tv The David Rubenstein Show Peer to Peer Conversations Bloomberg May 2, 2021 2:00pm-2:30pm EDT
a kohler walk-in bath provides independence with peace of mind. call... for fifteen hundred dollars off your kohler walk-in bath. visit kohlerwalkinbath.com for more info. ♪ david: this is my kitchen table and also my filing system. over much of the past three decades i have been an investor. the highest calling of mankind, i have often thought, was private equity. and then i started interviewing. i have watched your interviews, so i know how to do some interviewing. i have learned from doing my interviews how leaders make it to the top. >> i asked him how much he wanted. he said 250 and i did no due diligence. david: i have something i would like to sell. and how they stay there. you do not feel inadequate because you are only the second wealthiest man in the world, is that right?
a number of years ago i hired a young investment banker who had previously worked in the government and also had been a lawyer. his name was jay powell, and he did a terrific job in my firm. but he left to go back into public policy work. he is now the chairman of the u.s. federal reserve board. in that context, he has to deal with the most important economic issues now facing the country. let me begin by talking about the state of the economy. your public statements to date in recent interviews makes it sound like you feel the economy is in reasonable shape to go forward from here and you are expecting growth of 5% to 6% this year. is that a correct announcement of your views? chair powell: generally, yes. i would say the economy at this point does seem to be at an inflection point. that makes sense with widespread vaccinations, strong fiscal policy, with continued support for monetary policy. you see the economy opening, you can see ridership on airplanes
going up and people going back to restaurants. i think the march jobs report we recently got shows what that can look like, close to one million jobs in one month. we are going into a period of faster growth and higher job creation and that is a good thing. i would point out there are still risks in particular. i would say the main risk is that we will have another spike in cases, perhaps in one of the virus strains that may be more difficult to treat. now, we do not see that yet. we have cases moving up a bit, and that is something we need to be careful about and it would be wise to keep wearing masks and be socially distant for a little while longer. david: that is high, $20 trillion or so. and the annual deficit is $2.5 trillion to $3 trillion. is that a concern for the fed? in terms of impacting inflation? chair powell: yes, over time and in the longer run the federal budget is on an unsustainable path.
meaning that the debt is growing meaningfully faster than the economy. that is, by definition, unsustainable over time. it is a different thing to say the current level of debt is unsustainable. it is not. the current level of the debt is very sustainable, and there is no question about our ability to service an issue that debt for the foreseeable future. i would also say that as a nation we will have to eventually get back to a sustainable path. that is something that is best done in very good times when the economy is at full employment and taxes are rolling in. this is not the time to prioritize that concern, but is a concern we will have to return to again when the economy is strong. david: you have previously said, and i want to ask you if you feel the same way now, that currently you do not expect the that federal reserve to increase interest rates before the end of 2022. is that correct? chair powell: here is what we
have said. we expect to keep interest rates where they are today until three particular outcomes are achieved in the economy. the first is that the recovery in the labor market is effectively complete. the second is that inflation has reached 2%, and really reached it, not tapped the base, as a like to say. the third is that inflation is on track to run moderately above 2% for some time. those are the tips. we are really focused on the so, progress of the economy toward those goals and not a particular timeframe. when we get those three boxes checked, that is when we will consider raising interest rates and that is when we will raise interest rates. until then, we won't. what you're referring to is, we all write down these projections in every quarter in the fomc meetings, write down individual projections, and we tabulate them and publish them. most members of the committee did not see raising interest rates until 2024, but that is
not a committee forecast. it is not something we vote on or act on as a group. it really is just our own assessment. and so i think there is a tendency of markets to focus too much on what we call the dot plot. david: ok, but based on what you know today, you would not expect to increase interest rates before 2022, or you're not saying that yet? chair powell: before 2022 that would be this year. i think that would be highly unlikely. i do not talk about particular dates. i do not think there is any use in that. it really is outcome-based. david: let me ask you, last time the fed did increase interest rates, it did so by a little bit, and then it started shrinking its balance sheet a bit. do you have any view on whether that is the right way to proceed when you begin to interest increase rates? should you increase interest rates and then shrink the balance sheet later, or shrink the balance sheet and then increase interest rates?
do you have any view on whether one policy or the other is better? chair powell: during the global financial crisis, first we were buying assets and then we gradually slowed the pace at which we were buying treasuries and mortgage-backed securities. then we held the balance sheet constant for a while. after that we started raising interest rates. we raised them gradually and we held the balance sheet constant. we do not sell bonds into the market, and when they mature we either reinvest them or allow them to run off. so that is what we did last time. i think if you look at the sense of our guidance, we will reach the time at which we taper asset purchases when we have made substantial further progress toward our goals from last december when we announced that guidance. that would, in all likelihood, the well before the time we consider raising interest rates. haven't voted on that order but that is the sense of the guidance, that it would work in
that way. david: in other words, you are likely to follow the same policy of not selling into the market the bonds you have or other securities, just let them mature and that is the way you shrink your balance sheet? chair powell: these are questions which lie ahead of us. essentially i would say it this way. the first thing we do is, we say we will gradually reduce the pace of our purchases. then, when the purchases go to zero, the size of the balance sheet is constant. and when bonds mature, you reinvest them. another step, and we took this late in the day in the last cycle, was to allow bonds to start to run off. we have not decided whether to do that or not. we did it then, and i do not think now we would ever sell bonds into the marketplace. david: you mentioned inflation. let me ask you about inflation. the fed for quite some time has tried to get 2% inflation but has not been able to get 2% in our economy.
why do you think it has been so difficult to get inflation at 2% or higher? when i worked in the government, many years ago, we had double-digit inflation. i don't think we are getting that again, but why is it so hard when we have large deficits and high government spending? chair powell: the economy has really changed since those days. that was when i was in college. people generally attribute the quarter of a century of low inflation that we have had to a number of factors. one is globalization. one is spread of technology, another is demographics and an aging population. all of those tend to lead to lower inflation. in fact, since the global financial crisis, for the last decade, you have seen central banks around the world really struggled to reach a 2% goal, and in some cases they are fighting outright deflation. the reason that is a difficult thing is, that reduces the scope of central banks to react to the economy when it turns down, which can lead to still weaker economic outcomes, lower
interest rates, lower inflation. so you can get into a cycle, if you will, that is not a productive one. so we really want inflation to be at 2%, we want it to average 2% over time. that means we wanted to overshoot 2% after we have been below 2% for a while. david: is there anything you think the fed should be able to do to help people who are really suffering in the pandemic? chair powell: i think they need to be in the room with us as we make our decisions about monetary policy. ♪
unemployment rate, but not under the statute, whether it is minority unemployment rate or white unemployment rate. how do you assess these issues that are not really in your statute, but are now important in terms of determining how the economy is moving forward? chair powell: there are two issues and there are differences and similarities. the point is we see both of them through the eyes and through the lens of our existing mandates. we have not gotten any new mandates. take climate change, for example. the reason we are focused on climate change is that our job is to make sure that financial institutions, banks, particularly the largest ones, understand and are able to manage the significant risks that they take. and the public will expect us to do that. climate change is just another one of those risks. an increasingly the large banks very much realize that if you talk to leaders of these financial institutions, they are very focused on what climate change is going to mean for their business, their business model over time.
so it is within the scope of that mandate. it is similar with inequality. we have these persistent disparities, racial, gender, and other disparities in economic outcomes in our economy and they kind of hold the economy back. we all want an economy where everyone has the ability to contribute to and benefit from the prosperity that we have in our great economy. so, really, our focus is on the gaps that we face. and we call them out. talk about them. we try to incorporate into our monetary policy framework the thought that maximum employment, our statutory goal, is a broad and inclusive goal. that is a reference to those issues. and i think we now realize that unemployment can go low for quite a long time without inflation being a problem, which will also tend to help those groups. on that i would stress, of course, we cannot be the primary policy organization that treats
either climate change or inequality. you know, we see it through the lens of our existing mandates, but those are very much issues for elected representatives and for other parts of the government more than they are for us. david: come to work sometimes you see people living in tents, in fact they are living in tents, homeless people living in tents. your mandate is not to solve that problem necessarily, but is there anything you think the fed should be able to do or should be given more power to do to help people who are really suffering in the pandemic? david: we are definitely not seeking any new authority, nor are we, as i mentioned, we are not the agency that has the most direct authority over that. i happened to see it right here on virginia avenue. there have often been a couple of tents on this end of town where there is an open space, but now it is a big. it is a lot of tents and a lot of people. and you can't miss it. you drive by and you think it has to be because of the pandemic.
it just has grown a great deal. it struck me. it strikes me every day as i go by it. so how does that play into what the fed does? i think we need to keep those people in mind, really. you know, we do not have tools that deal directly with them, those are people who, any of them probably were working in february of 2020, before the pandemic hit. and i think they need to be in the room with us as we make our decisions about monetary policy. we need to be thinking it is not just a headline in the aggregate, it is also the people in the margins of the economy. david: let's talk about fintech. since you first got into the financial world, the fintech revolution has really changed banking and financial services. how does the fed to regulate some of these new fintech companies that are really not subject, under the traditional rules, to your regulation? are you worried about your inability to control some of these companies that might have an enormous impact on the economy? chair powell: in the financial area, the key thing is that
equal activities -- the same activity should be regulated the same way no matter where it is, no matter what kind of business it is in. that is one thing. it needs to be regulated in a way that gives consumers and users of that service the protection that they need. so they have to understand what the risks are in what they are doing and that sort of thing. i think with the growth of the, you know, non-bank financial players, we have some work to do to understand them and deal with those challenges. in the meantime, we have the legal authority we have over the banks, really, also over some of the payment utilities, and we will use that. but we don't have authority over many other companies now very much engaged in the payments business and dealing with the public, and i think congress is looking at the question of whether there is enough there. whether there is the sort of regulation and supervision that they need. david: related to that would be cryptocurrency, which is not quite fintech.
some might say it is, but cryptocurrencies have really blossomed, mushroomed, depending on your observation of the size of it. it is hard to know exactly how big it is. are you worried about the impact of cryptocurrencies in terms of the impact on the economy and the ability of people to use these things for nefarious purposes? chair powell: so, a couple of things. we think of them more as crypto assets, because what people call cryptocurrencies, they are really vehicles for speculation. no one is using them for payments, for example, like the dollar. what they are using them for is to speculate. it is a little bit like gold. for thousands of years human beings have given gold this special value that it does not have from an industrial standpoint. nevertheless, thousands of years they have done that. bitcoin is more like that and the cryptocurrencies are like that. they are not being actively used as payments. david: i think you said recently the biggest problem that you are worried about now is cyber, cyber attacks and so forth.
can you elaborate a little bit more, why you are worried about it, and how does the fed protect itself? chair powell: cyber is the new frontier. that is not a new insight. we spend a great deal of time and money, you know, making sure that we are resilient, making sure the banks, they spend a lot of time and money. as i said before, it is one of those things where you never feel like you have done enough. ♪
chair powell: all 12 reserve bank presidents and all that sitting governors, which is currently six, or what we call participants in what is called the fomc. the federal open market committee and we meet eight times per year. we are doing it virtually now, and i do it from this beautiful board room we have upstairs. david: in the supreme court, when they have conferences among the members, i think the chief justice gives his view first and others, according to seniority, give their views. how does it work at the fomc? does the chairman of the board, you, give your views first and then others speak? or they speak and then you give your views? chair powell: it depends on the issue we are talking about, and it is sort of up to me. the order changes, it is not in order of seniority or anything like that. people say let's say we will have a go around on the economy. people say i would like to go in the middle, the beginning, at the end. we make up a list and hand the list around. i will sometimes go first if i really want to make a point. often i will go last and try to sum up. i say what i think the path forward is.
it depends on the situation. david: i always worry about secrecy. i assume you have somebody coming in and sweeping the room where all of these discussions are going to occur, or when they are being done virtually you have the best cyber people in the world to make sure nothing leaks out. is that correct? chair powell: that is correct. of course, we realize we are a very attractive target for hacking and cyberattacks of all kinds. and so we invest a great deal of time and money trying to make ourselves as safe as possible. we also have very strict rules for fomc participants and their staff for the handling of confidential materials. i would just say, you never feel like you have done enough. i am sure you feel the same way in business. you just never feel like you have done enough. but we try to be as robust against those kinds of penetrations as possible. david: you are the first person in quite some time to be the chairman of the fed who was not a phd in economics. you have been trained as a lawyer. is that why you are able to week
in the king's english better than economists who have had that job? because you tend to speak in ways that people can understand. chair powell: i do consciously think it is very important to speak to the interested public in a way they can understand and to avoid jargon. large public and private institutions around the world are really struggling to hold the faith and support of the public, and i think, for the fed it is terribly important we engage with the public, proactively. it is something we have to do, speak to the public and the public's elected representatives in congress a lot, and gain our democratic legitimacy through that. david: typically chairs of the fed will have a regular lunch with the secretary of the treasury. sometimes even the president of the united states will have some regular contact. how are you meeting with this administration? do you meet with the secretary regularly or the president? chair powell: the standard way
it has happened has been this. there is a weekly -- it had been a breakfast or lunch between the secretary of the treasury and the fed chair and it rotates back and forth into each building. that is now a phone call. and so that is what i have been doing with secretary yellen. in addition, there has been an irregular but monthly lunch with the head of the national economic council. meetings with presidents and fed chairs are very infrequent and not on any sort of a schedule. and i have not met with the president. david: had you met him before he was president? you must have met him at some point in his life or your life, or you really haven't met him yet? chair powell: i think i have shaken his hand but i've not really met him or talked to him. david: so when you are running the fed in a pandemic, are you doing it remotely from your home? i know you are now in the fed
building now. have you been from the last year working from home? chair powell: we had a significant fomc meeting march 15, sunday, and that was the last meeting i did from this building. i went home after that and since march 15, 2020, have mostly worked from home. although lately i find myself coming in two, three, four days a week, as a matter of fact, more than i used to. i am not sure why that is. but that is the case. i will say it was surprising how well our business and our business model were able to adapt to doing work remotely. i think many organizations had that experience. we certainly did. david: you are coming in more frequently because your wife is saying, finally it is time to get out of the house and go to the office more? chair powell: there may be some of that involved. absolutely. [laughter] david: i wanted to ask you, what have you learned as a member of the fed, board member, that you did not really know before that
surprised you, perhaps, and what have you learned about the pandemic and the way it has affected the economy that might be a so-called lesson learned, that the fed has learned about how the economy operates in a pandemic? chair powell: well, i am just about to have my ninth birthday at the fed, so i have learned a lot in those nine years. i think you have to master the specific economics around monetary policy, and also you have to master payments and regulation. there is a lot to learn. in terms of the pandemic, i would say this. the first and most important thing about the pandemic was health care policy. which starts with the things we did to shut down the economy -- not we, but the government did and the private sector did, to get the pandemic under control, and then to get people to socially distance and ultimately vaccines. all of that was and is more important than anything we can do. the second most important thing was fiscal policy.
this was a situation where 30 million households are suddenly without an income. and congress had to replace that. that is not a matter for monetary policy. it works by stimulating aggregate demand by lowering interest rates. you know, that would become important later, but that was not what was needed. it was fiscal policy. fiscal policy came in and made the difference in this cycle. then us. we were third. and we had three goals from the beginning. first of which was to stabilize, which i think we seemed to stabilize markets after what we did on march 23 of last year. and also to provide some comfort and then support the economy when the expansion began. and then over the long run, try to avoid longer run damage to people's working lives and to smaller businesses going out of businesses and things like that. these are things we tried to achieve. clearly we have learned a lot about the way pandemics work, and we hope to learn no more about that going forward,
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