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Federal Reserve chairman Jay Powell discusses the state of the economy, bigger changes in the job market and why wages haven’t caught up with other economic trends in a conversation with Judy Woodruff. At the Atlantic Ideas Festival, Powell also explained why he supports “gradually” increasing interest rates and how the strong economy hasn’t reached every American.
Now a conversation with one of the most important policy-makers in the world about the state of the U.S. economy, shifts in the job market, and a look at why Americans' wages still stubbornly lag behind other economic trends.
I sat down this afternoon with the chairman of the Federal Reserve, Jay Powell. It was part of the Atlantic Ideas Festival, taking place at the Harman Center for the Arts here in Washington, D.C.
Hello, Mr. Chairman.
Hi, Judy. How are you?
Delighted to be here with you and with everybody here.
So, as we sit here on October 3, 2018, we seem to be in a Goldilocks economy. The economy is growing at a healthy clip. Inflation seems to be under control. The unemployment rate is — is down, some say historically down. And we have a stock market that just seems to keep breaking records.
How long can it last?
I wish I knew.
So, you're right. The economy, initially, after the Great Recession, began growing in the second half of 2009, and at times struggled. But we have made a lot of progress slowly over the years.
And now I'm very happy to say that we're — we are at — 3.9 percent unemployment is the lowest in 20 years. We're growing at about 3 percent, which is above almost everyone's estimate of the longer-run trend growth, which implies that, if we do grow at that rate, unemployment will go down further. If does, it'll be the lowest unemployment rate in 50 years, since the late 1960s.
Meanwhile, inflation is right at our 2 percent goal. So it's a remarkably positive set of economic circumstances. And I — you know, we're working hard to try to sustain the expansion and keep employment — keep unemployment low and keep inflation right on target.
But do you think it can go on indefinitely?
Indefinitely is a long time.
I think there's no reason to think that it can't continue for quite some time, though.
Eventually, external events, exogenous events happen, and not every business — business cycles don't last forever. But there's — there's really no reason to think that this cycle can't continue for quite some time, effectively indefinitely.
So, let's talk about two of those measures.
Unemployment, you talked about it, it's under 4 percent. It's been declining. Inflation, it's hovered, what, around 2 percent…
Right around 2 percent.
… for a long time.
Now, the Fed used to consider it a trade-off. When the unemployment rate was dropping, there were worries that inflation was going to go up, and vice versa.
Has that cycle ended? Do we know? Are we no longer seeing that kind of a trade-off anymore?
So, it has changed. It's — you can't say that it's ended.
If you go back to — the last time we had unemployment below 4 percent was the late 1960s. So, for four years, you had unemployment go into the mid 3's, and inflation took off. So there was a strong relationship between very low levels of unemployment and tight levels of resource utilization, inflation.
And central banks around the world really stepped up and got inflation under control. And to the extent the public believes that central banks will keep inflation around 2 percent, which is one of our main jobs, that has tended to reduce the sensitivity of inflation to changes in unemployment.
That's where we are now. But we got there by having a credible commitment to keeping inflation on target. So it's not something we can — we have to keep that commitment. But, for now, our inflation dynamics are that inflation remains at 2 percent, and it doesn't react very much to — even to further declines.
Let's talk about wages.
Growth, wage growth overall still very sluggish, not withstanding Amazon's announcement yesterday that it's raising the minimum wage there. Do you expect that to continue?
So wages, if you go back about five years, you saw the range of wage and compensation measures were clustered around 2 percent growth.
Now, those measures are around 3 percent growth, which is sort of consistent with the underlying economics. Wages and compensation should cover inflation, plus the increase in productivity, which amounts to about 3 percent.
The mystery really is, why, in a very tight labor market — we get reports from all around the country, from country — companies in different industries, that — that labor markets are really tight, they can't find qualified people. So it's a bit of a mystery why they're not bidding up this scarce commodity of labor more.
So, we do — we have seen a gradual increase in wages. And my own expectation would be that we would continue to see some of that. And it would be quite welcome. We don't think that we're in danger of a situation where — particularly imminent danger of a situation where wage increases are going to promote price inflation.
And our focus is price inflation.
But do you think something may have fundamentally changed about what's going on with wages? I mean, are we now at a point where workers' bargaining power has declined in a significant, long-lasting way?
There may be something in that, yes.
It's a different — I think, in an era of globalization and an era of technological evolution, it may be that workers and companies have internalized the idea that lots and lots of jobs can be done all around the world, or can be, you know, supplanted by technology.
So, there may be something in that.
I would say, though, it's — you know, as we always say, it's too soon, really, to say. Wages have been moving up. And that's in keeping with a tight labor market. And we do expect that to continue.
Still on jobs.
A number of experts out there who point out there were many people who were laid off from their jobs, from their work during the recession who were never able to get back to full-time work, that many of them ended up in part-time jobs, and some of them just stopped looking altogether.
How do you read that? What is your sense of that?
No, so it's true.
I mean, the financial crisis costs a lot of people their jobs and their homes and their careers and their hopes and dreams to some extent. And so we want to avoid that. And, you know, over the 10 years, really, since the depths of the crisis, we have seen a tremendous recovery in the in the labor market and the economy generally.
Labor force participation is back up to normal levels, in fact, even indeed above normal levels. It doesn't mean that this strong economy is — has reached every American. It hasn't. You know, we know that there are demographics and their are regions and industries and individuals who have not have not been affected, haven't gotten their jobs back.
And so these big negative events are quite costly, like a financial crisis. So we have done really a lot of things over the course of the last decade to try to avoid having that experience again.
Now, let's talk about something — I guess your favorite subject, interest rates. Right now, it seems to me half the world is worried that you are raising rates too slowly. They say growth is so strong, the labor markets are so tight, inflation could take off.
The other half of the world doesn't want you to raise rates at all or as much as you are. They argue you are widening the inequality gaps that are already out there, that, as we have been discussing, wages are too low.
You obviously think you're threading the needle about right. But what makes you so sure?
So it sounds like we're doing something right.
I will talk about the two risks that you mentioned. So the first risk is that we — that we move too quickly and we prematurely end the expansion, and inflation never gets solidly back to 2 percent.
And that's always a risk at this point in the cycle, where the economy has been growing now for nine years. It's in its 10th year of growth.
The alternative risk is that we move too quickly — too slowly — sorry — and the — too slowly — and the economy overheats. And that can show up in the form of too high inflation or financial market imbalances and that kind of thing.
So you look at those two risks. So, for a long, long time after the financial crisis, the second risk wasn't a risk at all. We were far away from full employment and inflation was below target. So, we kept rates low for a long, long time. We kept them at zero for a long time.
And we had a lot of advice to move more quickly and raise interest rates. And I'm very happy we didn't follow that advice, because I think it benefited the country, benefited workers and their families.
So, now we have come to a situation where unemployment, as I mentioned, is close to a 20-year low and headed lower, by all accounts. And the really extraordinarily accommodative low interest rates that we needed when the economy was quite weak, we don't need those anymore. They're not appropriate anymore.
We need interest rates to be gradually, very gradually moving back towards normal.
President Trump, as you have noted, he started out early on talking about how he believes the Fed should remain independent.
And he's been given credit for appointing high-quality nominees to the Fed Board. But he's also this summer — this past summer criticized the Fed, the policy of raising rates.
Do write that off as — excuse me — as just politics? Or does it put some kind of pressure on you, as the chairman of the Fed? And does it harm the institution, because this is something presidents have rarely done?
We — my focus is essentially on controlling the controllable. And that's — we control what we do.
What we do at the Fed.
And, you know, this is — to anyone who has known our institution over time, this is just who we are and I think who we will always be, which is, we're a group who — we're quite removed from the political process.
And we look at the best thinking, we look at the data very carefully, we try to get disparate views, try to come to a consensus, and try to do the right thing. We're insulated from political cycles, because our terms run — they don't run continuously — or the same cycle as elections.
And we just try to do the right thing for the medium and longer term for the country. And, you know, that's — I think that's why a lot of people want to work at the Fed, is because there's tremendous satisfaction doing that.
We don't let other things distract us. And we're just going to focus on — on those jobs. That's just always how we're going to be.
Did you have a communication privately with the president after he made those comments?
You said recently that you have been hearing a rising chorus of concerns from businesses around the country about tariffs.
What exactly are you hearing?
People are concerned about rising material costs and tariffs and the loss of markets and supply chains in a big way.
These supply chains have been under construction, and now very fully built out over the course of almost a quarter-century. So they're very important to the way the global economy works. We have been hearing concern about that.
You don't see anything in the numbers. And maybe you wouldn't expect to yet. But you don't see — we don't see, detect any slower growth or lower investment or lower hiring or any — any of the effects that might flow from more uncertainty on the part of business.
What keeps you awake at night, if anything, when it comes to this economy and the world economy?
Nobody — nobody wants a central banker who sleeps well, right?
What good is that?
You know, I think — we — if we get — getting monetary policy right, the question you started with, is so important for the public.
And so we — all of us who work at the Fed think — this is the thing we think about all the time if we work on monetary policy, is, we have got to get that right, and — because the benefits of doing that are very broad for the country.
And there — it's a world full of risks. Many things can go wrong. And I probably lose sleep over different things every night.
Do you worry — how much do you worry that there could be another financial crash?
My guess is that the next set of problems we have won't look a lot like the last set of problems we had.
I think there's — we don't detect measures of financial stability — of financial instability as being elevated at this time. They're sort of in the moderate range, in our view, the view of our staff, and certainly in my view.
So it's — it'll be something else, a cyber-attack or some kind of global event. Those are the kinds of things. Or maybe it will surprise us and look exactly like the last one.
But I — we don't really see — you don't see the kind of buildup of risks in the financial markets, or let alone in the banking system, where — where we see much higher capital and actually less risk being taken.
Meanwhile, we're in Goldilocks time.
Your words, not mine.
Chairman Jay Powell, thank you very much.
Watch the Full Episode
Judy Woodruff is a senior correspondent and the former anchor and managing editor of the PBS NewsHour. She has covered politics and other news for five decades at NBC, CNN and PBS.
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