Jerome Powell Remarks on Economy Transcript October 6: Calls on Congress for More Support

Lisa Emsbo-Mattingly: (00:00) ... continues to evolve. For example, our tech economist group now likely numbers as one of the largest groups within name. The Fed has also shown its ability to evolve and their announcement after much deliberation, discussion, research and outreach of their new policy framework highlights this ability to evolve. Chair Powell took on the leadership at the Fed in 2018 after serving as a governor since 2012. Chairman Powell brings a broad range of experience to his stewardship of the Federal Reserve. Lawyer, Treasury Department undersecretary, policy scholar, and capital market participant. This broad range of skills has helped Chairman Powell navigate some of the rockiest and most unprecedented events of the past century. Once again, it's a great pleasure to introduce Chairman Powell to our annual meeting. For participants that would like to ask a question, please enter them in the chat. I now turn you over to Jay and thanks again for joining us. Jerome Powell: (01:13) Thank you, Lisa. And also [inaudible 00:01:15] and Ellen, it's good to see all of you. Good morning. So it has been just eight months since the pandemic first gained a foothold on our shores, bringing with it the sharpest downturn on record as well as the most forceful policy response in living memory. Although it's too early for definitive conclusions, today I will offer a current assessment of the response to the economic fallout of this historic event and discuss the path ahead. As the coronavirus spread across the globe, the US economy was in its 128th month of expansion. The longest in our recorded history. And was generally in a strong position. Moderate growth continued at a slightly above trend pace. Labor market conditions were strong across a range of measures. The unemployment rate was running at 50 year lows, PCE inflation was running just below our 2% target. Jerome Powell: (02:10) The economy did face longer-term challenges as all economies do. Labor force participation among people in their prime working years had been trending down since the turn of the millennium and productivity gains during the expansion were disappointing. Income and wealth disparities had been growing for several decades. As the expansion continued its long run however, productivity started to pick up, the labor market strengthened and the benefits of growth began to be more widely shared. In particular, improved labor market conditions during the past few years encouraged more prime aged workers to rejoin or remain in the labor force. Meanwhile, real wage gains for all workers picked up, especially for those in lower paying jobs. Most economic forecasters expected the expansion and its benefits to continue and with good reason. There was no economy threatening asset bubble to pop and no unsustainable boom to bust. While non-financial business leverage appeared to be elevated, leverage in the household sector was moderate. Jerome Powell: (03:20) The banking system was strong with robust levels of capital and liquidity. The COVID-19 recession was unusual in that it was not triggered by a buildup of financial or economic imbalances. Instead, the pandemic shock was essentially a case of a natural disaster hitting a healthy economy. Given the condition of the economy in the early stages of the crisis, it seemed plausible that with a rapid, forceful and sustained policy response, many sectors of the economy would be able to bounce back strongly once the virus was under control. That response would need to come from actions across all levels of government from health and fiscal authorities and from the Federal Reserve. It also seemed likely that the sectors most effected by the pandemic, those relying on extensive in-person contact, would face a long and difficult path to recovery. These sectors and people working in them would likely need targeted and sustained policy support. Jerome Powell: (04:24) Some asked what the Fed could do to address what was essentially a medical emergency. We identified three ways that our tools could help limit the economic damage from the pandemic; providing stability and relief during the acute phase of the crisis when much of the economy was shut down, vigorously supporting the expansion when it came and doing what we could to limit longer run damage to the productive capacity of the economy. When it became clear in late February that the disease was spreading worldwide, financial markets were roiled by a global flight to cash. By the end of the month, many important markets were faltering raising the threat of a financial crisis that could exacerbate the economic fallout of the pandemic. Widespread economic shutdowns began in March. And in the United States with many sectors shut down or operating well below capacity, real GDP fell 31% in the second quarter on an annualized basis. Employers slashed payrolls by 22 million with those on temporary layoff, rising by 17 million. Jerome Powell: (05:31) Broader measures of labor force conditions such as labor force participation and those working part-time for economic reasons showed further damage. In response, we deployed the full range of tools at our disposal, cutting rates to their effective lower bound, conducting unprecedented quantities of asset purchases and establishing a range of emergency lending facilities to restore market function and support the flow of credit to households, businesses, and state and local governments. We also implemented targeted and temporary measures to allow banks to better support their customers. The fiscal response was truly extraordinary. The unanimous passage of the CARES Act and three other bills passed with broad support in March and April established wide ranging programs that are expected to provide roughly $3 trillion in economic support overall. By far the largest and most innovative fiscal response to an economic crisis since the great depression. What have these policies managed to accomplish so far? Jerome Powell: (06:37) First, the substantial fiscal aid has given vital support to households. The rise in transfers supported necessary spending and contributed to a sharp increase in household saving. Goods consumption is now above its pre pandemic level. Services consumption remains low. Although it seems likely that much of this weakness is the by-product of health concerns and social distancing rather than reductions in income and wealth. Consumption held well through August after the expiration of expanded unemployment insurance benefits indicating that savings from transfer payments continue to support economic activity. A recent Fed survey showed that households in July had surprisingly upbeat views of their current financial wellbeing with 77% of adults either doing okay or living comfortably. An improvement, even over the reading immediately proceeding pandemic. Still, since it appears that many will undergo extended periods of unemployment, there is likely to be a need for further support. Jerome Powell: (07:46) Second, aid to firms, in particular, the Paycheck Protection Program and the general boost to aggregate demand have so far partly for stalled an expected wave of bankruptcies and lessened permanent layoffs. Business investment appears to be on a renewed upward trajectory and new business formation, similarly, appears to be rebounding pointing to some confidence in the path ahead. Third, after briefly seizing up in March, financial markets have largely returned to normal functioning, albeit in the context of extensive ongoing policy support. Financial conditions are highly accommodative and credit is available on reasonable terms for many, though not all households and businesses. Interest sensitive spending has been relatively strong as shown in the housing and auto sectors. Taken together, fiscal and monetary policy actions have so far supported a strong but incomplete recovery and demand and have for now substantially muted the normal recessionary dynamics that occur in a downturn. Jerome Powell: (08:52) In a typical recession, there is a downward spiral in which layoffs lead to still lower demand and subsequent additional layoffs. This dynamic was disrupted by the infusion of funds to households and businesses. Prompt and forceful policy actions were also likely responsible for reducing risk aversion in financial markets and business decisions more broadly. While the combined effects of fiscal and monetary policy have also aided the solid recovery in the labor market so far, there's still a long way to go. Payrolls have now recovered roughly half of the 22 million decline. After rising to 14. 7% in April, the unemployment rate is back to 7.9%. Clearly a significant and rapid rebound. A broader measure that that better captures current labor market conditions by adjusting for mistaken characterizations of job status and for the decline in labor force participation since February, is running around 11%. The burdens of the downturn have not been evenly shared. The initial job loss has fell heavily on lower wage workers in service industries facing the public, job categories in which minorities and women are overrepresented. Jerome Powell: (10:08) In August, employment of those in the bottom quartile of the wage distribution was still 21% below its February level while it was only 4% lower for other workers. Combined with the disproportionate effects of COVID on communities of color and the overwhelming burden of childcare during quarantine and distance learning which has fallen mostly on women, the pandemic is further widening divides in wealth and economic mobility. I'll turn now to the outlook. The recovery has progressed more quickly than generally expected and the most recent projections by FMC participants at our September meeting show the recovery continuing at a solid pace. The median participants saw unemployment declining to 4% and inflation reaching 2% by the end of 2023. Of course, the economy may perform better or worse than expected. The outlook remains highly uncertain in part because it depends on controlling the spread and effects of the virus. Jerome Powell: (11:09) There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery as some segments struggle with the pandemic's continued fallout. The pace of economic improvement has moderated since the outside gains of May and June as is evident in employment, income and spending data. The increase in permanent job loss as well as recent layoffs are also notable. We should continue to do what we can to manage downside risks to the outlook. One such risk is that COVID-19 cases might again rise to levels that more significantly limit economic activity, not to mention the tragic effects on lives and wellbeing. Managing this risk as the expansion continues will require following medical experts' guidance, including using masks and social distancing measures. A second risk is that a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics as weakness feeds on weakness. Jerome Powell: (12:13) A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country's progress on these issues in the years leading up to the pandemic. The expansion is still far from complete. At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy- Jerome Powell: (13:03) The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods. Given this audience, I would be remiss where I not to mention our review of our monetary policy strategy tools and communications, which concluded recently with our adoption of a flexible average inflation targeting regime. My colleagues and I have discussed this new framework in detail in recent remarks. Today, I'll just note that the underlying structure of the economy changes over time and that the FOMC's framework for conducting monetary policy must keep pace. Jerome Powell: (13:42) The recent changes to our consensus statement reflect our evolving understanding of several important developments. There has been a decline in estimates of the potential or longer run growth rate of the economy. And in the general level of interest rates, presenting challenges for the ability of monetary policy to respond to a downturn. On a more positive note, we have seen that the economy can sustain historically high levels of employment, bringing significant societal benefits and without causing a troubling rise in inflation. The new consensus statement acknowledges these developments and makes appropriate changes in our monetary policy framework to position the FOMC to best achieve its statutory goals. Jerome Powell: (14:25) The forward rate guidance adopted at our September meeting reflects our new consensus statement. The new guidance says that with inflation running persistently below our longer run 2% goal, the committee will aim to achieve inflation moderately above 2% for some time, so that inflation averages 2% over time and longer term inflation expectations remain well anchored at 2%. The committee expects to maintain an accommodative stance of policy until these outcomes are achieved. The committee also left the target range for the federal funds rate unchanged at zero to a quarter percent and it expects it will be appropriate to maintain this target range until labor market conditions have reached levels that are consistent with the committee's assessments of maximum employment. And inflation has risen to 2% and is on track to moderately exceed 2% for some time. We expect that the new framework and guidance will support our efforts in pursuit of a strong economic recovery. Thank you again. It's great to be back at [inaudible 00:15:26] and I look forward to our discussion. Lisa Emsbo-Mattingly: (15:37) Wonderful. Thank you, Chairman Powell, lots to work on in our Q and A session. And I think I'll start with a question from the audience, which is about fiscal policy and following the GFC we had a significant tightening of fiscal policy, both at the federal level, but in particular at state and local levels, you mentioned this in your prepared remarks, but what would you hope to see in terms of fiscal policy in the next six to 12 months? Jerome Powell: (16:20) So at least I guess I would start by saying that the U.S. Federal budget is on an unsustainable path, has been for some time. And I think that's something we will need to return to. And that just means having the economy grow faster than the debt, having the debt grow faster than the economy is sort of by definition unsustainable in the long run. I would also say, this is not the time to give priority to those concerns. The time to do that is when the economy is strong, unemployment is low, people are working, they're paying taxes, we're on sound fiscal and economic footing. That's the time to work on getting back on a sustainable path. You mentioned state and local government and this seems true of the federal government. Policy was very tight, well conditions were very tight at state and local government because of the financial squeeze they were under during those years and that held back the economy. Jerome Powell: (17:19) There's research, a lot of research showing that in addition, the federal government chose to cut spending and raise taxes long before the economy was close to fully recovered. And so I would just say that we will need to return to those concerns on financial sustainability. But I think in the near term, as I mentioned in my remarks, I think it's important that we keep working together. And in particular, I would point to one of the unusual characteristics of this downturn is how focused it is on a particular group of industries and people that are directly exposed to the pandemic. And these are people who... Their old jobs may struggle to come back to them because people will take their time in going back to certain activities that involve a lot of direct contact with other people. So I think the right thing to do, and the smart thing to do for the long run is to continue to support those people as they return to their old jobs or find new jobs in different sectors of the economy. Lisa Emsbo-Mattingly: (18:27) Great. When you spoke to us in 2018, the fed was just at the beginning of re-evaluating their framework. And I've since learned that you are particularly keen of some of the estimates that you showed of how the Phillips curve and inflation trends had flattened over the past decades. And those realizations helped inform the Fed's decision to engage in the average inflation targeting model. In the spirit of careful what you wish for. Should we actually see some of those trends start to revert? Do you worry that it may actually be difficult to turn some of those trends back if they start to move upward? Jerome Powell: (19:18) Well, I guess I would say that the economy is ever changing and the framework that we use has to adapt. It doesn't tend to change very quickly. It tends to change gradually over time. So if you go back to the seventies, what you had was a steep Phillips curve and also a high persistence of inflation. And actually, those were the two of the charts that I showed. I think this was in Boston, at your meeting there. And it really capture the change in inflation dynamics in our economy since that time, of course, at that time, as the labor market tightened, you would see inflation move up. And when inflation moved up, people would expect, "Oh, inflation is going to be higher. And so it will be persistent." Lisa Emsbo-Mattingly: (20:06) Yeah. Jerome Powell: (20:06) Now that the Phillips curve for a long time now has been pretty flat and persistence is also quite low. So we need to take that into account, but we're not under any illusion that any of this is a permanent state of affairs. The economy will continue to evolve. We know that, and we know that we will have to keep adapting our framework as it does evolve but on inflation and the risk of something happening unexpectedly there, I think if you look around the world, what you see are dis-inflationary pressures from demographics, from technology all over the world. Jerome Powell: (20:40) And there's no question that, that can change. And ultimately, I suppose it will change since nothing in this is permanent, but I would say that these have been persistent forces now, disinflation, declining inflation has been a persistent factor for some time. We are still seeing downward pressure on inflation. And I think it's appropriate for central banks and certainly the Fed to take that into account and move to a framework that is robust to that current situation, so that we're able to respond to future downturns. Lisa Emsbo-Mattingly: (21:14) Great. If we look back 10 years from now at the policy that has just been implemented, what would be signs of success? Jerome Powell: (21:31) So as I mentioned, as we've gone through this, we had sort of three consecutive objectives. One of which was to provide stability and relief when the economy was closed down. And the second was to support the expansion when it came, well, it's here, it's well along. And the third was to avoid the longer run damage to the productive capacity economy. And that can come in two major ways. One of which is people being out of the labor force so long that they lose touch with their ability to participate in the economy, their working lives, and frankly, their lives are disrupted in a very bad way. The other is just bankruptcies, unnecessary, inappropriate bankruptcies of particularly smaller businesses. There's always going to be bankruptcies and there's always going to be unemployment, but to have those go up to a high sustained level can do damage. Jerome Powell: (22:23) So I would think the one thing I would look back on is how well we succeeded at that. And by the way, that is a lot of the urgency we've been feeling is to do what we can as quickly as we can so that we can avoid those problems. And I think I mentioned temporary layoffs. So you see when temporary layoffs have a way of dissipating, either into permanent layoffs or into return to work, and that tends to happen fairly quickly. So it's now when we need to be working on that problem, because once you're permanently laid off, it's just more difficult. If the data were really clear that it's just more difficult to get back in the workforce. So we want to help those people, as I mentioned earlier. Lisa Emsbo-Mattingly: (23:09) Yeah. And I think one of the questions I'm seeing here is about winners and losers with the recovery and that demographics technology, aging, all of these create unique dynamics where we actually may be seeing in this recovery, the winners remain winners and the losers remain losers. How can the Fed hope to address these dynamics? Is there a unique role for fiscal regulatory or other government policies to perhaps address these dynamics? Jerome Powell: (23:50) Well, we can help, but clearly this is not something that monetary and policy and supervision of banks and financial stability and payments can do all by itself. Those are the jobs that we have, clearly we have, and we've said this from the beginning, this will be a work of all of government in the first instance from the health authorities, but then from fiscal authorities. And if you just look back to February of this year, it's only been eight months and we had wages going up the most for people at the lower end of the wage spectrum. We had labor force participation moving up against all the predictions that if you'd gone back a decade and said, "What'll be happening with U.S. labor force participation?" Jerome Powell: (24:34) Nobody thought that labor force participation would still be meaningfully above 63%. And yet here we were at 63.4%. So anyway, I'm very optimistic that we can get back to that, but it will take a concerted and continuing effort, I think, from policymakers to get us through particularly this next phase, while the expansion is ongoing, it's still moving at a pretty good clip. And I just think it's important that we stay at it. Lisa Emsbo-Mattingly: (25:04) Wonderful. Some in my industry have described the decision of the Fed to intervene in markets through purchases of investment grade bonds, as well as the traditional MBS and treasury assets that we saw during the global financial crisis, as the Fed, moving from being the referee on the field to a player on the field. And can you describe how the Fed plans to move back to its traditional role as referee and are there downsides of the Fed being the player on the field? Jerome Powell: (25:38) So let me go back to the beginning. As this began to unfold, and as it became clear, what was getting ready to happen and the likelihood of a shutdown and the great unknown about what that would mean. And the fact that it was happening globally, my colleagues and I came to the view pretty quickly that we needed to use... Jerome Powell: (26:02) ... colleagues and I came to the view pretty quickly that we needed to use all of our tools and needed to do so in maybe ways that had never ... where there've been red lines saying we won't cross these red lines. There I'm thinking particularly of the lending to corporates and to state and local governments. Jerome Powell: (26:17) I don't know how I would have been able to explain to the public that we didn't go to the limit of what we could do. I just thought, "We have to do this. We're going to do this," and we did. We took those roles on in this historical unique situation. I think history will judge how well we did, but we did it, and I have never regretted the fact that we did that. We knew from the very beginning that there was going to be a time to put away those tools. That time is not here, but when that time comes, we will put them away. There will also be issues around expectations, that we now have these new tools and we can use them all the time for different things. That's going to have to be something that we work on as well, because we don't want the Fed, no one should want the Fed to be intervening in markets on a routine basis like this. This was really a, we hope, once in a lifetime situation. Jerome Powell: (27:12) We're determined to ... First of all, we're going to keep at it until we are very far along and sure that we're out of the woods here. We're in no hurry to stop doing what we're doing, but when the time does come, we will put these away. We're not looking to find ways to keep them in place and take on new and different roles. These are really emergency tools, and when the emergency is well and truly behind us and we're highly confident of that, we want to put them away under lock and key. We'll use them again if we have to, but not on an ongoing basis. Lisa Emsbo-Mattingly: (27:53) One of the questions here refers back to your speech, as well as President Evans' speech on the word and. When you talked about how long we should expect a near zero Fed funds rate, we should expect maximum employment and inflation moderately exceeding 2%. This is from Robert [Dye 00:02:16], and he says, "That sounds like lower for much longer. Is that the message?" Which I think I know what the answer is, but I just thought I would ask you specifically. Jerome Powell: (28:27) Well, I hope that the guidance that we issued was clear. What it said was that we have longer-term goals, which are to achieve average inflation and inflation anchors, inflation expectations anchored at 2%, and we would remain ... We said we wanted to have an overshoot because we'd had a long undershoot. Until we do those things, we'll keep policy accommodated, we said. At the same time, we said we would keep policy at the current level until really three things happen, one, labor market conditions are consistent with the committee's estimates of maximum employment, two, inflation has reached 2%, and three, inflation is on track to move moderately above 2% for some time. Jerome Powell: (29:18) The thing is, that's not a time-based commitment. That is an outcome-based commitment. I think that's really one of the nice features of it is that if the economy recovers much faster than we expect, that'll be great, and this guidance will work in a whole different range of possible outcomes, a vast possible array of outcomes. If it's slower, then we'll be at the lower bound longer. That's really what it's meant to accomplish. Lisa Emsbo-Mattingly: (29:47) Yeah. Yeah. I have a couple of questions in here about the implications of running inflation at a hotter pace for folks who are on fixed incomes, the elderly, that the distributional effects may be somewhat more negative for folks who are on fixed incomes. Any thoughts on some of these perhaps downside effects from the policy? Jerome Powell: (30:16) Yeah. Monetary policy is famously a blunt instrument. I would just point to ... Look at the last recovery. We managed to get to three and a half percent unemployment and stay pretty ... bouncing around between three and a half and 4% for two years. That had enormous benefits for low and moderate income communities, for people at the margins of the economy. Participation moved up. It had great societal benefits. Jerome Powell: (30:47) Low interest rates do work to support economic activity. I think we believe that, and that seems to be the case. It's not that every single person will benefit, although if you own a home or if you own other financial assets or if you have children who want jobs, lots of people will benefit from low interest rates and a stronger economy. Of course, our assignment from Congress is maximum employment and stable prices. That's what we're supposed to use our tools to accomplish. Lisa Emsbo-Mattingly: (31:18) I think I ask you this every year, and I will ask you again. It always helps to get clarity on this point. Just recently, the San Francisco Fed wrote a research piece on the effects of negative interest rates in other economies and the banking systems there, and the willingness of banks to lend and extend credit. Those negative rates, they found, did create a negative impulse out of the banking system, into the real economies of those countries. For the United States here, the Federal Reserve, what are your thoughts on negative rates? Jerome Powell: (32:06) Really nothing has changed since the last two years on that. It's just negative rates are not a tool that we see as something that we're looking to use. It's really two things. One is that we have tools that we think served us well and will continue to serve us well. The second is, as you just said, the evidence on negative rates is mixed. There is the effect on financial intermediation. There may be also a positive effect to the extent using negative policy rates causes rates that face the public to move down lower. There's probably a positive effect there, but since it's not clear, and since we feel like we have policies likely at full employment, we will again have policy space on rates. I think we understand asset purchases better and better, so I think we have the tools that we need. Lisa Emsbo-Mattingly: (33:01) Wonderful. During the GFC, there was quite a bit of coordination across the global central banks. It was much more of a financial leverage type of crisis than the COVID crisis, but perhaps you can spend a couple of minutes discussing how you've been coordinating with other central banks in response to the COVID crisis. Jerome Powell: (33:30) Sure. There's a lot of communication all the time between central banks, both at the staff level and including me with my peers, and informally. There's also ... We have regular meetings every two months in Basel, and although currently we do those, of course, not in Basel, but on a group call. There's a lot of communication going on. Jerome Powell: (33:54) I'd say when this crisis broke, I would point to a couple things, first, the swap lines with ultimately, I guess, 14 different countries. That was international coordination. There was one difference this time though, which is that in a global financial crisis, more central banks had room to cut rates, meaningfully cut rates. We had easily the most policy space to do that, which we did very quickly at the beginning, but so there didn't need to be a lot of coordination on that because other central banks, important central banks, were already at negative rates or very low. Jerome Powell: (34:33) But I would just say, the coordination is essential and it's ongoing. We're independent, we're not part of the governments, we have a very collaborative and constructive relationship with each other, and a lot of communication. That's a healthy thing. Lisa Emsbo-Mattingly: (34:56) Great. I'm seeing two questions that are essentially about the interplay between the Fed's new policy and the capital markets. I'll ask you both questions, and they're basically the opposite scenarios. The first scenario is X number of years down the road, we still have not met the Fed's new policy objectives, and at the same time, we see serious asset bubbles. What should or could the Fed do to respond to this? The obverse is basically, let's call it X number of years down the road and the Fed's hitting its objective, and inflation and unemployment are within the target as stated by the Fed, but asset markets are down considerably. How should the Fed respond? It's basically the same question with two opposite scenarios. Jerome Powell: (35:57) Okay. The first one, so we say in our new consensus statement that, I'll just read this, that, "Sustainably achieving our goals depends on a stable financial system. Therefore, the committee's policy decisions reflect its longer run goals, medium term outlook, and assessments of the balance of risks, including risks to the financial system that could impede the attainment of the committee's goals." We also had a ... There's a statement in our post-meeting statement that notes that, "And we'd be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals." Now, one of those risks could be financial stability, but I would look at it more as a humility clause. We know that the economy can react in surprising and unexpected ways, witness 2020. Lisa Emsbo-Mattingly: (37:03) Yeah, [crosstalk 00:37:05]. Jerome Powell: (37:06) We say explicitly in our statement that, again, if risks emerge that could impede the attainment of the committee's goals, then we can respond in that way. Now I would also have to add that I don't think, and we don't think of monetary policy as the first round of defense on financial stability. That really is a job for capital liquidity, risk management, all of the things that the banks do so much better now. That's really the stress testing. All the things that we do, that's really the first line of defense against financial instability is just having a really strong and robust financial system that's resilient to the things that can happen in a financial system. Clearly we are considering financial conditions in the decisions that we make, but we have generally not ... I don't know of a case in which we've ultimately decided to take an action because of financial instability, but in theory, it's possible. Jerome Powell: (38:10) The second one, if I understood, I'm not sure I totally understood the second, so we're doing everything right, but asset prices are low? Lisa Emsbo-Mattingly: (38:16) Yes. The economy is booming, inflation is at target, we're at full employment, but the stock market, let's say, is in the doldrums and is down. Should the Fed worry? Jerome Powell: (38:32) That's a really easy question. Our job is maximum employment, price stability. That's our job. If you give me maximum employment and price stability, those are the things that we're focused on. We're obviously not focused on ... We monitor financial conditions, but we're not focused on the price of any particular asset, really ever. It's about broad financial conditions. Ultimately, it's about the real economy. If the real economy is in great shape, then that's where we want to be. Jerome Powell: (39:03) ... In great shape, then that's where we want to be. Lisa Emsbo-Mattingly: (39:04) Yeah. So in your talk today, and in previous talks over the last several months, you've spoken quite a bit about the distribution of gains into the economy have varied, based on who you are. Here, I have a question about the current situation, where they ask, "What impact do you expect to see on economic growth and employment as a result of a homeschooling environment which requires women to either drop out of the workforce or work less?" So that's a little more specific than typical, but curious on your thoughts. Jerome Powell: (39:48) All right, so I mean, as I mentioned, this episode, this pandemic and the economic fallout from it, are very challenging from the standpoint of issues of income and wealth equality, and just basic fairness. In essence, the part of the economy that's been hit the hardest is those people who are on the frontline and service industries. That skews to women. It skews to minorities. Even eight months ago, we were able for the first time in a really long time to have some good news on distributional issues. Now this comes. We've been calling this out since the very beginning. We've really got to work hard to counteract this. Jerome Powell: (40:36) Now you mentioned, and we did see, you mentioned women and homeschooling. And you see that labor force participation among women dropping as the school year starts. It depends on how long it lasts. Ideally, we'll get through this. We'll have a vaccine. We'll have, sooner rather than later, we'll have something that will enable people to go back to their lives and make the choices that they want to make and not have them forced on them by this pandemic. I certainly hope that's the case. Jerome Powell: (41:08) The longer it goes on, the more likely there is some lasting damage. We hope it's not too much. Frankly, it's not great for children either. Someone told me the other day, there's no online preschool. So for many people, and it's a lot of women, it's winding up being in the home with young children who really should be in school, and you would much prefer to be working. So, it's a real issue. Lisa Emsbo-Mattingly: (41:39) All right. So the pre GSE model, before the financial crisis, has often been criticized as a system of privatization of profits and socialization of risks. Some would describe capitalism as a system that allows owners to take risk, with the expectation of return should their investments, ideas and process bear fruit. A key component of this system has been tail risk, both to the upside and downside, if the Fed and fiscal authorities scrambled to save capital holders from taking losses when a tail risk arises, are you concerned that the elimination or minimization of the [shimptarion 00:42:19] process in our economic system may actually increase the risk of secular stagnation? The exact scenario that monitoring fiscal authorities are trying to avoid? Jerome Powell: (42:30) So I think that's a very legitimate concern. And I do believe that under our system, one should be able to reap the benefits of success and should have to bear the costs of economic non-success. So I think that's all right. And I think that doesn't change. I wouldn't change what we did though. I mean, I think we did what we did because of the people that we serve, in particular, the people who've lost their jobs and now are trying to find their way back into a profitable economical life, a positive economic life. So I guess the best thing we can do to ward off the concerns that this question raises, I think is to now go back over what happened just as we did after the financial crisis, and we're doing this, go back over and look at the places that really... Are there places where we can fix things so that they would be more resilient to this kind of a shock? Jerome Powell: (43:28) And by the way, that would also include things we can do to be better prepared for a pandemic, right? Because obviously that's now a possible thing and if it happens again, we hope not, but if it does, hopefully we can be better prepared on that front. We can also look at things that happen in the financial markets and in the economy and make them more robust to episodes like this. And in this case, it's not because... This didn't happen because of moral hazard. The moral hazard is more that we don't want people to assume that we'll run in all the time. We want to reserve these things for truly unusual and exigent circumstances. So very legitimate concerns. I think the time to address them is when we're well and truly back on a solid footing, unemployment is much lower, and economic activity is going on, people are going back to work. And then I think that's really time to be ready to maybe make some changes in regulation. We'll see. I mean, we'll see what comes out of the analysis. We're actually working on it right now, as others are around the world. Lisa Emsbo-Mattingly: (44:37) All right. Wonderful. So, many wonderful questions still in the queue. And I apologize to everyone who we didn't get to address their questions, but I want to thank Chair Powell again for joining us again at the annual NAPE meeting. And we wish you and the federal reserve the best of luck and success in all of the policies that you've initiated over the last several months. And certainly for the U.S economy that we continue on this a positive path. Jerome Powell: (45:18) Thank you Lisa. Thanks to everybody. Lisa Emsbo-Mattingly: (45:18) Thank you.