Places. Watch American History tv tonight and over the weekend on cspan3. Up next, Federal Reserve chair Jerome Powell talks about the u. S. Economy and his agencys response to the coronavirus pandemic at a Virtual Event hosted by princeton university. Okay. Hello, everybody. I now have the signal that the technology is working. Fortunately nobody would put that in my domain. I dont take any responsibility for that. Im professor of economics and Public Affairs here at princeton university. Thank you for joining us on this special reunion event with Federal Reserve chair jer powell. Sponsored by princetons griz wald center. Were happy to have many members of chairman powells classmates on the princeton class of 1975 on the zoom. Just one quick logistical note, if you have a question, youre welcome to submit it any time you want using the q a feature of zoom which youll find at the bottom of your zoom window. It tez q a. You may also upload questions that youd like to see answered and well take as many of these as we can. A full recording of the talk will be posted on the griz wald centers website and the talk is live streamed right now. Im pretty sure thats working. Yes, were live. Okay. Let me introduce a man that needs no introduction. Were happy to welcome here today. Jay powell graduated from princeton which is relevant today. 45 years ago. Ten years after that, he married his lovely wife alyssa and this weekend the two of them are celebrating the graduation of their daughter suzy as a member of princetons class of 2020 which is sure to be a memorable year. So congratulations to you. After princeton, j. Powell attended law school at georgetown. He didnt stick with law and opt ford a successful career in investment banking, in private equity and a stint in u. S. Treasury among others. In 2012, president obama pinlted him to t appointed him to the Federal Reserve board and President Trump elevated him to the chairmanship of the board. Trump as you know has since complained many times that this was a terrible choice. Almost everyone else on the planet sees it as a fabulous choice were deeply grateful to have him run the fed right now. And for spending some time with us this morning. So thank you very much for being here. Id like to start with the most obvious question that wont surprise you. Are you sleeping well . Thank you. Id like to say hello to my welcome classmates. If you permit me, want to start this though by just noting that this is a difficult time for many americans. People have lost loved ones, many millions of people have lost their jobs. There is a great deal of uncertainty about the future. And i really think we ought to start by acknowledging that fact. And ill add that the fed is strongly committed to using our tools to do whatever we can for as long as it takes to provide some relief and stability now to support the recovery when it comes and to try to avoid longer run damage to peoples lives through long periods of unemployment or through unnecessary insolvency. So with that, let me get to your question. Sleeping well . Better than im sleeping in late february and early march. Lets put it that way. Glad to hear. That im sure you need to keep up on your sleep. Were relying on you for that among other things so this is your 45th reunion. Congratulations. Did you take economics 101 at princeton . Do you remember who taught it to you way back then . I d burton malkial taught it. I took micro and macro. Those are the only econ courses i took. I think that is two more than William Mcchesney martin and did he pretty well. Is there anything in your princeton education that actually got you thinking about the Federal Reserve in a somewhat serious way . Not dreaming youd be chairman of the fed, although thats that will be interesting to hear. But just thinking about the Federal Reserve and what it does . Well, the answer is yes. For whatever reason, by the time i was a senior at princeton, i did have this idea. I didnt have much of a plan. I had an idea. And that was that i wanted to have a career that was mostly a private sector career but then to go in serve in government at different times in my career. The model would have been vfrmevance or shultz. Part of that is growing up on washington, d. C. I definitely picked up and i did major in politics ultimately. And i picked up that idea and i strongly wanted to do Public Service. My dad had had done Public Service in the war. And then he was a u. S. Attorney and a law clerk. He really wanted to serve again and couldnt. While he was at princeton, he had to turn down a job in administration because he had six childrens tuition to pay. Dad made me want to do Public Service even more. I want to start with a few general questions about the fed and then get more down to some of the specific things youre dealing with. So at the general level, strange as it may seem to those in the financial world, not every american spends every minute of every day thinking about the Federal Reserve. Could you maybe start us off by talking a little bit about where and how you see the fed fitting in in the more general scheme of American Government . And by the way, while youre doing that, maybe can you reveal the secret hand shake. Ill be glad to. So the fed is an institution. Its a Great American institution. Its founded about 107 years ago. And its an interesting institution. There is a board of governors that exists here in washington, d. C. The members of the board of governors are nominated by the president , confirmed by the senate and serve long terms of 14 years. Although your term as chair or vice chair is only four years. But the underlying term as governor is long. And thats meant to keep you out of sort of the political not sy political cycle. We have 12 reserve banks around the country. The president s also serve on the federal open Market Committee which is where we set Interest Rates. And those are appointed by their private sector boards with the consent of the board. So its a way of make shoog you are th arei are not having the same group think in one part of the country. We have diversity from around the country. The fed is present in if every community in one way or another all around the country. So what do we do . We do a few things. We look after the overall stability of the Financial System and we have tools to do that. We set Interest Rates in an effort to support Economic Activity when it needs support. And we supervise and regulate banks. We operate large parts of the payment system. So we have a lot of different roles. All of them are meant to be undertaken in a strictly nonpolitical way that serves all americans. The last thing ill say is that we do have this precious grant of independence as all Central Banks and major advanced economies do. But with that comes the obligation of transparency and accountability. So we are directly accountable in our system of government to the oversight committees that we report to in congress. As, you know, a way for us to maintain our democratic legitimacy in a system where most of the authority is vested as it should be in elected people, not in appointed people like us. As a somewhat specific follow up to that, do you worry these days when so much is going on that the public, the markets, the congress, the white house, take your pick, hold exaggerated beliefs about what the Federal Reserve can actually accomplish . Mission creep is one thing. Youve been asked to creep your mission for sure. This is something rather different. So what do you think about that . You know, i think we do have this precious grant of independence and that really means that we need to stay stay in our lane and just do those things that congress asigns us to do. If were going to roam all over the landscape, we shouldnt do that. We stick to our netting, i would say. We do have, though, we have tools that can be used in a Financial System only in emergency situations. Such as the Global Financial crisis of a decade ago, such as the pandemic. And those tools can only be used now with the approval of the secretary of the treasury. This is under statute passed by congress. This is under dodd frank. We do use the tools. Theyre very powerful. But they have kuwait a limited use and, again, only to be used in unusual and other circumstances with the permission of the treasury secretary who, of course, is part of the administration. I think we need to stress and try to stress all the time that we have tools that we can use but theyre not for general times. Particularly now what i would say is the tools that were using now are lending tools, not spending tools. So we dont have the ability to make grants of money to particular groups of people no matter how directly theyre affected by companies or affected by the pandemic. That is a job for elected officials. They control spending and taxation. Its not a job for appointed officials like us. So there is a need to underscore the limits of our powers. Although, our authorities are very strong. Youre seeing how strong they can be. One of the ways to draw a line between lending and spending is put it is to make, let me say, only loan thats will be paid back. You might say with 100 certainty if there was such a thing in the world. Thats directed to the fed. The youve been directed during the pandemic, you personally the fed has been directed, to make loans in places where the fed has not gone before. And maybe theyre not 100 guaranteed to pay back. Do you see that as i was talking a minute ago about Mission Creep or Mission Impossible or Something Like that. Does that kind of thing worry you . You know this is a this is a emergency of a nature that we havent really seen before. And at the beginning of this, my colleagues and i really saw that we needed to be using our tools to their fullest extent. That it would be very hard to explain to the public why we would hold back from doing that at a time when we saw the, you know, the 50year low in unemployment turn into an 80, 90year high in unemployment in the space of 60 days. We saw the economies around the world shutting down and we, you know, i think we felt called to do what we could. And so we crossed a lot of red lines that had not been crossed before. Im very comfortable that is that situation in which you do that. And then you figure it out afterwards. So thats how i would look at that. Right. Thank you. In line with that, as you were called to do a lot of things, the fed stood up in a very short period of time, alphabet soup of special lending facilities. Some of which look like the what happened in the financial crisis but many which look very different from that. Can you give us a sense how asked that was. You eluded in the first question that you werent sleeping much in march. Can you give us a sense of how difficult it was for the institution . So i think it it an extraordinary institution. Were luck dwroi have a large number of highly dedicated, highly capable people mshgs of whom were here and live through the Global Financial crisis and were, you know, critical players in implementing the facilities put in place then to prevent the collapse of the global Financial System. Very different set of problems. But so i think we benefit from that experience. And all of us, of course, as you have studied the lessons of the financial crisis a great deal. So i think we knew a lot. I think i would break it into a series of phases. First, what happened was that as the pandemic, as it became clear sort of week or so before the end of february that pandemic was going to be a global phenomenon, that any hope that it would be contained in a meaningful way in a province of china was gone. Markets began to struggle processing that. Its unknowable. What will be the effect on the Global Economy . Markets became extremely volatile. Investors fled from any risk and really market pz stopped functioning in a broad sense so companies and households couldnt burrow, couldnt roll over debt. And markets kind of closed. So this was what we did is we came in the first instance and we tried to restore market function through a variety of ways. We purchased a lot of treasury securities to get that market running again. The short term money markets which are important to many private corporations, they stopped working. So we did some facilities there. Then we turned to the provision of credit to corporations and to municipalities and states. That was about weakness in the Financial System. This time the Financial System is in good shape. It has strong capital, much better risk management. This was a problem in the real economy, in the private sector of companies not being able to finance themselves. So we set up we announced the setup of the facility to, you know, to backstop that market and as we backstopped the markets, even before we began actually lending, they start to work again. There is a confidence factor that weve seen in real force here. We understand what an honor it is to be in a job like now when you need it. Let me pursue one particular aspect of that which i guess is still insipient which is the main street, socalled main Street Lending programs. I remember when main street was first announced. Thinking that this was an assignment that push the the fed into a place where no fed had ever been. Even more so than the ones that you were just speaking about. Can you comment a bit on the special difficulties the fed has encountered in standing up to the main Street Lending programs . Id be glad to. St the main street facility is for small and medium size companies. Companies that dont that arent large enough or in some way dont have the ability to have access to the capital market. They dont issue public bonds or public equity meaning the way they get their financing in the operations is really through the Banking System and through nonbanks. So we had we have a facility that deals with companies that have access to the bond market and theres congress has date of birth done a lot more Smaller Companies with under than 500 employees with the paycheck protection program. So this is for the companies that are in the middle. And it is very challenging because its an extraordinarily diverse space. The credit needs of different kinds of companies and Different Industries are extraordinarily diverse. Some of them borrow against assets and some against cash flow. Some are much more volatile than others. So its quite diverse. And trying to figure out the right credit products for that market is challenging. In addition, the world of bank credit is a world in which every Credit Agreement between borrower and a bank is negotiated. So each Credit Agreement is a little bit different. So it doesnt have the degree of standardization, for example that, the bond market has where there are forms of presideo ins us and its challenging to get in there but get in there we will. Were day as way from making our first loans in main street. We have three facilities that are part of it. Theyre meant to reach out to different parts of that broad space. In the meantime, theyre finding they can borrow from banks. Others are waiting for us to get our facility up and running. It is far and await biggest challenge of any of the 11 facilities that weve set up are the three main street facilities. But, you know, i would the last thing ill say is as weve shown, were very willing to learn from experience. We put out a term sheet propose the term sheet. We got a couple thousand letters from people on fist main street term sheet. We turned that around. W we consulted actively with experts and, you know, we now released documents and expect to make loans on main street in a few days. You envision the loans being a million, half a million . Is what size loans . The current structure is the smallest loans would be about a half million. The largest ones could be, you know, over 100. And thats for the larger companies. Were working with companies that have as many as 15,000 employees and five million in revenue. And there is no limit on the bottom end. You know, i can imagine us expanding on either end too. The whole nature of this exercise that congress has given us is go find companies that have employees, really, its all about creating a context in which employees, a climate in which employees will have the best chance to either keep their job or go back to their old job or ultimately find a new job. Were looking for companies in any part of the economy that have employees that are not able to get credit. That would have been able to get credit in 2019. So were looking back at companies that were in good solid financial shape before the pandemic. Were trying to find those companies and were trying to create credit products that work for them. Thats the nature of the exercise. Tough job. Thank you. Let me finish up before opening up to questions with one or maybe two more nittygritty Monetary Policy questions. Youve had all of these before. Quite a few european Central Banks and japan pushed their overnight Interest Rates into negative territory quite a while ago, in some cases years ago. And kept them there. Yet, the fed, even before you were chair, has made it quite clear that it doesnt have any intention of doing that. Can you explain why . Is this some aspect of american exceptionalism that is not so obvious . Just generally why . Maybe i