>> he has guided the fed with a shorthand through the global pandemic, supply disruptions,

and incredibly dramatic fiscal expansion, asset market volatility, the first inflation of magnitude in many years and we have emerged with the u.s. economy continuing to create jobs and be the envy of the world. as well as chairman powell's responsible leadership make him the first speaker of our event. he will share some opening remarks and then he will be joined by patricia murphy. himself an expert on asset market mediation. with that it is a welcome -- a pleasure to welcome chairman powell to the stage. [applause] >> thank you very much. it is great to be here today, thanks to everyone for coming out. i'm going to begin with some

comments on the economy and the road ahead for monetary policy before briefly discussing monetary policy independence and then some discussion. over the past year, inflation has come down sick for can be, but it is still running above the fomc's 2% goal. headline inflation was 2.5% based on pc he index. a year ago, it was 5.2%. core inflation stood at 2.8% in february, a year ago was 4.8%. this is a very welcome progress. but the job to sustainably restore 2% inflation is not yet done. tight monetary policy continues to weigh on demand. growth and economic was strong as gdp expanded by more than 3% and 3 million jobs were created.

this combination of outcomes reflects the significance in supply that offsets the effects on demand of tighter financial conditions. labor supply increased significantly thanks to rising participation among 25 to 54-year-olds, workers in their prime years and a strong pace of immigration. recent readings have come, a faster pace than we have seen since last june. the higher inflation data over january and february were above the low readings in the second half of last year every these

recent data do not materially change the overall picture which continues to be one of solid growth, a strong, but rebalancing labor market and inflation moving down toward 2% on a sometimes bumpy path. quits, job openings, surveys of them lawyers and workers and the continued, gradual decline in wage growth. on inflation, it is too soon to say whether the recent readings represent more than just a bump. we do not expect it will be appropriate to lower policy rate. we have held our policy rate from last july as shown in the

individual ejections that the fomc released two weeks ago. my colleagues leave the policy rate is likely at its peak for this tightening cycle. as conditions evolve, monetary policy is well-positioned to confront either of these risks. we will do everything we can to achieve our maximum employment and price stability goals.

that brings me to my second topic, the fed has been assigned two goals for monetary policy. maximum employment and stable prices. our success matters a great deal to all americans. to support our pursuit of these goals, congress granted the fed a substantial degree of independence. fed policymakers serve long terms that are not synchronized with election cycles. our decisions are not subject to reversal by other parts of the government other than through legislation. this independence enables and requires us to make our policy decisions without consideration of short-term matters -- political matters. this is and should be rare. independence is essential to our ability to serve the public. the record shows that individual -- independent central banks deliver better outcomes.

we need to continually earn this granted independence and we do this with technical competence and objectivity in a transparent and accountable matter and by sticking to her knitting. we use the most up-to-date information to deepen our understanding of the ever evolving economy and to reliably deliver on's assigned goals. we are supported by highly capable staff and draw on insights and experiences of business and academic community and labor leaders, as well as others engaged in the economy. by objective, i mean that our analysis is free from personal or political bias in service to the public. we will not always get it right, no one does, but our decisions will reflect our painstaking assessment of what is best for our economy in the medium and longer-term and nothing else. transparency and accountability are fundamental for any agency

in a democracy, but especially one granted policy independence. the fed has a special obligation to explain ourselves clearly, to describe what we're are doing and why we are doing it. we are always striving to improve this communication and it is a job that is never complete. before 1994, the fomc did not announce monetary policy decisions. today, we explain the thinking behind them in our post meeting statement and press conference, we publish detailed minutes and a quarterly summary of policy projections of each fomc participant. we publish and monetary policy review or twice a year and the chair appears before congress to answer questions on the minds of our oversight committee members. in 2020, we completed a year-long public review of our monetary policy framework and late this year, we will begin another review.

my colleagues and i explain our views on the economic outlook and monetary policy in speeches like this one and in visits to communities around the country as part of an extensive outreach in which we seek input from out -- from groups in society. lastly, to maintain the public trust, we need to avoid -- our nation faces many challenges. fed policymakers are often pressed to take a position on issues arguably relevant to the economy, but not within our mandate. such as particular tax and spending policies. climate changes and another current example. those agencies that they have charged with this responsibility. we do have a narrow role that

relates to our role as a bank supervisor. the public will expect that the institutions we supervise will be able to manage the material risks they face, which are likely to include climate related financial risks. we will remain alert to the pressure to expand that role over time, but doing our job well requires we respect the limits of our mandate. thank you all and i look forward to our discussion. thanks. [applause] >> thank you very much, chair powell, for those remarks and taking the time to be with us and talk with us today. there is a lot of stuff going on

in the world today. i'm going to get right into it. i want to also thank you to the audience for sending questions over. what i have done as i have tried to organize the conversation around to themes. we will start by talking about the macroeconomy and then you have been through a very tumultuous period as chair and i want to talk about the leadership challenges. that me dive right into it and pick up on something you started talking about which was inflation. two years ago, we had inflation readings at 6% or 7%. we have come down to 3%. the personal consumption expenditure, we have had a conversation, there are so many factors that have been plaguing the economy. what do you think are the key

factors that have brought inflation down over the last two years? chair powell: sure, i think i will start with where we think the inflation came from. what is different this time at the risk of making that statements that this inflation wasn't strictly a question of demand overheating and the fed having to suppress demand. that has been the more typical pattern on the back of a shock such as an oil price shock. this episode also involved as everyone will recall the collapse on the supply side in a lot of ways. supply chain stopped working. there was a shortage of semiconductors which turned out you could not make cars. in addition, there was a major labor force shock. we lost several million people out of the labor force. it was a supply-side issue as well as overheating demand from

the closing and reopening of the economy at a time when rates were low and fiscal policy was very supportive of demand. we had both of those things. if those were the causes, we needed to see the unwinding of the pandemic related distortions to the supply and demand in the economy and the effects of tight monetary policy. today, what we are think -- what we think we are seeing is those two factors working together. they do work together. 2023 was a year of very significant supply-side recovery expansion. chair powell: what are the factors --arvind: what are the factors you are keeping an eye on that might play out in the inflation picture? chair powell: i should mention inflation expectations, people

think that having the public expect inflation to return to 2% despite it moving up, that that is a very important factor in bringing inflation back down. if people believe that price setters, that inflation will be 2%, then that will actually happen. as we look ahead. how much more juice is there to come out of the supply-side recovery? we got an increase in population which may have helped in output and increased the potential output. at the same time, the economy was growing 3.1% last year. we also had inflation coming down sharply. there may be more supply-side gains to be had. surveys show difficulties in hiring people, difficulties in getting the inputs that they need. there is some more benefit.

we also think that monetary policy is tight. it is weighing on interest sensitive spending and the economy. durable goods, surveys of consumers will say it is a tough time to buy durable goods because rates are high. you also see the labor market rebalancing because you can look at demand in the labor market as well as supply. you see demand reflected in lower job openings, a very small increase in unemployment, and wages moving back down to more sustainable levels. we think those two forces will be the ones we will be looking for. the thing we will be looking at is the incoming data on inflation as those affect the outlook and the labor market. what is happening in the labor market? it suggests the labor market is continuing progress to get back to a sustainable level of wage growth and balance between supply and demand. arvind: can i just dig into the

inflation expectations point? this ended up shifting expectations and it ended up leading to a sustained period of inflation. in the current situation, how concerned are you about inflation getting stuck around 3%? could that last mile be very hard? relatedly, are there things you are looking at to signal to you that that is an issue or isn't an issue? chair powell: as i mentioned, inflation expectations we think are an important part of driving inflation and we want them to be a levels that are consistent with 2% inflation over time, not

3%. not 2.5%. the good news is that is where they are right now and pretty much have been for some time. we look at surveys of businesses, households, forecasters. we look at market-based. the market is always buying and selling inflation protection. all of those are pretty consistently saying that the public does believe. that is because of our ongoing commitment to return inflation to 2%. over time. i would say would be a concern affixed -- if inflation

expectations were not to be consistent, but they are not. i think our commitment is understood and respected and believed by the public and that is as it should be. arvind: let me flip to the other side of the equation. we have had employment economic activity that remained strong. the unemployment rate has remained below 4% the last two years. this is during a period in which you took the funds rate from 0% to 5.3% in about as fast a rate height cycle as we have seen in history. a year ago, many people were talking about the possibility of recession. that hasn't happened. you made some remarks about this, but i wonder if you can go into it more. why hasn't this happened? why have we achieved what looks like a soft landing? what are the factors that have played out and the related

question, do we think this will continue to happen over the next year or two? chair powell: i guess i have always had the view and i have always said that because of the unusual origins of this inflation and its differences from other prior episodes, there was a path to getting inflation back down and restoring price stability without the large job losses and increases in unemployment that have been typical for tighter brightening cycles. some part of this was independent of demand. if you have to get them from suppressing demand, chances are that that will weigh on unemployment and economic activity pretty significantly. here we had a situation, semi conductors you couldn't buy a car at the time people wanted

cars because they were moving to the suburbs and didn't want to ride on public transportation because of covid. the supply of cars went down because of the shortage. the prices went way up. that is how the market clears in our economy. on the other side of that without respect to demand, once the semi conductor supply comes back, you should come right back down that curve and you could in principle get inflation down significantly without just ignoring demand for a second. i always thought that was possible and something like that appears to be happening. so then your question is how did that happen, we expected that to happen at the very beginning and that is why we thought the inflation was transitory. that turned out not to be the case. that was in 2021. in 2022, we thought the

supply-side would recover more and it really didn't. i began to wonder whether that would happen and then it really happened in 2023, right about the time we were almost ready for -- to give up on supply-side recovery. you got labor force participation accompanied by a significant move up in immigration. you also got the unwinding of the supply-side problem. when that happens, potential output is going up significantly , the economy's productive capacity. you have a situation where productive capacity is going up even more than actual output. the economy is not becoming tighter, it is becoming a little looser and you are seeing inflation come down. very unusual situation. that really is the story. then the question is, how much more are we going to get out of the supply-side recovery and how

much will falter demand? we are not going to prematurely assume that there is no more progress to be made on the supply-side. arvind: you had mentioned immigration has been a big part of the supply-side. can you expand on that. chair powell: the fed is not an immigration policymaker. [laughter] and do not comment. we are just calling the balls and strikes on the economy as we see them. from that standpoint, our economy has been short labor and probably still is. if you talk to and we do talk to a lot of business people, it is still difficult to hire for many companies. we have needed more people.

but what happened over the course of last year is to a much greater extent than had been thought, but immigration moved up quite a bit over the last two years. typically, the census bureau does all this estimating. the congressional budget office talked to people who work to the border and that kind of thing and got a much higher estimate, which no many groups have gone out to validate. how could the economy have grown over 3% in a year where almost every outside economist was forecasting a recession? the overwhelming majority were forecasting a recession for 2023. we had better than 3% growth. really a remarkable performance and some part of that is that they are significantly more people working in the country. how does inflation come down?

it is because the potential capacity of the economy has moved up than the actual output. it is a bigger economy, but not a tighter one. really an unexpected but unusual thing. that is what we are seeing. arvind: so, it's interesting in this discussion we have had about inflation and unemployment, we have talked about real factors. immigration, supply chain, that is the stuff that seems to have played out. we haven't talked about interest rates, the primary tool of the federal reserve. it looks from the outside that the interest rate sensitivity of the economy has been very muted than the past. it looks like there is very differential impacts. people have long-term fixed-rate mortgages. here in silicon valley, we have

early-stage growth businesses where the cost of capital is affected by the higher rates. it looks like we have a much bigger impact. i wonder if you can speak about the interest rate sensitivity and then another related question which is we have differential impact across the economy. how do we think about balancing the tightness of different sectors? chair powell: so, i guess the headline for me would be i do think monetary policy is working and working broadly as expected. i think you can point to centers of the economy and you mentioned a couple. if you are a household that has a low interest mortgage, you are not feeling the effect of higher mortgage rates and many companies as well took the opportunity to term out there debt, both before rates went up. you have a lot of companies that have longer-term fixed-rate debt and they are not affected. that is all true.

at the same time, if you look at interest sensitive spending either in housing or durable goods, you are seeing very durable goods there. i do think you see the economy rebalancing. i think it is not right and may be too soon to conclude that there is some significant disconnect in terms of monetary policy transmission there. it still leaves the question of how the economy could have grown over 3% during a year in which the federal funds why wouldn't growth? have been lower? the supply side recovery. people need to understand that you have this force from outside, it is not just interest rate and demand, you have supply side recovery that is creating new demand and new supply and that's why you get a number like 3.1% at the same time inflation is coming down. one of the reasons why. so i think that is really the

story. it is not that the policy is not restrictive on that the economy is not responsive to rates, it is that we have had this outside force temporarily affected not. arvind: if i benchmark fed policy right now, we have rates that 5.3 percent, inflation is running a little bit under 3%, that is like 2.5%, real interest rate. we have gone from a very low rate environment to a very high rate environment. policy looks tight right now. the typical benchmark we use for thinking about central bank policy, and by that rule policy rates right now should be around 4% so policy does look quite restrictive right now.

and i think in talking about where policy is right now, you said the risks are balanced. why continue to have tight policy in an environment in which the risks are balanced? chair powell: we do think policy is restrictive. we think it is doing its job. i would go back to what i said in my remarks to start, which is we think the risks are two-sided. if you cut too soon, the risk is progress on inflation will stop or even reverse. we have seen that in history, particularly in the 1970's. we do not think it is happening but it is a risk we have to manage. the other risk as we wait too long or move too slowly and when you move in that case there is a weakening in the labor market and economic output so we are trying to steer between the two

risks, be in the middle and get the timing right. it is very challenging. there is no risk-free path but i think we are in a position to address the economy moving in either of those directions. the risk of moving too soon really is that the economy, deflation moves up and it would be quite disruptive to have to come back in, we will do what we have to do to get inflation to 2% but again, it is about balancing risks. it is never the case you can constantly look at the baseline and know what to do. it is about having the baseline understanding but knowing what the risks are and have the committee in a position to address those should they materialize and i think we are in that position now. arvind: if i'm going to follow up, is there a signal or data point you are paying particular

attention to in the next year? if you had a crystal ball where you knew to perfectly answer one question about the next 12 months, what would you ask the crystal ball? what is the thing you really want to know? chair powell: there is no really one thing. we have a dual mandate. you are asking me one thing about a data -- about a dual mandate. [laughter] i would say this. in our framework, the two rules are equal under the law but our framework literally says if you are very far from achieving one of the goals and the other one is pretty much at the goal, you focus the one that -- focus on the one that is far from the goal. that is what we did after inflation came up in march of 2021 and then we had a very tight focus, we are always

talking about getting inflation under control but as inflation comes back down the two things are getting back into balance. we are not a single mandate thing. the key thing i will end with is price stability gives us the ability to achieve both goals. if we do not have price stability, we will not have these long periods of tight labor market that benefit everyone. what we saw in the 10 year eight-month expansion that ended with the pandemic is that for the last two or three years, people on the low income's spectrum were getting the largest wave increases. a tight labor market over a long time does enormous social good, and that is what we all want to do. for that you need price stability. so the two of them are actually quite complementary. arvind: i'm going to shift from talking about near-term to

thinking about longer-term for the u.s. economy. we have had a big shift in growth expectation for long-run growth. this comes up from the feds on production -- projections. 15 years ago long-term growth forecasts were 3% pre-pandemic, they have been below 2%. that is where your own forecasts have been. why do you think that is? why long-term growth at 2%? we are sitting in silicon valley, ai is all the buzz, we have had high growth over the last for years. is it possible we could go back to the 2.8% we had in the early 2000's? chair powell: every bit of the economy is difficult to forecast. there is not one that is more

difficult to forecast. hours worked is a function of demographic. productivity output per hour is highly unpredictable. i think people lowered their longer run growth expectations to around 1.8%, something below 2%, given what had been are very low population growth and expectations that productivity might be one .5% -- 1.5%. that's it pretty good place to be. we have had higher productivity than that recently on the question is if it is sustainable , it would be great if it is productivity growth that lifts

generation upon generation. some people argue ai can be that effect. some are arguing that there were a lot of businesses that started during the pandemic, americans went out on started businesses during that time, you have seen a lot of change in the labor force, moving and quitting and going to better jobs that might be better suited. they could become a longer run productivity increase or not. it is unknowable, particularly with ai, the range of potential outcomes, it should increase productivity, everyone sees that, but that is not what we are seeing in the numbers now. it is too soon for ai to be affecting productivity numbers but the logic is it could increase productivity and then the question will be what it does to labor, will it replace

labor, augment labor, or both? it is hard to say about longer run growth but of course it would be great if that were the case. arvind: do you feel like you need to take a stand on this in policymaking? chair powell: no. our focus scum of the things that are really important to the u.s. economy overall -- over time are productivity, trade policy, industrial policy that is now a thing. those are important to the longer run growth and economic well-being of americans. what we do is try to move the economy toward stable prices and maximum employment through the business cycle. that is what we can do with monetary policy. we are also a crisis responder, a really important crisis responder. we can get there quickly and have great tools for it. we also regulate and supervise

the banks and it is important and we look after financial stability. all of those are important but they are not things that affect the longer run potential output of the united states. so the question of what will be the equilibrium neutral interest rate going forward does not really matter for policy today. we are really asking about once the pandemic is truly behind us and we are well into the ai investment boom and the effects of ai, what will that look like and it does not really matter that much for getting inflation down to 2% while keeping the economy growing on the labor market strong. arvind: let me talk about some of the challenges of leading the fed through the last five years. it is clear from looking at the world we have had so many different shocks and the economy has behaved in so many unusual ways in the last few years. you were appointed fed chair in

2018. inflation was below the 2% target. covid happened. now we have gone in a completely different direction. can you speak about the challenges of taking an organization that was focused on one thing to focusing on something completely different? chair powell: it certainly has been a turbulent time, i will say. a lot of things that were not expected. for 20 plus years around the world, economies suffered from lower interest rates, lower inflation, slow growth, low productivity, bad demographics and a lot of monetary economists were working on how to make your tools work when you will be bound by zero and you will not be able to cut and support the economy. that was a big thing and then

the inflation really arrived in the first quarter of 2021. it was a surprise to most people and macroeconomists generally thought it would go away over time. not everyone. there were some concerns expressed and ultimately it is coming down. we had to pivot on that, and we did. when it became clear in the fall of 2021 when it became clear through the labor market data and growth data that the economy was not moving back towards price stability and we pivoted, and we really moved. because it was the right thing to do. so the good news about monetary policy is it can move quickly. the emergency tools are agile compared to other government policy and have significant effect on the economy. i think we have gotten to what

is a pretty good place and we are using our tools to try to bring inflation down the rest of the way to 2% while keeping the economy strong in the labor market strong as well. arvind: and the other side is the external pressure from the fed from outside over where to set interest rates and you have faced this pressure in the last six years, including from the former president. how do you navigate the decision-making of the fed and the larger scheme of pressures coming in from the outside? chair powell: internally we have peace of mind on this because everyone who works at the fed knows we are going to do what we are going to do and we are going to do it for economic reasons, and that is it. anybody can read the verbatim transcripts of what we discussed , it does not matter what the election calendar says, whatever

is happening in the economy, we make decisions based on the analysis i described in my remarks. so it becomes a communication issue that people need to understand that is what we do. it is always what we do. if you look at the modern historical record, we will see that the fed has been prepared to move or not move and do what it thinks is the right thing for the economy in the medium and long-term without regard to outside considerations. so it is important for people to know that, which is why i brought it up. i do not have concerns that it will be a problem for us because we are going to do what is right for the economy over time and my colleagues and i are tightly focused on that. arvind: you are praised by many in your ability to build consensus. you have served in different white house administrations, with different political ideologies.

how do you do that in practice? [laughter] do you have any advice for all of us? chair powell: we have a specific mandate. stick to the mandate. focus on the mandate and do not be dragged into partisan political fight. when i testify, people are always trying to get me on my colleagues to support their perspective on fiscal issues or immigration issues and they think of an economic hook and try it, but we just don't do it. that is part of it. the other part is in our system of government oversight comes through congress. in a parliamentary system, it is through the elected government, and that is the same people in the parliament. for us, it is not the administration that has a legal oversight responsibility, it is

congress. at oversight committees, one in the house, one in the senate. so my colleagues and i spend a lot of time. we do not go up to blast talking points at people. we want to hear what they are thinking and listen carefully and respectfully and tell them what we are thinking. i think people appreciate that. same thing internally. when you listen respectfully and understand what people are saying and try to think about how to incorporate that into what you are doing, for most people most of the time, that will be enough. so they can go a long with things they do not 100% support but they feel like they were heard or they are not going to may be criticized as harshly as they would because they realize you are doing this in good faith to the best of your ability and based on the actual facts and what we know about the ever

evolving economy. arvind: let me ask about how your own background has helped. you have shifted between the public and private sector over the course of your career. and you are a lawyer by training. you are running an organization with many phd economists. how has your background helped you navigate this? chair powell: when i graduated from college, i had no plan other than this idea that i liked what i saw of the careers of people like george shultz or cyrus vance, they had mainly private sector careers but served in the government at intervals and were able to do public service. i grew up in washington, d.c.. my family was not involved in any of this but i thought i would like to do this and by some miracle, it is what happened. it was not careful planning.

so i always wanted to do public service and i ended up doing that. i was an aide on the hill. that is how it happened. arvind: do you have any advice for the students in the room whose interests are to move between public and private sector? chair powell: i think it is a great plan for people. people have different tolerance levels for volatility. i quit line went into investment banking, quit that and went into private equity, quit that and went into public service. if you are willing to tolerate volatility, that is a great way to go. i have really found that when i was a partner in a private equity firm i asked the head of the investment area what do you look for, it's all about picking good ceos and business models? the answer is there is no one

model. that is really important. i have seen very different people be successful in leadership roles. very different people. i do not know if it is in every person but it is in a lot of people to find your own way to lead. you do not have to be one way or the other. i think that -- i think of one person at the fed, she had a way of being a very soft talker and by the end of the meeting, everyone was leaving thinking, how can i do what she said? it is in everyone, you need the self-confidence. i had complete lack of self-confidence at first. i think that is very common for people. be confident in your own abilities to lead and take things on. take risks, because if i could

say that to my younger self, that is what i would say. arvind: we are running out of time and there is a lot more we could talk about but i am mindful of time so first of all, thank you on behalf of stanford for being here and engaging in this conversation. it has been very stimulating. i know i learned a lot and i think we all learned a lot, thank you. chair powell: thank you. [applause]