Transcripts For CSPAN2 Federal 20240706 : vimarsana.com

CSPAN2 Federal July 6, 2024

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] i guess we can get started. Thank you all for being hear, hear it is a true honor today to have chair jay powell and former chair and Nobel Laureate ben bernanke with us today. Thank you very much for being here. I very much been looking forward to this conversation or im sure our audience has come to, so lets just get to it. This conference as are the windows is to the memory of order this morning we heard some personal reflections on working with thomas from secretary janet yellen, also former chair on the fed, and from president John Williams. And both of you worked closely with thomas as well. I would like to you both an opportunity to share your own thoughts about his contributions as an economist come as a central banker come as a colleague. Then, they wouldnt show what you. Sure, its great to be here. I was his thesis advisor and he worked with me on a book on inflation targeting when he was still an undergraduate student at those long time ago and is not yet as exalted position at the fed when i was doing jays job. I dont have any short little as to give but if you want to say that i think theres were two kinds of accomplishments a person good at. They could have curriculum vitae a couple shirts and they could have what i call uag accomplishments. Curriculum vitae competence of things like publish papers and promotion and awards and recognition. You just punishments e things your family members, your kindness, your support, helping other people and so on. Thomas was one of the people, few people, who scored high on both dimensions. On the cd side, beginning with his work with me, he had a tremendous input into the Federal Reserves framework come working on inflation, targeting, work on the more recent fed framework that he did work on sure John Williams talked about his work with thomas on the natural rate. He worked on the effects of deficits on Interest Rates, again another contribution. A person made a lot of intellectual contributions that are important but as a person he was just a very warm, kind, friendly, helpful person and he was just a joy work with, and im glad to be here to say this about him. Thank you. Thank you, trevor. So first of all of you say this conference is a very fitting tribute to thomas and really honored to be part of it. Let me add my thanks to those of us who made all this happen here today. I first met thomas when it joined the board as a governor in may 2012, almost exactly 11 years ago, and in preparing to join the board in the early years of the board i was very focused on developing a deeper background in macroeconomics and Monetary Policy. Many people here at the board supported in the process, too many to name but unless it thomas really stood out and it was during the process of reading the literature and discussing that it really start to get to know him. He had this great ability to communicate, get ideas. Obviously loved talking about economics and his great enthusiasm and willingness to engage with me and you governor was immediately evident. He was very gracious to me and we had a lot of informative discussions. Some present be his teacher i was really just in those early years. As you know by the time as you noted by the time i became chair in 2018, thomas was the head of division of monetary affairs. In that role he was a trusted advisor to me and to the foc. His leadership was particularly important as he the fomc cond our first ever public Monetary Policy review. He played a major role in organizing that identifying key topics and organizing the staff all through the Federal Reserve system. He also went absolutely essential role during the critical period of the pandemic at the very beginning when we were marshaling our forces and our tools to stabilize the Financial System to protect the economy from even more dire consequences. And through it all he did come through as not just for his dedication, his great intellet and his mastery of monetary economics but also just for his kindness as a human being and just being a terrific great colleague and a great person. Thank you. I think theres a lot of agreement from both of you, appreciate that. Before we get to questions on current issues, i did what ask you both about any formative experiences that you may have had that shaped your views, particularly but to think about Monetary Policy. Paul volcker in his oral history interview tells a story of his mother who was adamant that he received the same dollar value monthly about when he was in college that his older sisters did ten years prior. Of course he was that you happy about that because inflation in the interim obviously eroded the real purchasing power of that allowance. So as the story goes that was the beginning of his personal commitment for price stability. [laughing] j, you have any stories to tell . Maybe not quite that on point but i graduate from college in 1975 during what we now call the great inflation comes in college year as ben and a sort of working as a lawyer in the Financial Sector in the late 1970s. I recall from from that time a growing sense that high inflation was essentially a permanent part of the landscape, just something that we all had to accept and deal with and that the costs of guinea admitted that were too high. So you just getting used to it. Of course old what the fed did step up and restore price stability, and one lesson from that era is price stability is really the foundation of a Strong Economy and that the economy doesnt work for anyone without stability. Another is high inflation is used when we have high inflation is the responsibility and obligation of the central bank to restore and to sustain price stability. So today while inflation isnt as high as it was when i was in college, its nonetheless far above our 2 objective. Many people are currently expensive high inflation for the first time in their lives. Its not a headline to say the really dont like it. So we are very aware that high inflation impose a significant hardship as it reduces purchasing power, especially for those who are at the margins of the economy and living paycheck to paycheck and need use all of the incoming income to pay for food, housing and transportation and other essentials. Thats why the committee is so strongly committed to returning to our 2 goal. We think the failure to get inflation down with not only prolong the pain but also increase ultimately the social cost for getting back to price stability causing even greater harm to families and businesses, and we aim to avoid that will rn steadfast in pursuit of our goals. Thank you. Ben . Well, i have mentors, stanley fish and m. I. T. But how to do something happened to me when i was six years old. I used to visit my grandparents in charlotte, north carolina, during the summer and i was sitting on the front porch of their house listening to my grandmother tell stories about her life and she told about how she raised her family in connecticut in the 1930s during the Great Depression and it was a count that was specializing in shoe manufacturing during the depression a lot of the factories were shut down. She told me that, it was a very hard time, a lot of the kids went to school in tattered shoes or maybe no shoes at all. I said grandma, why would he do that what she said because their fathers lost their jobs. Why did they lose their jobs . Because the shoe factory shutdown. I was only six usable but i could see the problem with that argument. I said why didnt they just opened the shoe factory and makes use for the children . She said it doesnt work that way. But it think what was a puzzle to me was your the same Production Capacity in 1833 that you had in 1928, 28, and in 1928 people were dancing the charleston at a 1933 they were inbred lines. That really impressed on me that economics to make a really big difference in peoples lives and Monetary Policy is like that. As jacob jake the course f you well know, that the decisions made in this building have very broad and real effect on peoples lives and for that reason, its worth studying and understanding. Thank you. I know that is certainly a key motivation for many people in this room. Working so hard. Lets now turn to some topics of more current interest and id like to start with the nexus between the Financial System and the macroeconomy. Both of you during your tenures as chair of faced very significant historic financial crises. Ben obviously you confront the Global Financial crisis and jay a global pandemic. Those episodes were clearly acute, very vivid examples of the connection between the macroeconomy in the Financial System, as well as i think a good illustration of the role of Central Banks in such episodes. Ben your Research Important and the research of inspired has really demonstrated that understanding the connections between the Financial Sector, credit markets and banks and the real economy is critical for even understanding traditional business cycles. With that as background were just experienced a time for stress in certain parts of the Banking System in the united states. I want to get your take on those developments, how you think they match up compared to previous episodes and what they might mean for the economy. Somebody mention the recent crisis was followed the standard sequence. I do know anything about Silicon Valley bank other than what ive read in the paper so please dont misinterpret this, but it was a classic situation where they had assets that were subject to risk, in particular as Interest Rates rose the value of the longterm assets fell and the capital fell. They had hoped to hedge that either deposit franchise where as Interest Rates rose and Interest Rates move more slowly on deposits, that would partially concentrate but theyre dealing with customers who were very social media savvy and that didnt really work. So after the decline in q at the second stage which is runs, people thing out the money, which ultimately led to the collapse of the bank, despite i may add the good efforts of the fed and fdic to provide liquidity and provide support for depositors. The third stage of a banking crisis is contagion. People looked at the bankston said they look sort of vaguely like Silicon Valley bank, the same number of letters in a name and all kinds of things like that. That caused people to begin to remove deposits elsewhere. And finally the reason this is important is that it ultimately affects Credit Conditions. The Federal Reserve of course is look at the effects of tank problems and of the Financial Issues on the extension of credit and, therefore, on the real economy. So in that respect its very similar to other crises. Its different from the Global Financial crisis in many ways, including its scale and scope of course but i would mention a couple of things, couple of important differences. One is the impaired asset in this case was u. S. Treasuries, which are very different assets in kind from subprime mortgages, is that u. S. Treasuries can always be valued accurately so theres not the uncertainty that was associated with subprime mortgages. And secondly as the economy declines, if it does decline, u. S. Treasuries actually become more valuable rather than less valuable so its kind of countercyclical effect. Thats one very important difference. The other worth mentioning but very important is that relative to say that gse or the Great Depression over all borrowers are in much better shape than they were in these previous episodes. That makes a big difference both in terms of stability of the banks and also in terms of the impact on Consumer Spending and the economy in general. I guess the major reason the situation didnt get worse and he think the contagion was a much content was the actions that even the Federal Reserve took through the use of your liquidity tool, including the creation of the Bank Term Funding program. However, in deploying these liquidity tools that has come at, against this backdrop with the preeminent monitor policy concern is high inflation and thats different from some of the earlier episodes and has raised renew discussions about the socalled separation principle, right . Water wanted to ask you howk about the use of Financial Stability tools and liquidity tools as the postwar tradition on a trade policy tools and how they fit together. Its an interesting question but it want to start by saying though that the overall, the banks and the Banking System are strong and resilient and wellpositioned to deal with the challenges they may face now or in the future. As you pointed out we do have separate tools, Monetary Policy to achieve our macroeconomic objectives, supervisor predatory tools. But i but i see an important distinction between the separation. Separation independence. Our tools cannot separate objectives but their effects are often not entirely independent. The tools are complementary almost all of the dead because financial macroeconomic stability are so deeply intertwined. Our consensus statement notes that sustainably achieving maximum employment and price stability depends on a stable Financial System. Because they are so intertwined to be there is not likely to be an absolute and complete separation of the tools nor is it possible or desirable. I think as bens research and the Global Financial crisis demonstrates and Financial Stability effects of economic stability and vice versa. We saw that clearly at the outset of the pandemic. As result the tools were used to address concerns in either arena can and will affect both especially during extreme circumstances. That suggests the tools a separate, they have individual purposes and most of the time each can be used for its intended purpose without comprising a compromise in the other. For example, as you pointed out when banking stresses emerge in early march we use our liquidity tools discount wind and bank Funding Program to make liquidity available to banks that might need it. That liquidity support the stability of the Financial System without restricting use of our Monetary Policy tools to promote price stability. While the Financial Stability tools help to calm conditions in the banking sector, developments of there on the other hand, are contributing to tighter Credit Conditions and are likely to wait on economic growth, hiring inflation as a result our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course the extent of that is highly uncertain. Thank you. Of course i think the effectiveness of those tools is reflected in the fact that the fomc has raised Interest Rates twice since the emergence of the banking strain. Of course the purpose of that is to confront the inflation issue, which brings us to our next topic which, in fact, is inflation. In the pandemic in the aftermath with admitting renew discussions of the important and classic textbook distinction between supply shock and demand shocks. In particular the particular challenge of that supply shock can present to a central bank. Thats also raised a lot of questions in academia and in policy circles as to whether or not the inflation process post pandemic is going to look quite different than prior. J, maybe we can start with you. A number of folks have argued where entering a new period were supply shocks would be more frequent. Would love to hear your views on what you think thats a possibility and what that might mean for central bank. So its a great question and it is what i think we will be dealing with for quite a long time. I would say it is possible we will seek and to supply shocks. I think its very hard to forecast that with any confidence. As yogi berra is taught to said, you are the baseball expert, you can confirm or deny this, but it is difficult to make predictions especially about the future. So i think that the best we can do at this stage is probably to just identify the factors that we think can lead to further negative supply shocks. I will say that though some positive supply shocks related to globalization largely probably contributes individually to the time of low inflation that either ended or was interrupted by the onset of the pandemic. Im thinking there of the vast increase in global labor supply, the development of efficient Global Supply chains facilitated by technological advances and things like that. I would say those positive supply shocks do not seem likely to be repeated. At the same time the drivers of the current inflationary surge certainly include a sequence of large negative supply shocks to Global Supply chain for goods which also experienced a large and persistent shift in demand of services and goods and also display of workers on top of that. Russians were in ukraine brought for the shocks to Global Supply chains particularly energy and nonenergy commodities. We cant know how persistent though shocks will be or whether further negative supply shocks wi

© 2025 Vimarsana