and women have borne an extraordinary, a notable share of the burden beyond their percentage in the workforce. So that’s really, really unfortunate, because if you just go back two months, where we were was, we had, effectively, the first tight labor market in a quarter century, and for the last couple of years before the pandemic hit, you were seeing wages go up the most for people at the lower end of the wage spectrum, and that was great.

We were meeting with people from low and moderate income communities all over the country and hearing “Don’t change this, do whatever you can. Keep this going, this is the best labor market we’ve seen.” And we had every expectation, every reason to expect that this would continue, and then this comes. So it’s heartbreaking, and we want to get it back. We really want to get it back, and so I think we learned a number of things over the course of the last few years. One of them is that you can have 3.5% unemployment for a couple of years, and really you see modest moves in …

… employment for a couple of years, and really you see modest moves in wages and relatively, almost invisible moves and inflation. That was not anybody’s understanding of the structure of the economy, I think, or most people’s anyway.

We can use our tools to support the labor market and support the economy. We can use them until we do fully recover. That’s what we’re planning to do. We don’t target different groups. We are cognizant of the fact though, that late in the last cycle, late in the last expansion, the benefits really do go more to people at the lower end of the wage spectrum for the first time in many years when labor markets are tight, when unemployment is low. We would really like to get back to that place.

Speaker 3: (46:00)
Victoria, Politico.

Victoria Guido: (46:04)
Victoria Guido with Politico. I just wanted to follow up on a couple of things that have already been asked.

First of all, on fiscal policy, you all obviously put out your summary of economic projections today. I’m curious to what extent future fiscal policy is factored in or not factored in to those projections and how more or less fiscal policy might affect those projections.

Then my other question is, on main street, you’ve mentioned multiple times that the fed and treasury are willing to expand the program further. My question is, what’s the threshold for those types of changes? Is it just making sure that borrowers that want to borrow through the program or are able to do that?

In terms of the the way we do forecasts is we don’t tend to incorporate things we’re highly uncertain about. I think the forecast would not have included substantial, additional, big additional fiscal support for the economy. Maybe a modest amount, something that looks like a low end guess on what might come out of the current negotiations. That’s basically what would be in the baseline. Of course, if there were more fiscal support, you’d see better results sooner. But that’s a question for Congress. We’re spending a lot and that’s really what they get to decide.

In terms of main street and our willingness to expand it further, I think one thing we’re looking at, very strongly looking at is non-profits. Is there a way to incorporate them into that facility or a similar facility? That’s another dimension. If we had a great idea for changing main street, we would have done it. We have done some things that I think are really very positive lately here. But as we learn more, it could be in terms of size, it could be in terms of lots of different things. But I think we have a good product to go to market with now. I think it’ll get out there soon. We’ll see, and we’ll be willing to continue to adapt.

Speaker 3: (48:18)
Thank you. Don. Thank you. Don Lee.

Don Lee: (48:24)
[inaudible 00:48:24] As you know the vast majority of people who have been laid off are expecting to be recalled by their employers. At this point, what is your expectation of how much of these job losses will be permanent?

[inaudible 00:48:42] reliable estimate on that. Clearly, not everyone will go back. I would say many will go back, but what’s going to be the remainder when we reach sort of what is the new normal? It’s so uncertain, but it could be a good number of millions of people, I think in many estimates. I’d say you’re so early in the process. For example, people are going back and looking at other significant changes in the economy, and they’ve seen how many people go back when, for example, there’s a technological change and things like that, you may have seen some of this research, and you come up with an estimate.

It’s just going to be very hard to say. But my assumption is that there will be a significant chunk chunk, well into the millions. I don’t want to give you a number because it’s going to be a guess, but well, well into the millions of people who don’t get to go back to their old job. In fact, there may not be a job in that industry for them for some time. There will eventually be, but it could be some years before we get back to those people finding jobs.

I mean, when, when people lose a job, if they can find a job in their own industry, that’s usually the fastest way, is they know other people in that industry, different kinds of jobs. That’s usually the fastest. If you have to go to a different industry and start over again, it’s much harder, and that’s where you start to lose people who are, just fall out of the labor force. It’s very tough on their lives. We all know people to whom that happened in the global financial crisis. Hence our desire to do what we can to support this and support this recovery with the tools that we have.

Speaker 3: (50:32)
Thank you. Nancy Marshall-Genzer. Thank you. Nancy Marshall-Genzer.

Nancy Marshall-Genzer: (50:38)
[inaudible 00:50:38] Chairman Powell, I want to go back to the issue of inequality. I’m wondering, what more could the Fed do [inaudible 00:50:47] economic inequality in this country? I mean, I know that you said you don’t target certain groups, but is there a way that you could use, for example, the black unemployment rate is at some kind of a benchmark to [inaudible 00:51:00] something you want to need or something that you keep track of?

We do. We do track all unemployment by all kinds of, as you know, all kinds of different demographics, including particularly the African-American unemployment rate, which reached an all-time low since the data started being kept in the modern era. Of course, it’s still close to twice the white unemployment. It is twice the unemployment rate, or it was back at back then. It’s certainly much higher now. The best thing we can do with our monetary policy tools is to look at the evidence of what we saw with our own eyes so recently, which is that the economy can have very low unemployment, very low unemployment, it could have been lower than we were, it could be lower than three-and-a-half percent without seeing financial imbalances, without seeing inflation getting out of control. We frankly didn’t even get inflation back up to target without seeing wages getting out of touch with where they should be. That’s the biggest thing we can do.

Inequality is something that’s been with us increasingly for more than four decades. It’s not really related to monetary policy, or it’s more related to, there are a lot of theories on what causes it, but it’s been something that’s more or less been going up consistently for more than four decades.

There are a lot of different theories. One of which is that globalization and technology call for rising levels of skills and aptitudes and education, and the US educational attainment kind of flattened out, certainly relative to our peers, flattened out over that period. That means if you’re on the right side of those trends, then those things are good for you. If you’re not, then your wages are going to stagnate. Wages for the bottom 10% really haven’t gone up in real terms in a very long time. Over a long period time, where’s the wages for the people at the top compensation, any way you cut it, before taxes, after taxes, after transfers, all of those, any way you cut it, compensation has gone up a whole lot for people at the top, and it really hasn’t gone up for people at the bottom. If you look more in the middle, then it has gone up for most other groups. But at the bottom, not so much in real terms, inflation adjusted terms.

We call it out as an important factor in the economy, and we will use our tools to support maximum employment and take that definition to heart. But obviously that’s something that’s going to require an all-of-society, all-of-government response.

Speaker 3: (53:45)
Thank you for the last question, we’ll go to Michael McKean. Thank you for the last question, we’ll go to Michael McKee with Bloomberg TV.

Michael McKee: (53:53)
Mr. Chairman, Michael McKee, Bloomberg Television and Radio.

I came across a statistic the other day that amazed me. Since your March 23rd emergency announcement, every single stock in the S&P 500 has delivered positive returns. I’m wondering, given the levels of the market right now, whether you or your colleagues feel there is a possible bubble blowing that could pop and setback the recovery significantly, or that we might see capital misallocation that will leave us worse off when this is over?

Second, inequality is not just about wages, it’s also about wealth. A number of studies have suggested that by keeping rates low for so long and targeting the markets after the great financial crisis, that the Fed did contribute to wealth inequality in this country. I’m wondering if you think there is some tweak or some message you could give that would affect that?

What we’ve targeted is broader financial conditions. If you go back to the end of February and early March, you had basically the world markets realized at just about the same time, I remember that Monday, that there was going to be a global pandemic and that this possibility that it would be contained in one province in China, for all practical purposes, was not going to happen. It was Iran, Italy, Korea. It became clear. From that point forward investors everywhere in the world for a period of weeks wanted to sell everything that wasn’t cash or a short-term treasury instrument. They didn’t want to have any risk at all.

What happened is markets stopped working. They stopped working and companies couldn’t borrow, they couldn’t roll over their debt. People couldn’t borrow. Financial turbulence and malfunction, a financial system that’s not working can greatly amplify the negative effects of what was clearly going to be a major economic shock.

What our tools were put to work to do was to restore the markets to function. I think some of that has really happened, as I mentioned in my opening remarks, and that’s a good thing. We’re not looking to achieve a particular level of any asset price. What we want is investors to be pricing in risk, like markets are supposed to do. Borrowers are borrowing, lenders are lending. We want the markets to be working. Again, we’re not looking to a particular level.

I think our principal focus though is on the state of the economy and on the labor market and on inflation. Now inflation of course is low, and we think it’s very likely to remain low for some time below our target. Really it’s about getting the labor market back and getting it in shape. That’s been our major focus. I would say if we were to hold back because, we would never do this, but the idea that, just the concept that we would hold back because we think asset prices are too high, others may not think so, but we just decided that that’s the case, what would happen to those people? What would happen to the people that we’re actually, legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing.

We’re also pursuing financial stability, but there you have a banking system that is so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, more highly liquid. You have all of those things. Even lending, they’ve been taking in deposits. They’ve been a source of strength in this situation.

I would say that we’re tightly focused on our real economy goals. Again, we’re not focused on moving asset prices in a particular direction at all. It’s just, we want markets to be working. I think partly as a result of what we’ve done, they are working. We hope that continues.

Thank you very much.

Speaker 3: (57:59)
Thanks.

Jerome Powell Fed Press Conference Speech Transcript June 10

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