should be fed sensitive. alix: it raises the question of the structurally higher yield conversation. we have the data yesterday that showed china and japan were not buying treasuries and we note the risk is the market they're going to be selling so research reports i'm getting households will bear the brunt of any issuance which we know will be significant with treasury department. if that is the case, can households absorbed all of this? if not, are we in for higher rates? guy: seems to be the case. we are going to come back to you in a moment because we started to get the details coming through what we expect the venture to say. alix: alix: michael mckee is going to be looking at some of these headlines. >> the fed chairman has just released the text of these remarks. nothing new, but shades of

emphasis that may send a message to the markets. the committee repeats is proceeding carefully right now, watching the data to make decisions, but he does adopt some of the argument that those with the committee have suggested a pause in november have made recently saying a long-term bond yields are a significant factor in significantly tightening financial conditions. those financial conditions are helping to slow the economy. they will keep an ion whether the real rates continue to slow growth before they make a decision. he does note that growth has been stronger and the committee is aware of the fact that it has been stronger than anybody had expected, and he said that is historically unusual, but many indicators according to the chairman suggesting the labor market is beginning to gradually cool, wage growth is gradually declining to sustainable levels, and he does suggest that there

are some factors out there that would cause the fed to look again at policy including geopolitical tensions. he does suggest that inflation is still too high. it is coming down and the september inflation data was somewhat less encouraging, and so the committee is going to be paying attention to that as well and he sums it up i saying that growth has been stronger than anticipated and if that is the case, persistent growth could put upward pressure on inflation and warp further tightening of monetary policy. guys? alix: you're seeing volume on the two-year, yields down three basis points. this is the problem. you say rates are the job for us and actually you get lower rates. guy: there is an interesting dynamic. if the fed is prepared to set out the management of this process to the markets, you guys

do the work for us, we will sit and watch, that can bite you fairly quickly. i wonder whether or not but that is going to want to reassert itself in this narrative, its control of the process because it has been interesting. listening to fed speakers over the last few days, time and time again i think what powell is saying is a little more muted. sounding a little less dovish than some of those other speakers have been. alix: what do you think? >> we didn't need to see higher long-term rates to tell if that. that is the most important developments in for last meeting and it does behoove people to say might this substitute for --? . important. stronger growth and continued moderation and inflation. now, he thinks we're going to need low trend growth get there. i don't think so. a macro projections of the

committee suggest we are not going to get low trend growth. inflation down to 10% in any case. alix: how much more work you think the fed has to do and do you think they keep it hawkish in order to prevent the market from front running? >> they want to talk with what we call hawkish pauses. it is diminishing credibility as you hold again and again, but the basic story is we are close. the fact that rates have risen has made the committee more sensitive and more likely not to raise rates in the near term, no question about that. but you're still dealing with tension and scenarios associated with it. i think things are going as well as can be expected given the surge of inflation. guy: do you think interest rates

are going to have to stay more elevated, and do you think the neutral rates look higher now? >> the way the committee thinks that it, the further tightening is going to be from the duration of where you end up rather than further rate hikes. that is where discussion is moving, higher for longer. i think that is the case. i might note that inflation comes down, monetary policy effectively will be getting tighter and tighter and the question is, is that ok? is that consistent with what the economy needs? that is one of the key questions going forward. alix: that's a really great question. powell was talking a little bit about the fed geopolitics. we want to hear from him and just a moment. how do you think about geopolitical events that the fed no control over but that will absolutely affect the economy?

or could, i should say, affect the economy? >> chaos in the financial markets, all of those could affect the drivers of monetary policy. but the fed can't do anything about it. everybody is going to want to know that question. at this point the answer is no impact today, we will see going forward. guy: in terms of what is happening on the fiscal deficit front, clearly we are going to see -- going forward. how do they think about the external factors that are going to influence where yields are ultimately going to be? a range of factors as you go further down the curve that start to manifest. >> that's very true.

i've always said that the deficits and increasing the debt income ratio is going to be a force leaving real rates higher than otherwise. i think the neutral rate has increased about half a percentage point, and that may be part of the story of long-term rates, but it is really the term premium. why has the term premium increased as much as it has? the story about government issuance is now a story about duration in the market which puts up the pressure on rates. that is certainly part of it. the higher for longer, as the market continues to say i don't know, that is emphasized as well. alix: we are all waiting for things to sort of break because that is going to be the signal for the fed to take their foot off the gas. we have a banking issue which was liquidity, but not like a credit issue. when you look at the data we are seeing, how does that unfold?

how long is that lag? >> there has been much less impact on the economy. there was an overreaction of monetary policymakers. the story is becoming more restrained. just in the way the fed is tightening. the focus is not on credit concerns. of course, borrowing costs have increased. longer-term rates and appropriate monetary policy. guy: the market is now pricing out additional interest rate increases from the fed. do you think that is the message jay powell wants to deliver here? >> he doesn't want to rock the boat. he doesn't want to leave markets right before a meeting in the markets are priced very nicely in terms of the fed.

they know there is no move today. they think it is less likely than not that they want to move again, perfectly reasonable. that is the message that the chairman wants to give. there are risks. given the fact that that might interfere with the further moderation of inflation, that is what can lead the fed to raise rates more. nobody knows what is going to happen in december or january. that depends on the incoming data. they have to be pushed to raise rates further. >> also i should point out we are still waiting for fed chair jay powell to give this speech. he's running a bit late. there is a reason. michael, why is the room dark? we were expecting the speech about four minutes ago. >> this has happened before with public figures. apparently a group of climate activists have interrupted the meeting and they escorted jay powell offstage and i presume

david westin as well to keep them safe for the time being while they calm things down. it doesn't seem to have anything to do with monetary policy, and certainly climate change doesn't have a lot to do with the fed activities, but they are using this platform to try to make a point, so we are now waiting. we will see when they get the room cleared and then they can bring the chairman back. guy: let's just talk about what is happening. we are trying to interpret the market reaction to what we've heard, the comments that you've brought us a little bit earlier on. the sense seems to be that the comments that have been delivered are not pushing back on current market pricing. the market therefore is taking this as actively dovish, maybe in line with some of the other fed speak that we've seen recently. is that your interpretation? we are seeing the yields coming down a little bit, particularly

at the front end. this is the message jay powell is hoping to deliver in this conversation. >> i think what he was trying to do is basically come in line with what we've done from at least 12 other members of the committee since the last meeting, suggesting that the real rates are doing enough of a job and at this point they can pause. you see that result in the fed fund futures, there wasn't much of a percentage chance of a rate increase given by the markets, and now it is down to 5%. it looks like investors are understanding this as essentially a dovish speech. i'm not sure if dov and hawk applies in this case, because the fed is pretty much almost dov anyway, but it does suggest not to expect anything on november 1 from the fed. alix: i wonder if it also talks about the cuts. it feels like a lot of the

movement has been pricing out cut for next year and if that is what you are going to see, that pancake curve. i wonder how powell addresses that on his message. >> i think that might be something david will ask him. there is a question about what is going to happen going forward and he alludes to it his prepared remarks, talking about how the economy has been much stronger than anticipated. the september inflation numbers have been disappointing and if the economy continues to grow at the rate it is, it suggests inflation will be sticky if not go up again and the fed might have to do more. that raises the question of what happens in 2024 but if you hold his feet to the fire, he will say i can't make a prediction because i don't know whether the economy is going to continue along this path. very strong third-quarter numbers. you had a lot economists including bloomberg economics suggesting the session in the fourth quarter or the first quarter of next year. alix: --

guy: let's recap and figure out exactly where we are. the headlines that dropped at noon, the flc is proceeding quite carefully, given the risks that have been delivered thus far. many indicators suggesting the labor market is gradually cooling. additional evidence of a strong economy may merit hiking, but i emphasize the additional evidence. financial conditions can affect policy if persistent geopolitical tensions. jay powell is going to say highly elevated and pose key risks. let me just walk you through the market reaction. immediate reaction in two. two drops, five is where we are now, north of 2.2. coming into those comments being delivered. so we are seeing yields a little

lower, particularly at the front end. in terms of what we are seeing, less reaction, and we do still see the tens and 30's on offer at the moment. but we see these coming through, the market largely prices out the idea that november is a no go. but i think maybe just emphasizing from powell the dovish narrative that we've seen from so many other fed speakers over the last few days. guy: as you mentioned, the front-end is seeing the move. equities not really doing a lot which leads to that volatility that we've seen within the bond market, which makes it difficult looking across assets and where that safe haven trade may be. a lot of the upward momentum in equities has been the soft landing scenario. based on your modeling and what you see of the data, is soft landing still in the cards or at some point is it going to get icy?

>> it's fairly unusual, but i would say more likely than not. a soft dish -- they are expecting macro economic heaven, which is the best possible outcome. but yes, we think no recession. the yield curve is signaling a very high probability of recession. but i would say overall in terms of the momentum and growth, there is little chance of recession over the next year. guy: do you think a recession is required to get inflation down to 2%? >> absolutely not. i may be in the minority but i don't think we need to see increased slack, below trend growth. in fact, the forecast suggests they don't think we need it, either. >> it looks like we can be getting close. lights are back on, jay powell

has just sat down. we are almost there. mike, i just want to check back in with you here. again, we read through the statement, we are going to wait for jay powell who looks like he is taking the podium, so let's go there right now. let's go now to the economic hub in new york jay powell. jay powell: before our discussion i will take a few minutes just to discuss recent economic data and the outlook for monetary policy. incoming data over recent months showing progress toward both of our dual mandated goals, maximum -- and stable prices but i will start with inflation. by the time we raised rates in march of 2022, it was clear that restoring price stability would require both the unwinding of pandemic-related distortions to supply and demand and also restrictive monetary policy to cool strong demand and give

supply time to catch up. these forces are now working together to bring inflation down. after peaking at 7.1 percent in june 2022, 12 month headline pce inflation is estimated 3.5% through september. core inflation which emits the volatile food and energy components provide a better indicator of where inflation is heading and 12 months debt 5.6% in february 2022 as estimated at three point 7% through september. so clear progress. inflation readings turned lower over the summer. very favorable development. the september inflation data continued that downward trend but somewhat less encouraging. shorter-term measures of core inflation over the most recent three months and six months are now running below 3%. but these shorter-term measures are often volatile and in any

case, inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. we cannot yet know how long these lower readings will persist or where inflation will settle in the coming quarters. while the path is likely to be bumpy and to take some time, my colleagues and i are united in our commitment to bring inflation sustainably to 2%. in the labor market, strong job creation has met a welcome increased among workers, due both to higher participation and to a rebound of immigration to pre-pandemic levels. many indicators suggest that while conditions remain tight, the labor market is gradually cooling. job openings have moved wealth below their highs and are now only modestly above pre-pandemic levels. the same is true of the wage

premium earned by those who change jobs. surveys of workers and employers show in return to pre-pandemic levels and indicators of wage growth show a gradual decline toward levels that would be consistent with 2% inflation over time. today, declining inflation has not come at the cost of meaningfully higher unemployment, a highly welcome development, but also a historically unusual one. last night it has allowed disinflation without substantially weaker economic activity. most recently seen strong retail sales data released earlier this week. forecasters generally expect the gdp to come in very strong for the third quarter before cooling off in the fourth quarter and next year. still, a sustainable return to 2% inflation is likely to

require a period of below trend growth and some softening of conditions. geopolitical tensions are highly elevated and pose important risks to global economic activity. of course, our institutional role of the fed is to monitor these developments further economic you -- applications which remain highly uncertain. but i will say speaking for myself personally, i find the attack on israel horrifying as the prospect for more loss of innocent lives. turning to monetary policy, increasing in federal funds rate , and a historically fast-paced and decreasing securities holdings by roughly $1 trillion. the policy is restrictive, meaning that type policy is putting downward pressure on

economic activity and inflation. given the fast pace of the tightening, there may still be meaningful tightening the pipeline. my colleagues and i are committed to a standard policy that was -- sustainably down to 2% over time, and to keeping policy restrictive until we are confident that inflation is on the path to that objective. additional evidence of persistent trend growth or the tightness in the labor market is no longer easing could put further progress on inflation at risk and can warn further tightening of policy. along with many other factors, broader financial conditions which in turn affect economic activity, employment and inflation. financial conditions have tightened significantly in

recent months, and longer-term bond yields have been an important driving factor in this tightening we remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy. a range of uncertainties, both old ones and new ones complicate our task with balancing the risk of tightening monetary policy too much against the risk of tightening too little. doing too little could allow above target inflation to become entrenched, and ultimately require monetary policy to bring more persistent inflation from the economy at a high cost to employment. doing too much could also do unnecessary harm to the economy. even the uncertainties and risks and given how far we've come, the committee is proceeding carefully.

how long policy will remain restricted faith of the incoming data. i look forward to our conversation. [applause] >> thank you very much, chair powell for being with us today for those remarks and for having a bit of a conversation here. it strikes me given every thing that is going on in the world and the economy, there is a lot to discuss. we start with something you just referred to, which is the surprise to the upside and the economic data spike as you determined a historically fast-paced. are you surprised at how resilient the u.s. economy has been? just today we got jobless claims numbers. retail sales numbers, you mentioned. industrial production. across the board, despite all

you've done to try to slow it down. >> we certainly have a very resilient economy on our hands. we've got the economy growing strongly. if you think back a year, many forecasts called for the u.s. economy to be in recession this year. not only had that not happen, growth is now running for this year above its longer-run trend, so that has been a surprise driven largely by consumer spending, by a very strong job market with people getting jobs with high first-time nominal wages as inflation has come down, real wages which is spring spending and we've also had inflation coming down. it really is a story of much stronger demand. there may also be some ways in which the economy is less affected by interest rates. it is hard to know precisely, but for example, any company with bond market assets will turn down its debt, and

therefore may not be feeling the effects of higher rates. the same may be true of homeowners who have a long-term fixed rate, low rate mortgage. they are not feeling that increasing rate. on the other hand, if you look at interest-sensitive spending, these are very much the places where we expect to see and do see the effects. for example, in housing. the housing sector has been very affected by higher rates, as purchases of durable goods -- if you look at surveys, people will not say it is a good time to buy a car or a house, quite the contrary. so we see policy working through the usual channels. it may just be that rates haven't been high enough for long enough and it is all happening in the context of very strong demand. >> we further the terming out of

debt, both corporate debt and household debt may diminish the effectiveness of rate hikes. do you have a view on whether that is true, and if it is true, what does it say about monetary policy? does it have to go farther or do you just not have the power to affected? powell: i don't think that there is a fundamental shift in the way that interest rates affect the economy. there may be some differences in this cycle because of what i've mentioned. as i mentioned, we are seeing those effects will be expect to see them, which is been protected something spending and asset prices and the exchange rate, which are also seeing a stronger exchange rate, which is disinflationary. i don't think there's a fundamental change in the way monetary policy affect the economy and again, it goes back to very strong demand. we take the economy as it is. we take fiscal policy and the economy, and all the things we don't control, and we conduct policy always to achieve maximum employment and stable prices.

so we just take what comes. the fact that we have a stronger, growing economy and labor market and ration coming down, these are the elements that we want to see achieve the outcome we want. it may take more time, but ultimately this is the kind of thing you would want to see along the path to getting through this without conveying increase in unemployment. host: how much effect thus far has the fed had? how long and how variable and how -- where are you in the process? in terms of seeing it in the effect and the real economy. >> there is no precision in our understanding of how long. one thing that has changed in the modern era is that markets in the course of the past 30 years, central banks have decided to be very transparent. but that has meant is that

markets move actually well in anticipation, well before policy moves. the transmission from policy moves to financial conditions actually happens before the moves now, which was not the case 50 years ago when milton friedman coined the phrase. but now you have financial conditions changing and of course, how does this affect the economy? the standard channels are asset prices and interest-sensitive spending in the exchange rate. we do see that happening, just not as fast as we would like. i would attribute some of that the just stronger demand. household savings turned out to be higher. household spending has been stronger and that is by far the largest part of the economy. host: do you need at least a hypothesis about how much -- with the economy? it is hard to how much more you need to do if you don't know how far you've come. >> it has been a year now since

the last 75 basis point hike we did. the last meeting with 2022. the first one was in june. so we should be seeing the effects. by the way, they don't all just arrive on one day. so there's a lot of uncertainty around lags, and one of the reasons we have slowed significantly this year is to give monetary policy time to work. the truth is, you can find academic support for different speeds and duration of lag. so we have to use our eyes and a little bit of risk management unit slowing down the pace to make sure that we're are seeing the full effects. again, that is part of why we slowed down this year. we went very quickly in 2022 to catch up to where we need to be, and now we are moving carefully with these decisions. host: when you spoke back in august of 2020 and laid out revisions to the framework as it

were, you said that in terms of anticipated growth, something like 2.5 to 1.8. where is the fed and what you think the long-run growth is? >> long-run potential growth is not something the moves around a lot over time my own gas is it is around 2%. the standard, mainstream view would be a little below 2% but i would say 2% real growth over time. what causes growth is growth in our sword plus growth and productivity, a function of population growth in the long bond and also labor force participation. many things affect productivity. but if you drop in reasonable, standard longer-term estimates of hours worked growth and productivity which is just output per hour productivity growth, you get something around 2% and that is higher than most other advanced economies. >> as you look at it, the uc

historical precedent for having a growing economy with high rates over a long time? is it like the late 90's, for example? what analogies -- analogies do you draw as he tried to determine what this is doing to the economy? >> that is really a question about what the level of rates will be going forward, what the neutral level will be and i think it is very hard to know confidently what the answer to that will be in five years. some of the reasons why rates were low for the last 25 years were just the aging of the global population and globalization. so a lot of savings and with an aging population, savings greater than investments. productivity was low. all of that led to low interest rates. so what has changed with the pandemic? you might see less effect from globalization. certainly the d aging of the global population has not changed. i mean, this is a discussion we are having on an ongoing basis.

it doesn't really affect current policy, but where will rates settle? what will be a normal rate? if a typical fed tightening cycle would leave you at 5% or 6%, this is before the pandemic and before the low-inflation period, you'd have had 4% or 5% or even higher frequent. are we going back to that? i wouldn't want to speculate. my guess is it would be somewhere in the middle. i think we can say this now. the effect of lower bound is not an issue. we were very concerned about that. right now we are very far from the effect of lower bound and the economy is hanging on just fine. but that is because we are in a time of really elevated demand coming out of the pandemic, as we open with fiscal stimulus and monetary stimulus. very strong demand. it is hard to know what the economy will want in the way of interest rates when five years from now, all of the effects of the pandemic are behind us. host: you mentioned long-term

equilibrium would he talked about in jackson hole in august of 2020. back then you said you thought the consensus had come down. where is it today? >> by any reckoning, long-term interest rates and the neutral interest rate came down steadily over the course of several decades. so where is it today? i don't know. we are finding it, basically. i think the median indication of what the real neutral rate was down 50 basis points before the pandemic. it may have arisen in the near term. the real question that matters is will it rise in the long term? and that we don't know. >> but do you need to know? you must have at least a theory. i'm not saying you have to be right, but you must have a hypothesis. powell: we all write down our

estimates every quarter. that is based on models, based on looking out the window and including lines thinking how are the current rates affecting the economy? the evidence of your eyes is that the economy is handling much higher rates, at least for now without difficulty. notionally, that might tell you that the neutral rate has risen or it may just tell you that we haven't had rates high enough for long enough. you are right, though. we have models for everything, formulas for everything. as a practitioner, we have to be focused on what the economy is telling us. what is it telling us? does it feel like policy is too tight right now? i would have to say no. i think the evidence is not that policy is too tight right now. host: do you think we are entering into a new phase of monetary policy?

we had the vulgar disinflation, i think you referred to it as. inflation targeting for a time. there was concern about stagnation. and then we had the pandemic and the real problem with inflation. what does the next phase look like? how would you describe it? >> what we've been through is in all of the advanced economies around the world was a period where the proximity of interest rates was to the effective lower band which is zero or a little bit less. and rates came down and down and down and the problem is if rates are going to be close to zero in good times, how do you cut? have central bank law for the power of the most important tool, which is interest rates? this was a subject of a vast literature and monetary policy research for 20 years. the most common answer was some

kind of a makeup strategy. you would promise to run inflation in that hot, to counter the time zones below. so that was a very serious problem which filled books of research. income the pandemic and the response to the pandemic, the pandemic inflation. the question is, is that a secular change, or are they still out there waiting to come back? books are written on this subject now. you could argue, and some have argued, that effectively the last 20 years before the pandemic was kind of a perfect storm of disinflation, and now that is all gone and we are going into a more inflationary period that will be characterized by more supply shocks and things like that, and therefore more inflationary pressure. are we going into such a time? i don't know. i think it is unknowable.

great theorists and researchers have different views on this. it is not something you can settle in advance. we will have to see. our issues right now trying to achieve a stance of policy to bring inflation down to 2% over time. that's what we are really focused on. host: whenever any of us go through tumultuous times, we look back and think about the after action report. look at the pandemic and the inflation. what would you say you learned in terms of macro economics from that experience? >> hindsight is always a wonderful thing. i think a fair way to judge the actions that were taken is to put yourself in the place of legislators and central bankers around the world, and there is no playbook. he hadn't seen a global economic shutdown. people were thinking that the

pandemic might kill a whole lot of people and that we wouldn't have a vaccine for five years, wouldn't have an economy for five years. these things were all very possible in march of 2020. so we pulled out all the stops and congress pulled out all the stops. with the benefit of hindsight, could we have done less and have less inflation? i guess we could. but if you look overall at the performance of the economy, ours is the strongest. we are actually also making the most progress on inflation but we certainly have the strongest growth. we are back to prior growth trend, not just level of where we were, we are actually back to the prior trend. the last time we have this many consecutive months of unemployment below 4% was in the late 1960's, more than 50 years ago. our economy is doing very well from all of that. but if you had perfect hindsight, you might not have had as much inflation if we had done less, although other

countries who didn't do as much as we did also had substantial inflation problems. host: i think my question was just a little bit different. it's not so much of assigning blame, are there things going forward or change the way you conduct monetary policy if you learn from that, that maybe nobody had reason to know at a time but was an experience he went through? >> we were in a time, a very long time of disinflationary forces. i think everybody's instinct had been attuned to risks coming from this direction, which is low inflation. this taught us that that is over, and we now probably have going forward a more balanced set of risks with high inflation, low inflation both risks. right now, the risk is still high inflation but i'm assuming back to 2% we won't have that. we certainly learned that.

events -- the possible range of events is so much wider than what we think it is on any given day. details are so wide and it is just not human nature to constantly be thinking about things that are way out on the tail, but they happen in financial markets and in economies. they happen far more regularly than they should. host: i suspect every person in this world is well aware of what is going on with yields and bonds, particularly in the longer end of the curve. what is your understanding of what is going on in the bond market and why those yields are going up, particularly at the longer end of the curve? >> one is why is it happening in the other is why does it matter? for why is this happening, it is always hard to say exactly what is going on with longer-term yields, but this is what i think we can say. first, what it is not. it is not apparently about

expectations of higher inflation. it is also not mainly about shorter-term policy. fed fund moves over the next year or two. if you even look at the two-year for example, the two-year has moved up a little bit, but it is really happening in term premiums. not principally a function of the market. there are many candid ideas, and many people feeling there that -- that their priors have been confirmed by this event. markets and analysts are seeing the resilience of the economy to high interest rates and they are revising their view about the overall strength of the economy and thinking even longer-term this may require higher rates. that could be part of it.

another one is the changing correlation between bonds and equities. that can make bonds a less attractive heads to equities and therefore need to be paid more and therefore the term premium goes up. all of those are possible ideas. then the question is does it matter for us? the way i think about it is we change our policy, actual and expected changes in our policy affect financial conditions, and persistent changes in financial conditions affect economic activity, hiring and activity. are we seeing longer run bonds increases in rates?

persistence would be a matter of just seeing with our own eyes but if you look at financial conditions and indexes, it is a light because of -- is it just because the market expects us to take things, to take further actions to tighten monetary policy? that doesn't seem to be the case. it doesn't seem to be principally about expectations of us doing more. it seems to be that other factors are the more prominent ones. the bottom line though, that means it probably does overtime make sense. host:host: that is the question i was asking, over time. from what you understand right now is this a temporary phenomenon or are there structural factors, whatever they are, because this is the future we are looking at now. powell: some of them are

shorter-term, some are longer-term. for example, fiscal deficits would be a longer-term factor. the change in correlations. i don't think we know. basically, bond prices are set by supply and demand. supply of treasuries is a known thing but also just by sentiment, markets have been volatile. you've seen the moving up and down a lot. but for now, it is clearly a tightening in financial conditions. host: youth been very careful to say you want to stay in your lane. but at the same time, you have to take into account that other

countries are as well, around the world. to what extent do you think when we see geopolitical conflict around the world, like israel, like ukraine, the defense is going to be for the united states and for other countries. it may well mean that we are borrowing a lot more money than we have in the past. >> we have course see the same things as everyone else. there's a lot of talk of the resource demand that organizations like the imf and other countries are facing. there is a lot of that. as you mentioned, we don't comment on fiscal policy, fiscal

authorities have oversight over us and not the other way around. i would just say everyone knows it is not a secret. the path we are on is unsustainable sooner rather than later. it is not really something that affects our monetary policy decision. it is not going to be driven -- i mean, if there were some fast new fiscal policy about to be enacted, that would have an effect on projections and indirectly, that would affect us, but we would not be responding directly to fiscal policy. >> there is buying and selling in the united states government is issuing treasuries. we now have one buyer who has stepped out of the marketplace in the fed which was a big

buyer. at the same time, overseas buyers may be pulling back as well. how do you assess where we are going with the larger bond yields? powell: i think buying by overseas entities has been pretty robust this year. find large it has been buying robustly. we look at the broad financial conditions of interest rates and other asset prices, that is what we look at. we don't focus on fiscal policy, we wouldn't change monetary policy. for example, because we think with the u.s. is on an unsustainable path. everyone knows that. we are just going to do monetary policy to achieve stable prices. host: i'm curious, one of the things you are most concerned

about is the real economy. you have significant exposure to --. as you talk to ceos and people in business, these bond prices are really affecting cost of capital. there was a long time that it felt like zero. the person money goes up. >> i talked to several people this week who run companies and they said that the economy remains strong. there are some areas were spending the softening but overall, the consumer strong. volume is not doing up very much . now, working for smaller

companies, that really does matter. we don't have a lot of tools. we have interest rates and they are far from perfect. but this what we have to get inflation down and really the world count on us to deliver low and stable inflation. that is what we have to do. at a time like this we know we are having negative effects on a very tough time in the homebuilding industry. we know that. but ultimately what we want to get back to is a long period of price stability. policymakers, businesses and people shouldn't spend their lives worrying about inflation. this is what we have to deliver. our independence is not for times when we are really popular, but notwithstanding

that it is challenging and difficult. higher interest rates are difficult for everybody. host: you are not wavering from 2%, you did it again today. there are those who suggested that maybe the bond market is doing part of your job for you. is that the way you see it? >> i would say it this way. the idea of tightening policy is to affect financial conditions. higher bond rates, they are producing better financial conditions right now. that is how monetary policy works. again, as long as bond rates are going up, they will come right back down. we don't think that is the case. it doesn't seem to me that is where analysis leads you.

that is exactly what we are trying to achieve. >> it must reduce some of the impetus for you. >> i think that remains to be seen. in principle, that is right. >> the labor market. as you say, vacancies are pretty elevated. what do you make of what is going on in the labor market right now? >> what happened in the pandemic was we have a negative supply shock, is one way to think about it. and then didn't come back. when the economy reopened and everyone was revenge traveling and revenge everything, very strong demand. so you had two job openings for

every person seeing unemployment. we've never been anywhere close to that. there was panic. wages and bonuses and there were some services or people had not gotten wage increases. that is where we were. since then, there are very many sign for labor market is getting more balanced. we surveyed businesses, people surveyed businesses and say that measure was known but now it is back to pre-pandemic levels. that was at an all-time high and now it is still high. so wage increases are coming back down to more normal levels. job openings are down, they were 1.2 in the very tight labor market of 2019. the work week. assuming mark -- measures, the

labor market is gradually cooling and part of it is that all through 2022, we thought we were going to get more labor supply and we didn't. i personally thought i guess we won't get any and then we got a substantial amount this year. it is at an all-time high, which has to be related in some way to work from home. the labor force participation increased, and now you see that in the overall cooling of the labor market. there are the workers to fill those jobs. businesses will tell you that it is very different, it is still a very tight labor market. it is loosening. >> what have you learned about the relationship between inflation and labor? whether it is still high, whether it is weaker, what is your hypothesis about the relationship to inflation? >> let me tell you what it was before.

one of my favorite charts is just a slope of the phillips curve over four years. it was a fairytale relationship. finlayson ships went down and down to where there was almost no relationship, meaning the phillips curve was very flat. now, if you just ignore because and look at the data, it will tell you that the relationship is back. do we really think that is a sustainable thing? i don't know. people came to seriously expect 2% inflation, something like 2% inflation. if people expect that, if companies and workers expect it and you expect it, that is what will happen, anyway. that is what happened. even in very, very tight labor markets, i was at the fed since 2012 as unemployment went from six to five to four, and the

models were all saying that we should be seeing some inflation that we never saw. we never really saw 2% inflation during that era. we learned that the phillips curve was really flat. now, i don't think most of the inflation we are seeing is from the phillips curve. really it was the collision of really strong demand with constrained supply. cars being a great example. many people wanted cars. didn't want to ride public transportation. unlimited demand for cars. we couldn't get semiconductors, so there are no more cars. car production went down. how do you solve that? prices go way out. that is a classic example that what happen here really wasn't phillips curve, but about constrained supply and demand more broadly. >> last march we had something

of a scare. interest rate risk with silicon valley bank and some others. abe through that now? where are we in that process? >> what you've asked for his not to rest easy. where we are is this. things have certainly settled down. we see the funding markets, we paid a lot of attention to banks that look anything like the bank that had the problems to make sure they had incredible liquidity plans and all of that. i think other that has worked in the senate this facility, and so all of that has led to a real settling down. we are still on the case. we will keep after that. banks are generally very

well-capitalized and highly liquid in their country. thanks are strong. we benefit from all those years of reform under dodd-frank that we went through with former governor tarullo and many others. and so we benefit from a very strong, well-capitalized banking system that is much better and hedging its risks than the one from the financial crisis. >> a proposal. >> it is a rule for comments. there's not a lot i can say. we do expect a lot of comments and we expect to take them very seriously. >> talk about comobviously therg

that comes with your increased rates, and there is some real estate that is not worth the money that it was originally financed with. how concerned should we be about that, that there is something lurking out there that could affect the system overall, not just the people invested? >> that is affecting downtown real estate in a lot of big cities and higher rates as well, as you point out. this is an issue that we paid a great deal of very careful attention to. commercial real estate is not a principal risk or a major risk for the very largest banks. it is much more for regional and greeley the smaller banks that

have proportionally much larger exposure to real estate, so commercial real estate. what we've done is supervisors are in there looking at real estate portfolios, working with banks to make sure they have plans to deal with the problems they have in their portfolio. these problems evolve over time. they don't arrive with great suddenness like a market event. all of the bank writers are working with banks that have concentrations of troubled real estate to work it out. there will be losses, for sure. you can drive through most downtowns and see buildings that are empty and things like that. but we are working through it. we are on that case and don't see as presenting much broader problems but our job is to make sure that. >> regional banks are focused on this. what is the role of the regional banks?

if you have the super big bank that don't look like they are going anywhere and the community banks, the smaller banks that we understand are critical for small businesses and local contacts. but what about the regional banks? how much pressure is now on them and what with the damage be? powell: i think the regional banks are very important, extremely important. we have 4500 banks which is a lot more than any other country per capita. our largest banks in profitability, we have community banks dealing in smaller communities. but we also have these great regionals. a great business with many companies. i do think their business model is under pressure. i would not like to see us add to that by treating them like that.

i would say i personally think, and i think the fed strongly thinks that the smaller regionals an enormously part of our banking system. >> i have one last question. are you having a good time? [laughter] chair powell: now? david: i assume this was not that pleasant. in general, are you enjoying your job? chair powell: it's an incredible honor to do this job. everyday i do what i feel so fortunate and so lucky and blessed to be entrusted with