SOTS 2nd Hour: Fed Gov. Miran, Fed Chair Powell - LIVE 3/30/26

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Good Monday morning.

Welcome to Squack on the Street.

I'm Sarah Eisen with Carl Cantania and David Beiber.

We are all back at post nine of the New York Stock Exchange.

Starting up this hour, fellow reserve governor Steven Myron is with us as the Fed's path

gets cloutier here amid surging energy prices tied to the war, plus Fed share Jerome Powell

expected to speak and take questions at Harvard this morning.

We're going to take you there live for those remarks.

And Council on Foreign Relations President Emeritus Richard Haas joins us with the latest

on Iran as he warns that a quote stable Middle East is a long shot at this point.

Take it off though, with the outlook, rising energy prices mounting stack flation concerns.

They have some believing the Fed's next move could actually be a rate hike before the end

of the year.

Our next guest has been dissenting in favor of bigger cuts at recent meetings that Governor

Steven Myron joins us now for a CMBC exclusive.

Welcome.

Good to have you.

Good morning.

Thanks for having me back.

Has your view changed at all as a result of the rising oil prices and diesel prices and

fertilizer prices about the outlook for inflation?

Yes.

So traditionally the Federal Reserve looks through in oil price shock.

Now the reason why we do that is because oil price shocks tend to boost the price level

immediately.

They flow through into prices very quickly.

Gas prices move higher.

But monetary policy only hits the economy with lags.

It doesn't, if you change monetary policy today, it doesn't affect economic growth.

It doesn't affect unemployment or inflation for 12 to 18 months from now.

So if the oil price boosts the price level today through the gasoline price and other

things, but not 12 to 18 months from now, monetary policy simply cannot affect that.

Now the way that that wouldn't work, that this traditional logic that Federal Reserve

has always observed, the way that this logic would not work is in one of two scenarios.

One is you get a price wage spiral where we just start moving higher and then prices start

moving higher too.

There's not really any evidence of that thus far at all.

And with the labor market on a gradual cooling trend for the last three years, that seems

extremely unlikely.

The other way that you would get the oil price shock boosting inflation 12 to 18 months

out is if inflation expectations started to get affected.

And when you look at the inflation expectations, you don't really see that.

So I like to look at CPI swaps.

CPI swaps for the next year moved higher because prices just higher really, exactly as we said.

But when you look at forward rates, when you look at inflation expectations, one year,

one year forward, one year, two years forward, one year inflation.

Three years forward, they haven't budged.

And when you look at medium to long-term inflation expectations, like five years, five

years forward, they've actually been coming down since this entire thing started.

So in order to get an inflation shock from oil that the Federal Reserve can affect, it

needs to affect inflation beyond a one-year horizon and there's thus far no evidence.

All that is true, but there was evidence, first of all, that the Fed's inflation target

was higher.

I mean, that inflation was higher than the Fed's target going into this, right?

And that what this will do is, even if it's in the short term, we'll have an impact on

headlines CPI, on PCE, you know, the longer this lasts.

And it's now what, we're five weeks in, and there are concerns that it will have a bigger

impact on underlying inflation, even if you're not seeing it necessarily in those expectations

or wages.

Yes.

So if I saw one of those two things happen, if I saw a wage-price spiral or I saw evidence

that inflation expectations were starting to pick up, then I would get worried about it.

But as I said, there's no evidence of it thus far.

And you can move the monetary policy rate, all you want, you know, today, tomorrow.

But it's not going to affect inflation the next couple of months, right?

It can only affect inflation a year to a year and a half out.

And unless you start to get evidence that inflation, a year out is moving higher.

So is that just something you're calling to agree with you on?

Because most of the other Fed members and officials that have been speaking in last few

weeks have said, okay, we're good to hold and see what happens with inflation years

result of oil.

My sense is that a lot of those people had that view before the Iran War broke out, broke

out.

I don't have a real sense that anyone is sort of really moving their position as a result

of this.

And maybe they'll tell you otherwise.

I can only speak for myself.

But what I just outlined is traditional Federal Reserve logic and way of treating

the markets.

The market has completely moved as a result of this war.

It's taken out all the price cuts and now started to, I mean, we're not fully there,

but increase odds of the hike.

Absolutely.

Look, we're in the middle of, we're in the middle of a war, right?

And if there's ever a time when markets are going to be volatile, it's in the middle of

a war.

So in a time like this, I'm disinclined to sort of, disinclined to read too much into that.

But markets will do what markets do.

Would you argue it's made your ability to persuade, would be fellow dissenters, made it

tougher?

You know, I don't think that the Iran War has really, has really done that.

But, you know, look, I think that the labor market was on a gradual cooling trend for

three years running into this.

I don't think that there's anything that I've seen to convince me that that trend has changed.

And I doubt that others will come away from what's happening in the Iran War and have

a different view than that.

Right?

If you think about it, higher oil prices, higher gas prices, they suck money out of expenditures

that consumers would be making on other products.

And so it leads to lower overall aggregate demand.

And in a time when the labor market was running in the wrong direction from the Fed's

mandate to begin with, that makes me a little bit more concerned about a bad down

science to the labor market.

And it is the type of thing that I think the Federal Reserve can accommodate.

So, you're more concerned about weaker growth and higher unemployment than inflation,

clearly.

And it feels like that's a reverse of most of the other folks at the Fed.

Fair?

Well, I mean, I can't speak for the others.

I can only speak for myself.

But what's happened to you?

That's Powell's message at the last meeting, really.

It's inflationary risks arising.

Unemployment is kind of stable.

What's happened has made me, has made me, has made me more concerned about that.

And as I said before, I just gave you what would make me more concerned about inflation.

It's seeing inflation expectations pick up more than a year out.

It's seeing wages pick up in a way that was feeding a wage-price viral and not driven

by productivity gains.

Right.

Wage growth has been coming down even with high productivity growth, right?

That tells you that the Fed is holding back labor demand in a way that I'm not sure that

I don't think is appropriate.

So, how much easier should the Fed be at this point?

Well, you know, I think that at the moment, I think that we could be at about a point

easier, gradually done over the course of a year.

So you'd like to see now 25 basis point cuts.

That's what I voted for in the last two meetings, 25 basis point cuts.

Yeah, it just, it doesn't feel like, that doesn't feel like that's not even consensus.

But do you have anybody at the Fed that I'm agreeing with you on that?

Well, look, you know, I'm clearly dissenting at each meeting that puts me out of consensus.

But that doesn't stop me from saying what I think.

I think the labor market has been on a gradual cooling trend for the last few years.

I think the Federal Reserve should be intervening to arrest that gradual cooling trend.

And I think inflation is heading back to target, you know, a year to a year and a half from

now.

So that's where my policy outlook comes from.

Others can speak for themselves.

When I hear you talk about the labor market, I can't help but think about longer term

what I would argue is the largest single issue for it, which is AI.

And I'm just curious as to how you're thinking about it.

Obviously, we've got a lot of near-term concerns that we're talking about here.

The big on-answered question that nobody seems to know their true answer to is there

going to be a significant dislocation of jobs that will then ultimately, we will see replacement

jobs that we can't think of.

Or is there going to be a seminal change in the way work is done with an enormous amount

of efficiency and productivity added, but hardly any jobs.

In fact, many going away.

Do you think about it?

Do your colleagues think about it?

Because the next three years, we're going to be dealing with this.

We spend a lot of time thinking and talking about that.

I'm not convinced that anybody really has a very strong handle on those questions, and

when somebody comes to me with a very strong handle on those questions, I'm not really

persuaded.

I think there's too much uncertainty.

What I will tell you is that throughout all of human history, technology destroys jobs

and it creates new jobs, too.

And I have not yet been convinced that AI is somehow different.

I think that AI will create lots of new job categories that we just haven't imagined

yet because people haven't figured them out yet.

But I do think that will happen.

In the short term, that's a long-run view.

In the short term, that doesn't necessarily happen right away.

You can have dislocation where jobs get destroyed before new jobs get created.

That is a textbook case of sectoral reallocation that a central bank would accommodate.

Central banks should not prevent those new job categories from being created.

That's very basic inter-macro-economics, the reason for a central bank cutting rate,

sectoral reallocation is classic.

AI, I don't know exactly what the long-term outlook looks like.

I have a really hard time quantifying it.

You're not alone, by the way.

You can talk to any expert you want with the deepest experience and nobody knows.

They really don't.

How can they?

Yeah, they don't.

But one other thing we know is that, look, higher oil prices are a negative supply

shock.

AI is a positive supply shock.

It pushes the price of making stuff down.

You can make more goods and services with this similar number of inputs that you had in

the past.

It is true that we have cross-cutting supply shocks, cross-cutting productivity shocks,

with cross-cutting effects on inflation.

The question is, which is temporary and which is persistent?

Has oil, does oil boost prices just for the short-term, or does it boost prices a year,

two, three years out?

Does AI cut prices in the short-term, or does it cut prices one, two, three years out?

Monetary policy needs to be made with an eye to the future.

It needs to be forward-looking, not based on the last 12 months of data, but based on

what your expectations are for the next 12 months of data.

There is a growing debate at the Fed, on whether you guys should be focusing and factoring

in the productivity boom that is happening as a result of AI.

Where do you stand on that?

Well, as I said a moment ago, I have a hard-time quantifying AI.

There's another productivity boom that I have an easier time quantifying because there

is a large and well-established economic literature on it, which is the regulatory side

of things.

Regulations similarly prevent people from organizing economic activity as they want to,

and when you cut those regulations, they can produce more with less.

I've quantified that as dragging on inflation by about a half a percentage point per year

over the next few years.

There was a piece of Federal Reserve staff research that came out a few weeks ago that if

you apply their model to the current regulatory shock that they measure using an entirely different

literature, entirely different estimation methods, they get to a 0.3% drag per year for

the next few years, so recurring persistent drags every year.

That's a positive supply shock that pushes down price pressures by pushing out the supply

curve.

So it is true that there's lots going on on the supply side, there's lots going on with

productivity, and I've tried to pay attention to a lot of it, and I think we can all do a

better job of that.

Do you think if the midterms go a certain way that the deregulatory narrative flips?

Well, I think a lot of that stuff is implemented by the administrative branch, sorry, by the

executive branch, so I don't know that the midterms really play into the regulatory agenda

that much, but I don't know, that's a question probably better directed to somebody who's

working on the, we work on regulations on the banking side at the Fed, and that's not

going to be effective by the way the midterms go.

You just gave a big speech on the Fed balance sheet a few days ago, and that is a hot topic

because a lot of people are eyeing Kevin Warsh, if he does get confirmed, he has talked

about lowering interest rates and shrinking the balance sheet, so what is your thesis

here?

I know you want to do that too.

Look, I agree with Chairman Designat Warsh, I think he's completely correct, I think

the Fed's balance sheet is too big, I would like to shrink it.

With the current institutional framework, the current regulatory environment, with Don

Frank, with Basel, with the current regs as written implementation methods as enforced,

we can't shrink the balance sheet further from here, that's why I voted in December with

everyone else in the committee to resume the reserve management purchases actually expanding

the balance sheet because the system needs more reserves, so the approach that I laid forth

in that paper with three colleagues from the Federal Reserve staff is ways to reduce

the demand for reserves, so that the Federal Reserve can go back to shrinking its balance

sheet, because a big balance sheet has lots of unfortunate consequences for the economy

that we went through in that paper, it interferes with market intermediation, the Fed funds

market has all but disappeared, it blurs the line between monitoring and fiscal policy

because the Fed is getting involved in decisions over the distribution of maturity of government

debt, it interferes with credit allocation because we own all these mortgages, we're

preferentially injecting credit into one specific sector of the economy.

Some people think though that ship is sailed, like it's too late and when you talk about

balance sheet shrinkage, you're talking about tightening policy, which is something you

very much do not want to do, you think the Fed is too tight already?

Yes, so if you do reduce the balance sheet, it is a policy tightening, however, it can

be offset with lower short term interest rates, so if balance sheet policy ends up moving

in a tighter direction, you can offset that by lowering the short interest rate to offset

that, so that the combined effect on the economy is neutral.

Now the time that you can't do that is if you're ever at the zero lower bound, then you

can't lower interest rates any further, but we're far from that situation.

You do point out it's important to go slow, like paint drying?

Well, I wouldn't use that expression, but I do, because even paint drying can end up

being interesting, but I do think it's important to go slowly, I do think if you're going

to reduce your balance sheet, you want to do so in a way that's not going to overload

the market with more securities than it can absorb at a single time, so you do want to

go slowly to let the market absorb what you're doing.

Speaking of the bond market, have you been following these, we've had a few bad auctions

in the last week, I mean bad, weaker than expected demand, raising some concerns and

higher yields pretty much across the board, is this cause for concern?

As I said before, we're in the middle of a war, and several large buyers of international

buyers of bonds are involved in that war, and so it wouldn't really surprise me if you

saw excess volatility in the middle of this type of environment, people have to find funding

for military activity, they're suddenly involved, and not just the US, but many of our partners

in the middle east, and so that's the type of thing that in my mind would lead to more

volatility, so in this short run, I'm disinclined to read too much from that.

What about the big spike we've seen in, for instance, the two-year yield?

Do you think the market has the trajectory of the FedPath wrong?

Well, I think one thing that we've seen is, in my view, an unwanted tightening of financial

conditions.

Financial conditions have tightened across the board, whether you're thinking about stocks,

interest rates, credit, dollar, oil is construed by some as a financial condition, and

what's happening in private credit, too, is something that's bothered me for a while,

and one thing that I've been saying for months, is that I think that the private credit

not being introduced in financial conditions and disease, because we don't necessarily

get useful marks on a higher-frequency basis, has masked weakness in financial conditions

that therefore had real economy consequences.

Private credit was responsible for a lot of credit growth, economically significant credit

growth, in the last half-decade, and now with those two conditions tightening, that

source of credit growth has slowed down, and so financial conditions up until the

run war, I think we're giving a bit of a misleading portrayal of how easy things

work.

Do you think what's happening in private credit presents an economic risk right now?

Well, thus far, no.

If it gets to be more significant than it has been thus far, yes, and if it intersects

with the other financial conditions tightening that we just described, yeah, I mean, financial

conditions tightening can have a negative knock-on effect on growth, and that's the type

of thing that you would expect to see drag on the economy.

When you say, get worse, you're talking about default rates or something else?

Either one, either default rates picking up, or just credit becoming less easily available

so that people who want to undertake economic activities, who want to start a business, invest

in expanding their existing business, they have a harder time accessing credit to do so.

Did you guys talk about this issue at the last Fed meeting, the private credit issue?

It's something that a number of people have talked about for a while.

My sense is that it's not right now at a level where that is something that would make

me change my views about how the overall system is working, but it is a risk that I'm aware

of and that I think merits to use the parlance of our time as monitoring.

Yeah.

I guess bottom line for you, it sounds like you're still advocating very strongly for easier

policy, lower interest rates.

And unemployment, so does that mean that you do think that there is weakness, cyclical

weakness here, and it's not just full employment and lower supply because of the immigration

policies.

I mean a lot of people chalk it up to that stuff because the jobless claims numbers are

still very low, for instance, and there's still job openings.

So I don't think it's a negative labor supply shock, which is the immigration story.

Labor supply pulled in because of lower population growth because of the change in border

policy.

I don't think it's that because the people who are the closest substitutes with immigrants

in this country, young folks and folks with without college degrees, aren't having the

strongest labor markets in the economy, right?

If we're all just a lack of immigrants, you would expect younger people and people without

college degrees to be experiencing very, very strong labor markets with dramatic wage

growth.

In fact, wage growth overall is not consistent with being an immigration story.

If it's just labor supply that gets pulled in, wages should be moving higher, right?

It's basic supply and demand.

If you push supply to the left and demand stays where it is, prices go higher.

We've been experiencing cooling wage growth in a period of high productivity growth.

With high productivity growth, wages should be moving higher.

The fact that that's not happening and combined with the weaker labor segments that I just

mentioned tells you it's a negative labor demand story, which tells you that it's the

fed still keeping the brakes on on the economy in a way that is moving further and further

away from full employment.

The economy has been on a cooling, sorry, the labor market has been on a cooling trend

for three years, right?

This has been in motion for several years now.

There has been nothing to tell us that trend, this powerful, this set in has suddenly changed

direction.

And one thing that worries me is that the higher oil prices and the way that we were describing

before could add, it could accelerate that.

So you think essentially the fed is stuck fighting its last war, which was inflation?

I think so.

I think there's an element of us fighting the last war.

I think a lot of people are nervous about what happened last time in the discussion about

persistent versus transitory.

I think the macroeconomic backdrop right now is night and day different.

Last time what happened was you had monetary policy at historically record accommodative,

interest rates were zero.

We were doing $120 billion of Kiwi a month, which was mortgages and treasuries.

Real policy was record accommodative.

We were injecting trillions of dollars of fiscal credit and fiscal money into the economy.

And so it was very easy.

So those were demand shocks that on their own would have been very inflationary given

the economy was recovering from the pandemic because of the vaccine in antivirals, right?

So the economy was recovering on its own.

And then on top of that you had all time record injections of government support into

the economy.

Then on top of that you threw in supply shocks of oil and supply chains.

And those supply shocks were able to reverberate through the economy because policy was all

time loose.

That's not the case right now, right?

Monetary policy is still restrictive as evidenced by the conversation we were just having

about labor market cooling.

And fiscal policy is not at all time accommodative levels.

If anything the deficit I think has come in a little bit, right?

So you know there's not the policy backdrop that would allow, that would create the environment

for this type of supply shock to just reverberate through the economy and get stronger and stronger

as it did in 2021-22.

So what's next for you?

Will you just stay until Worsh gets confirmed?

Yeah, I'll stay until Chairman doesn't Worsh is confirmed, which I still expect to happen.

And I'm excited for it because-

There's some uncertainty about that though with Senator Tillis holding out until this

investigation into how it goes away.

You know there is, but you know I expect it's going to happen.

And you know I'm really excited for it to happen because as I've been saying I wanted

to do this investigation, it's been a busy, it's been a busy, you know, 14, 14, 15 months

for me and I'd really like a vacation.

But you'll get another meeting, it sounds like at least one.

You know I, we'll see, you know, probably I'll get another meeting if you know I would

love not to.

I would love for Chairman doesn't Worsh to be confirmed and to start my vacation by the

end of the month, but we'll see.

We're about to hear from Fedshire Powell, what if anything do you want to hear from him?

I'd love to hear a reaffirmation of the Fed's traditional views on oil as I just described,

but-

Which is that they look through it traditionally?

Yeah.

I don't think anything has changed in the economy that would mean that decades of Fed policy

was over.

It's harder to do that the longer it lasts here with uncertainty as to when the war ends.

Oh, but like we were saying before, if you told me that inflation was going to be high

or 12 to 18 months from now, I think everybody, including myself, would take that on board

and change the way that we respond to it.

Thus far, there's no evidence of that.

There's only an immediate price level change and the Fed can't affect that.

That Governor Stephen Myron, thank you for coming on and sharing your views.

Thanks for having me.

For the extended conversation ahead of Fedshire Powell, always good to have you.

So here's our roadmap for you for the rest of the hour.

When we come back, Richard Huss from the Council on Foreign Relations is with us.

Why he says it's more likely regime change comes in Congress than in Iran as a result

of the war.

Plus, cybersecurity names, at least the stocks rebounding, except for a brutal week of

trading as new AI disruption fears have been weighing on that particular industry.

We're going to look at just how big of a threat and athropics latest model could be

the names such as Palo Alto and Cloud Pratt Strike.

And as we said, the Fed chair expected to speak this hour at a Harvard event.

We'll take it there live for those remarks as Squawk on the Street continues after this.

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Welcome back, oil prices on the rise again this morning.

The president wrote in a truth social post this morning, the quote, great progress has been

made in negotiations to end military operations in Iran and reopened the straight-of-our-mouse.

But that the U.S. will obliterate Iran's oil wells and maybe Carg Island if the two countries

don't reach a deal shortly.

Let's bring in Richard Haas, president emeritus of the council of foreign relations, and senior

councilor and senate-view partners.

Richard, good to have you back.

Thanks for the help today.

Thanks, Carl.

Good to be with you.

So once again, we have the president's view, no sort of ratification on that news from

the Iranians themselves.

What is the market supposed to do with this dynamic?

Look, I hope he's right, but at the moment I've seen no evidence progress in negotiations.

I think also if the United States were to start attacking a wide range of Iranian energy

infrastructure and the light, I think Iran would retaliate against the region.

That's been the pattern so far.

So I actually think up to now the markets have actually under reacted to this war because

I could see how it continues and I can see how it gets worse.

Right.

Yeah, there's a wide view that right now the market is pricing in a reopening of

the strait more than say an economic recession as a result of all this.

Look, I hope the market knows something that I don't love to see that, but at the moment

there's no signs of Iran is essentially running the straight-of-war moves of those.

It's a private waterway, it's only letting through those ships.

It wants most of the 20% of the world's energy supply that travels through there is not getting

through.

And then the real effects haven't hit any yet, there's always a lag here.

The tankers that got through the strait just before the war started, they're due to arrive

saying Europe in a week or two.

Well, that's when there's no new tankers coming behind them.

I think then when we're going to see energy prices, skyrocket, again, unless there's some

type of a breakthrough here.

We had John a few weeks ago, we talked about what if the Houthis began to speak up.

We did hear from them on Friday.

Does that sound material to you as a new development?

Good for two reasons.

One is it shows that Iran, which has an obviously a lot of influence over the Houthis, is pacing

themselves and how they're using the nations and what they're doing, is quite a lot of discipline

on their side.

Second, well, that potentially threatens the Red Sea, which is one of the alternative

routes to impart substitute for the loss of access through the straight-of-war moves.

That would, in fact, for example, Saudi exports to the rest of the world.

So yeah, I take that as another worrisome development.

Richard, do you have a view on the risk-reward of sending in a mission to try to seize the enriched

uranium that is in Iran?

Thank you.

It's one of the two military operations being contemplated.

I find it hard to imagine more difficult operation than going into the middle of Iran and dealing

with this significant amount of radioactive material.

I think the troops that would have to do that puts them an enormous, enormous risk.

I'd also add that even if they were successful, and I think it would be hard to be successful,

that would come under incredible fire, would be that we don't know what percentage of Iran's

nuclear program that entails.

The idea that we would get rid of at all, I think, is simply inaccurate.

And seizing Carl Gailan, something the President keeps talking about, again, quite difficult,

and there were, I think, better ways.

If you want to deal with Iran's control of the straight, I would say set up a blockade

outside the strait in the Gulf of Omanah before easier, less demanding, less dangerous militarily,

but it would have the same effect, which it would deny the right of Iran to stop others

using the strait unless they opened it up to all, which I think would be our policy.

And what about the prospect for regime change?

Obviously, it would be seen as a true positive.

I think you would even agree if there were to actually happen.

It wasn't ever fully articulated by the administration.

It certainly seems to have been a goal initially, at least, of the Israelis.

What are the chances for that?

Are we misunderstanding perhaps what may be going on on the ground when it comes to that?

Look, it would be great that if regime change were defined as a real change in the system,

and you had a Iranian leadership wanting to be integrated economically, politically,

wanted to live a peace with its neighbors, that would be fantastic.

But the odds are, I think, of that our remote.

And you certainly can't base policy on it.

There's no way of saying, if we do X and Y, that's likely to happen.

In the meantime, the streets are closed, who knows what they might do in the nuclear program.

I also think the attacks on Iran have probably set that back.

The regime killed tens of thousands of people who the opposition isn't united or armed.

I think this is not an environment in which the opposition can come to the fore.

Also, the biggest weakness of the regime was their economic policy.

And this has changed their narrative, people are talking about the war.

So if our goal was regime change, we went about it the wrong way.

And I would simply say, as much as I'd love to see it, I don't think it's in the cards any time soon.

But Richard, if we don't go in, if he doesn't go in,

and 100% with all of your risks that certainly have to factor into that decision,

isn't the bigger risk that we're just going to have to in a few years anyway?

Well, then, what are you talking about?

We don't have a few years to wait on the energy.

And for there, I think we've got to be willing to blockade the straits from outside the straits.

And I think we can set up a new arrangement for how the straits would be operated.

In terms of the nuclear program, if we can't get a deal,

Sarah, I would basically tell the Iranians,

if you do the certain that following things, we will attack those particular sites.

Essentially, give them red lines.

And if you cross those red lines, we'll attack.

But that would be the reason we would break a ceasefire.

We much prefer a negotiated agreement.

I really don't want to see U.S. troops set in there,

because I fear what it would mean for them.

Richard, is there a sense that Pakistan or Islamabad can be a credible go-between in setting up talks?

Maybe this week?

Look, quite possibly.

I think it's hard to the United States and Iran to have direct talks.

Just twice we have direct talks.

And then we'd launch military operations first in June, then a month ago.

So look, if Pakistan, Oman, Turkey, whoever wants to offer their good offices,

and they're basically acceptable to both sides, I would say great.

What we ought to focus on is where we want to get the content of the negotiations,

not with whom or where they take place.

So Pakistan can deliver here, fantastic.

Bring it on.

Why are you so skeptical, Richard, that the diplomacy that President Trump talks about,

the fact that he says they're begging for a deal,

the fact that he says they've agreed to a lot of the items on the 15-point plan,

and we've heard from Secretary of State Marco Rubio as well,

that there's a new attitude.

Why are you so skeptical about all this?

Look, I'd love it to be true, Sarah.

I haven't seen any indication from the Iranian side, though.

That's their view.

I don't see any letting up of the military activities.

Meanwhile, my own sense is Iran sees time playing to their favorite.

It gives them a bit more leverage.

But again, I'd be happy to come back on the show and say fantastic.

I'm glad I underestimated the diplomatic prospects.

And if we get a good deal, I'll be the first to toast to people involved.

Yeah, and we didn't even get to what help, if any.

They might be receiving from Russia or China,

and how they're able to see some of those AWACs

with such precision in the past few days.

Richard, we'll talk soon.

Appreciate it, as always.

Thank you, Carl.

Richard Haas.

Well, moments away, Fetchart Powell is speaking live at Harvard University.

We're going to take you there when his comments begin.

First, though, cybersecurity stocks, getting the AI disruption treatment,

at least last week, we're going to take a look

at whether or not those fears on this place when we come back.

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Compting a larger debate amongst investors.

I was told by one large buy side firm that their TMT team

was called in over the weekend to conduct due diligence

on a sector that, till now, has been seen

as less vulnerable to AI disruption.

CEOs of the biggest cyber names weighing in,

Palo Alto Network, CEO Nikesh Aurora,

in a blog post this morning says open AI in Anthropic

are releasing impressive AI models,

but that the market is overlooking the cyber risks.

Aurora said employees are testing agents

without fully understanding the exposure they are creating.

Vibe coding, he says, has made software creation accessible

to people who were never trained to think

about what it opens up.

He has that while powerful, these models need scaffolding

at the cybersecurity industry and Palo Alto

have been spending years building.

Those comments follow a filing that shows Aurora buying

$10 million of Palo Alto stock on Friday following

the Anthropic and do sell off that we saw

really across the cybersecurity sector last week.

Analysts from Wolf weighing in on the disruption risk,

writing that spending on security,

they say, is only going to increase at a time

when AI is presenting new risks

and the ongoing Middle East war could lead

to more cyber warfare.

They're upgrading crowd strike on this bet

that annual recurring revenue will continue to trend higher.

We already saw Iran claiming responsibility

for a cyber attack on medical equipment,

companies striker, and experts we spoke

to the geopolitical landscape guys say

that that is likely not the last.

Yeah, Sima, the wolf upgrade of crowd is interesting

because they do say that this new product

that we think we might get from Claude,

Mithos, will have some security elements in it

and it might actually trade down

when that's eventually announced.

But over the long term, they think it's going to drive spending.

Yeah, it's interesting, interesting,

that we now have Fortune and Axe

who's reporting on this rumored new model

from Anthropic that they say if it gets in the wrong hands,

could lead to a more sophisticated cyber security attack

which is raising concerns not just around disruption

but also around whether the current incumbents

in these cyber security space have the tools

to defend against an attack like that.

I think as Aurora said in his post

that AI crucial for the industry

to be able to work with these partners to ensure

something like that doesn't happen.

Okay, thank you, Sima.

The stock's catching a bid.

Come back this morning, Sima Modi.

Time now for a CMBC news update.

Pippa Stevens has it, morning Pippa.

Good morning, Sarah.

Russia said the tanker carrying more than 700,000 barrels

of crude oil has arrived in Cuba

despite an effective US blockade of the island.

President Trump told reporters last night

he had no problem with a Russian tanker delivering relief

to the island as it faces daily blackouts,

severe gas shortages and soaring prices.

The president said earlier this month,

he would have the honor of taking Cuba

and floated potential military force.

Spain's Defense Minister confirmed the country has closed

airspace to U.S. planes,

involved in attacks on Iran since the first days

of the conflict.

The move forces military planes to bypass the NATO member

on route to targets,

but does not include emergency situations.

President Trump previously threatened to end trade

with Spain after a denied use of its military bases

in the initial strikes on Iran.

And Bank of America agreed to pay victims

of late sex offender Jeffrey Epstein,

more than $70 million to settle a class action lawsuit,

alleging the bank facilitated his sex trafficking operation.

Bank of America did not admit wrongdoing

as part of the deal, Carl.

Thank you very much, Pippa.

Let's get you to Harvard,

listen to the Fed share,

who at the moment is discussing

how they handled dissent at the Fed.

The deal, tell me now before we do it.

And I just think you don't really know

how much you believe in something

until you've had somebody who literally tried to take it apart.

So I welcome that at the FOMC

and at the Fed generally.

And I think it helps us make better decisions.

The Fed has had a tradition of governors not dissenting,

but that's really not typical of other major central banks

where there's more dissenting,

or I mean, they're different,

depends on the central bank.

And to me, what matters is,

is it dissent thoughtful?

Is it helpful?

Is it help, does it express a point of view?

Can you stand behind and say,

yeah, that's very thoughtful?

And that kind of thing is not bad.

And it doesn't hurt with communications.

I think a situation like the present situation

where there's sort of downside risk to the labor market

which suggests keep rates low,

but there's upside risk to inflation

which suggests maybe don't keep rates low.

You've got tension between the two objectives.

And I think to try to expect unanimity at a time like that

where it's really quite historically challenging,

it would almost be misleading to be really confident

in which way that should go.

In fact, it's been said that confidence

is what you feel before you really understand the problem.

Okay, let's turn to the Fed's balance sheet.

In 2008, 2009, that great financial crisis

there was a massive expansion in the Fed's balance sheet.

And then again, in 2020, under your leadership,

there was a second vast expansion in the Fed's balance sheet

to address these two economic and financial crises.

The balance sheet has since come down a bit

but it still sits at over $6 trillion.

So I'd like to hear your views on how efficacious

this vast bond buying program has been

both in the 2008 and then again in the 2020 episode.

And also hear your reaction to the critics

who say that the Fed has become too big a player

in the bond market.

The Fed has become too influential.

There's been a muddying of,

as according to the critics of monetary policy

and fiscal policy.

Do they have a pointer or are they wrong?

So I think the place to start with that

is to the problem that people were struggling with

from about 2008 to 2022, let's say,

in central banking everywhere in the world with is,

once you cut interest rates to zero,

do you have anything else you can do?

Let's say you cut interest rates to zero

and the economy is still clearly not flourishing

and it wants more support.

So you just say, well, we're out of ideas here.

And there were two ideas that were followed

in the global financial crisis,

one of which was to buy assets, longer term assets

and what you're doing there is you're buying

longer term government guaranteed securities

which would hold down longer term rates

and that should stimulate the economy.

There were also forward guidance

which would tend to hold down forward rates as well

or just rates generally.

So we did those two things rather than do nothing.

And I think in the first instance,

they were both efforts were successful

at restoring market function and restoring financial stability

at the beginning of the global financial crisis

and the pandemic, we had massive problems

of market function, they were solved.

I think the question, getting to your question, David,

of the macroeconomic effects is a much more,

much less certain question.

I don't think there is an accepted answer,

but I would just say there's an oceanic quantity

of research on this and overall it tends to find

that buying long term assets does lower interest rates

and does provide some support for economic activity.

And I guess I'd be in the camp of thinking

that there's something in that but it's hard to quantify it

and I think in different people have different views

on how much those effects could be.

The other side of it is, you know,

QE is thought by the critics to risk all kinds of other things.

So for example, you could buy too much

of the treasury market and it would stop functioning well.

We have not seen that here.

At the very beginning, there was a thought

that it would be inflationary.

We have not seen that or that it would threaten

financial stability or even create inequality.

So we haven't really seen the downside risks.

At the same time, the last thing I'll say is,

I remember before I took over as chair thinking,

I almost certainly never have to do quantitative easing.

So what's that expression, man plans and God laughs,

something like that.

So it just, you know, the pandemic came around

and we needed to do a lot of asset purchases

in a big hurry and we did.

So far, no treasury department has ever said,

stop doing that, you're supporting the economy too much.

Maybe that'll happen someday, but hasn't happened yet.

So let's talk about the dynamics of inflation

since the spike in 2022.

Inflation has been coming down since then,

but it still hasn't reached its 2% target.

Some have argued that that last mile is extremely difficult

and to obtain that, we will need a recession.

Others have argued that you've gotten us very close

and you'll get us the rest of the way.

Are you concerned about the time duration of the path

from the high inflation of 2022 back to target?

It's taken time or not there yet.

Is that a destination will reach or are you concerned

that the last mile will prove very difficult?

So we will reach the FOMC isn't,

we'll continue to be committed to getting inflation

back to 2% on a sustained basis.

That's the place to start.

So I feel like we had pretty much gotten there

at the end of 2024 against the predictions

of almost the entire economics profession

when we raised rates a lot and very quickly in 2022,

100% essentially of economists were forecasting a recession.

We didn't have one.

Actually, we had 23 and 24,

we're both very strong years as the supply side healed

and as our higher rates had some effect on inflation.

So by 2024, you had the economy growing at 2.5%,

you had inflation in the two plus a few tenths,

12 months basis by the end of the year.

And you had the employment market,

you still had the labor market at essentially full employment.

So I would call that a soft landing.

We had it there, then since then,

we've had to face a much smaller source of inflation,

which is that the tariff inflation is visible

and we think it's really just a one time price increase.

That's been our thinking since the beginning.

Right now, we think it's adding somewhere

between a half and a full percentage point to inflation,

but that's a much smaller thing

than we saw during the pandemic inflation.

And of course, now we're facing events in the Middle East,

which will certainly affect gas prices

and we feel like our policy's in a good place

for us to wait and see how that turns out.

Great.

Let me turn to the current crisis in the Middle East

and the effect on energy prices.

Indeed, this classroom is familiar with that question

from the last problem set, where we asked,

how would you advise the Fed to respond

to the rising price of oil?

And we teach that when there's a demand shock,

it's a pretty natural set of recommendations

that emerge for the Fed.

But when there's a supply shock,

like this energy price shock,

there's trade-offs that the Fed has to juggle.

How do you make those trade-offs in general

and how do you make those trade-offs

in this particular instance

and can you help everyone with their piece?

Well, maybe they should tell me.

Sure, so you start with what you said.

Our tools work on demand.

Higher rates will tend to moderate demand.

Lower rates will tend to stimulate demand.

And when you have a supply shock,

our tool doesn't have meaningful shorter-term effects

on supply, so when you have a supply shock,

the first question is, do you respond to it?

And the classic question has been around energy

just in general, not really speaking

about the current situation, although I'll get to that, I guess.

But energy shocks have tended to come and go pretty quickly.

Monetary policy works with long and variable lags famously.

And so by the time the effects of tightening

and monetary policy take effect,

the oil price shock is probably long gone,

and you're weighing on the economy at a time

when it's not appropriate.

So the tendency is to look through any kind of a supply

shock, but a critical, essential aspect of that is,

you have to carefully monitor inflation expectations

because you can have a series of these supply shocks,

and that can lead the public generally,

businesses, price setters, households,

lead them to start expecting higher inflation over time.

Why wouldn't they?

At the end of a certain number of years,

the inflation is now just higher, and that can happen.

So you monitor that very, very carefully.

Also, in the current situation,

you have to be mindful of the whole broader context.

And the broader context is, we're still,

we've been coming down close to 2% post-pandemic,

but we've never actually gotten right and stayed at 2%.

So it's been a while, and we're very mindful of that fact.

Inflation expectations do appear to be well anchored

beyond the short term, but nonetheless,

it's something as we will eventually maybe face the question

of what to do here.

We're not really facing it yet because we don't know

what the economic effects will be,

but we'll certainly be mindful of that broader context

when we make that decision.

Great.

You've been a powerful and vigorous defender

of the independence of the Fed with respect

to monetary policy.

You've also been collaborative with administrations,

with respect to financial regulation.

So under President Biden, you worked for,

or you collaborated in a program of increasing regulation

under President Trump.

You've worked together to reduce regulation.

So on the one hand, we've got an independent Fed

with respect to monetary policy,

and on the other hand, we have a collaborative Fed

with respect to financial regulation.

I don't think there's a tension there,

but can you explain to us the two different approaches

and how you understand them?

Yes, so start with monetary policy.

I think there's pretty broad consensus

in both political parties on both sides of Capitol Hill,

and our oversight, by the way, is Congress,

not the administration,

but pretty broad agreement that on monetary policy,

the Fed needs to be fully politically independent,

not reactive to political things at all.

We just need to do our job and stick to our knitting.

Regulation is a little bit different,

especially since Dodd-Frank, where the Dodd-Frank Act created

something called the Vice Chair for Supervision,

who has a specific statutory assignment,

which is to oversee all of the supervision,

and also set the agenda for regulation.

So the Vice Chair for Supervision,

if she wants to propose a change in,

for example, the Basel III Accords,

as implemented in the United States,

she has to bring that to the Board of Governors,

which is the Seven Governors, and vote for it,

but she has full control over supervision.

So as Chair, the whole idea is to be non-political

and never working for or against any political party

or individual, or never even considering things like that.

So I think the way the law works is the Chair

should allow the Vice Chair for Supervision

to carry out the role that Congress

has assigned to that person by statute.

And that's what that is, so you'll see,

and the two parties really have a big difference

on regulation now.

So I like to think that the Chair should always be someone

who is working without regard to political

and should be there for a person who can be reappointed

by either side.

That's always been the case.

It's been Ben Bernanke was reappointed.

I was reappointed.

And I think it's a good test of the Fed's non-partisanship

that your appeal is really bipartisan.

I think that's a critical thing.

So if I were to try to impose my personal views

on regulation, that really wouldn't work.

So I think there's, I don't wanna say a difference,

but any Chair needs to let the Vice Chair for Supervision

take the lead on those issues.

And then I'm another voter is what I am.

Great.

So let's talk about Dodd-Frank and the reforms

to the financial system.

2008 was a terrible crisis.

And there were many efforts made in the years afterwards

to tighten the bolts and create a safer financial system,

less prone to these kinds of cataclysmic events.

But today we look out of the world

and we see lots of threats both inside

the formal banking system that you regulate

and in the non-bank financial system,

which is lightly or not at all regulated.

So I wanted to have your thoughts on whether

we're in a position of relative safety

after all the Dodd-Frank and other reforms

following the 2008 financial crisis

or whether the new threats actually have brought us

to another period of concern

and just to illustrate with a couple examples

inside the banking system,

there's commercial real estate that has fallen in value.

That affects both the banking system

and non-banking financial institutions.

We have the private credit market

and a very active debate about its health.

We have concerns about cybersecurity in the age of AI.

Do you worry that another financial crisis

looms out there?

Of course, there's always a possibility,

but is it something that's a issue of high alert

or do you feel that we are putting all the pieces

in the right places?

After the global financial crisis,

we actually started a new division

called the Division of Financial Stability

and their job is to be sort of the watchers

of all financial stability issues all the time.

So we're not, the old system was the crisis arrives,

we get the team together and we battle the crisis.

This is much more of an ongoing monitoring thing

with a framework that can be checked.

So I would say after the global financial crisis,

which happened when you all were extremely young,

we, between Dodd-Frank and the Basel agreements,

we pretty dramatically raise the amount of capital

and liquidity that the largest firms

and other banks have.

And I think that's been a good thing.

I think they're also much sort of more transparent

and more aware of their risks in that kind of thing.

So I think we've significantly hardened the system

against the kinds of things that happened

in the global financial crisis

where you had a lot of credit losses really around mortgages.

And that's, so that kind of a situation

we've got well capitalized large banks,

but that's just one part of the financial system.

The capital markets, the US has by far the largest

capital market sector relative to the banking sector.

Other countries still have a much bigger banking sector

relative to their capital markets.

And that's going to be less well regulated

and that's a good thing.

You want it to be the place where biotech companies

can do IPOs and they may or may not succeed,

but they can get capital out of that market.

And you know you're taking a lot of risk,

but great things happen because people put money into biotech.

So we've done some hardening of that,

but we shouldn't be trying to regulate risk out of existence.

But so I think and we did fix some of the things

that broke in the global financial crisis

and the pandemic we did address.

The real thing though is the economy,

I mean sorry, the financial sector

is just always evolving rapidly.

And I think the vigilance is what you need.

You just need to always know that there's another thing coming.

And so I think in particular,

we've had all kinds of financial crises,

but we've never really had a successful cyber attack

on a large financial utility, let's say,

or a financial institution.

And that would be quite a different thing.

You know, if people are gonna lose money

in a certain part of the economy,

we have a hugely resilient financial system now.

It's more, let me say this, it's more about resilience

than it is about avoiding crises.

One of our former people used to say

that we're in the levy building business,

not the hurricane prevention business, right?

So they're gonna be hurricanes,

and they're gonna come, and you just have to assume

you won't know what direction or what the nature of it will be.

So you want a highly resilient financial system.

And we do have that, but again, nobody who's in that business

will ever give you a green light.

They'll always say, these are the risks,

and we gotta monitor.

You mentioned private credit.

So private credit is something you guys are probably following.

It's a relatively small part of a very large asset pool.

We're watching it super carefully, as everyone is.

We're talking to the people in the industry and investors

and everything.

I think we understand it, we're monitoring it.

We're looking for things that might lead

to greater contagion or greater losses

or connections to the banking system.

And you know, we're gonna do that.

Again, you're not gonna hear people say,

oh, there's no problem here because that's a jinx.

But nonetheless, it's something that we're following very carefully.

What is one of your biggest regrets in your time as Fed Chair?

And on the other hand, what is something

that you're very proud of?

You know, on regrets, I don't allow myself

the luxury of that.

I think it's really important that in my job,

I'm focused on the windshield and not the rear view mirror.

And so I don't.

I'm tempted to say regrets.

I've had a few.

But then again, not so many or whatever the line is

from that Frank Sinatra song.

So I just think you, I'll have plenty of time to for that

after I'm out of this role.

But honestly, you just have to keep looking at the next thing.

You can't be rating yourself for the mistakes that you've made.

You're gonna make mistakes and you're gonna learn from them.

Take it from an expert.

I've made plenty.

But I don't focus on regrets and things like that.

Overall, in terms of what I'm proud of,

I'm more than happy to talk about that.

Let's go for it.

Yeah, let's go deep there.

Basically, I'll just say it's an incredible honor to do public service

as many of you will find out at some point in your life.

I always wanted to do some of it.

I saw these people around Washington who were well known public servants

like George Schultz.

I would think that looks like a really interesting thing to do.

It's different.

You know, in the private sector, I love my private sector.

My years in the private sector.

But there really is a feeling of what you're doing is help,

ideally helping all Americans and that kind of thing.

It's a great honor to serve the public and particularly in a job like this.

So that is my, the main thing I'm proud of is, you know,

14 years of the Fed and eight and a half of them as chair.

I'll always be proud of that.

So I'm very grateful to you for your service to our country.

Thank you.

So if you were willing to share publicly some advice that you would give

to the next Fed share, we'd love to hear it.

So one thing you will learn when your children are grown up

and they have their own children is never volunteer advice.

Only give advice when asked.

So I would not, I would only give advice if asked and I would do it privately.

But I'll just say in general a couple of things about the Fed.

It is very, very important to stick to your knitting and to stick to the things

that were actually assigned.

And there's always a temptation to want to move into other areas.

And I think we, you know, we have very powerful tools.

There's supposed to be for maximum employment and price stability

and financial stability.

There's always a time when an administration looks and says,

it would be good to use that tool for something else.

What if we were just to like and call that like that's part of the mandate?

Happens all the time and we just have to be in a situation where we're not trying to be, again,

we're not trying to work against any politician or any administration,

but we have to be careful to stick to what we're doing.

The other thing is, I'll just note that the Fed's not a perfect institution.

Don't look for perfection.

What we do is very challenging and highly uncertain.

But it's a great American institution and I'm very proud to work with the people I work with.

They're extraordinary right across the board, an incredible group of people.

And I'll just close by saying it's very hard to build great democratic institutions

and much easier to bring them down.

So, though you were uncomfortable giving unsolicited advice to your successor,

I know that the students in this room would love to hear your advice.

They've asked me for my advice and asked me what you would advise them.

So, they're entering into an uncertain time, an economy where new job formation is lower,

for many reasons, in particular, jobs that were plentiful a couple of years ago

for students coming out of college or no longer so.

And AI sits as this remarkable technological transformation that is both promising and existentially threatening.

So, if you're advising the 100 students that sit here today,

what would you suggest they think about as they embark on both academic and then ultimately professional careers?

Let me start by saying that I'm well aware and my colleagues too are well aware of the current situation for students coming out.

It's a time of very low job creation.

And also you have AI going on, you've got the effects on job creation of significant changes in immigration policy

which are brought down both demand and supply of workers.

The unemployment rate is really low but that doesn't help you if you're coming into that kind of market.

It's a time when the business cycle, right, and you're coming out in the business cycle at a time when getting hired is a little bit challenging.

There's also probably something more longer term, more secular that's happening around technology and AI.

So, yes, it is a challenging time but I'll say a couple things.

One just is that the U.S. economy compared to other major open economies in big market-based economies around the world is just incredibly dynamic and productive.

Since World War II, U.S. compared to other, again, large mature economies are productivity has grown at like twice the speed, for example, in Europe.

Higher productivity is the way compensation and earnings can grow over time.

So, it's an incredibly flexible dynamic economy.

It re-advents itself. Technology always comes from the United States.

So, just be optimistic about the medium and longer term.

I'm very optimistic about the medium and longer term.

The other thing is, my observation is that these large language models make people much more productive.

I feel like it's making me more productive because I can learn things really quickly.

I talk to my son and others who are out there in the world.

I think if you use it well, it's making you more productive.

I think you're in a situation where you need to invest the time to really master the use of these new technologies and that should stand you in good stead.

But there's no denying it's a challenging time to enter the labor market, but it may take some patience and all that.

But in the longer term, this economy is going to give you great opportunities and just be a little optimistic about that.

So, when you talk about the longer term, are you talking about 10 years, 20 years, 40 years?

Are you worried that they'll be winded our back as we use these tools over the next decade?

But at some horizon, let's say 40 years, they'll be substitution rather than complementarity?

You know, it's so hard to say.

I mean, a lot of people who talk to business people are talking about the next few years being big years for AI to come in.

But they're mostly talking about existing middle management back office jobs and things like that.

I don't think it shouldn't have those kinds of effects on people who can use AI well.

I don't know, but certainly the next few years look like whatever the effects are, they'll start to feel them.

Because major US companies, and we talk to a lot of those people who run those companies, and they're all looking at what they can do.

And the truth is, they can take out a lot of jobs that can be automated by a very smart, large language model.

They just can, and they will, because their competitors are doing it, and they can't afford to have higher costs than their competitors.

What's that going to mean for you? It may not mean that much. It depends on what you're going to wind up doing.

You may stay in school a little bit, and you may do something that is, it's going to create new jobs too over time.

And again, it makes people more productive.

I did talk to a CEO in TechWorld who said, the marginal benefit of a new employee in this world is actually very high.

Now, that's not what you hear all the time.

So, I don't know. I mean, when, you know, if you look back through history to generalize,

this has been going on for a couple hundred years, since the loom was invented, right?

And to put all the people who were doing weaving out of business.

But so, in all cases, it is wound up raising productivity and raising living standards, as long as the society keeps producing people who can, who have the skills and aptitudes to benefit from that technology.

So, that will be the case here, but you're right. There can be a period during which it's challenging.

And this may be one of those, but nonetheless, I would just say it's out there, and it's out there to be done.

And I would be medium and longer term, very optimistic about this economy compared to any other economy.

Perfect. Thank you so much. We're not going to open it up to your questions.

So, I think I've got Jason and David in the, in the well, and I've got two microphones in the balcony. Why don't we start with Jason? Do you have a question?

I think I have a question. Great. Fantastic. We're going to let Jason ask the first question.

So, Terri Powell, when you're making decisions at the Fed, I'm curious, how much are you relying on very specific economic models?

The Fed has its own big, fancy model furbus. How much are you relying on information you get from talking to people out in the real world to businesses, your own intuition and experience?

But what do you bring together as a way of thinking about these decisions with a role of economics, but everything else that feeds into it?

So, it's really all, it's really all of the above. We have to start with the perimeter.

The reserve banks are in touch, they're in all 50 states, 12 reserve banks, and they bring summaries of these extensive conversations they have with the public sector, the private sector, universities, healthcare, everything in their district.

And we see all of that in the beige book and in the meetings. We get all of that.

We also look at several models. It's never just the furbus model. It's many, many different models and we look at different alternative simulations. You look at all of that.

And then we look at where our policy stances and we look out the window and we say, does it look like our policy stances affecting the economy in a way that moves us closer to our goal variables or keeps us at our goal variables? You do all of that.

We also talk to each other. I talk to the other 18 participants on the FOMC a couple of times each cycle. And people have different thoughts and ways of thinking about things.

Talk to the senior staff. They've been doing this longer than any of us. So, all of those things go into it. I wouldn't say, you know, I mean, so a good analogy is when I was in the private equity business, we had really good models of companies.

And my big boss said, we want to have the best model in the industry. But if you think that model is going to make the decision for you, you're in the wrong business.

So, the models are just illustrative. We cannot model the U.S. economy with the kind of precision that we will never be able to. It's like modeling the weather. You can't predict it two months away.

So, that's so it's all of those things, Jason.

Thank you. Okay. So, David, you pick the first hand and then Jason, you'll get the second hand.

And then we'll go to the balcony, so looking for someone upstairs.

Hi. My name is Fabio. I'm a first-year study economics and government. I'm really interested in kind of a decision making in the Fed.

How do you work with situations where the decision might be very tight? And sometimes there's expectations of the interest rates increasing or it might be very tight in those very tight decisions.

How do you make end up making the decision?

So, remember, I'm one of 12 voters. So, an FOMC cycle is about seven weeks between meetings we have eight of my year.

And I would say sort of three weeks before the meeting, by then I have to have a pretty good sense of what I think we need to do.

And staff will already have been working on it. If we're doing anything in particular, we always have like a special topic.

So, a lot of work is going on. So, I almost need to make a decision about the probable thing we're going to do.

And then I have to talk to everybody a couple of times because I got to get people to vote for this.

A lot of it is finding out where the sentiment of the committee is. I've been working with these people for many years so most of the time I kind of know how to approach a problem.

And that's how it works. So, it's a lot of talking and listening and understanding.

I think an underrated skill is in listening to people.

Listening is, you know, if you listen to people and you hear them and you can make their argument and they understand that you're actually listening to them and not just communicating at them.

For most of the people, most of the time, that's going to be enough. And by the way, that's true on Capitol Hill.

That's true. It was true when I was a governor. If I felt, I mean, I always felt like Ben Bernack or Janet were listening to me.

And if they could engage with the points I was making, then I felt like I could support what they wanted me to support.

So, it's a lot of that, I mean, it's a lot of committee management.

That's the big part of it is to have active dialogues going with all of the FOMC participants.

And by the way, also with all the senior staff who've been doing this a very long time and they bring in many cases they bring history going back many years.

For example, in the public communications that we make, you know, somebody who's been doing that for 30 years will tell you don't use that word even though that word might make sense in another context.

Okay. Over here.

Good morning, Mr. Powell. I wanted to ask you a bit more about private credit markets and particularly rising defaults among non-bank lenders like Blue Al Capital.

So, I wanted to ask to what extent could stress in these private credit markets spill over into the traditional banking system?

So, that's the question we ask ourselves quite a bit. And, you know, as I mentioned, we're watching very carefully. Of course, you read what you can read in public.

We're also getting the back story from the people who run these organizations and from all the banks, the supervisors are well aware of what the bank's exposure is and what is not.

And, you know, I'm reluctant to say anything that suggests that we're dismissive of the risk, but we're looking for connections to the banking system and things that might, you know, result in contagion.

We don't see those right now. What we see is, you know, a correction going on and certainly that we people losing money and things like that.

But, it doesn't seem to have the makings of a broader systemic event. But, again, we never, you know, we never give a clean bill of health. We just keep watching for that.

We don't see those characteristics, though, right now.

Let's go to the balcony and remember to share your name when you begin your question. Great.

Hi, my name is Cody. Thank you so much for being here, Mr. Powell. My question is about whether international relations has backed on your decision making.

I know you mentioned that, you know, the Fed's job to do exactly what's best objectively for the American economy, but I'm wondering, you know, if you're competing with, you know, let's say China or other powerful countries, whether or not you would kind of, you know, cut interest rates or do something like that to stimulate the economy to kind of get ahead of other countries.

No, it doesn't, you know, we're always asking the question as you suggest, you know, what we serve the American public always in all of our decisions and what is best for them?

How do we achieve maximum employment and price stability on a sustainable basis? That's what we're always asking.

We do, you know, meet with, you know, in Basel, the central banks all meet without the finance ministries.

And we can talk privately about what's going on in global financial markets. It is a global economy. We all know each other.

And frankly, many of us have regular communications going on just privately, you know, or, you know, by telephone email and text and things like that.

But we're never looking to get on the turf of, you know, the national security people or the state department or, you know, things like that.

We're not looking at things that way. We're looking at our goals. That would be, I think, a classic case of mission creep if we were to say, hey, let's deviate from just chasing these two goals and let's do something for a third purpose.

That would almost, by definition, make us less effective at the things we're supposed to be doing. So we try to stick to that.

Great. David, you're next.

Good morning. My name is Jenny. And thank you so much for coming. We're all very honored that you took the time to come.

So last lecture, we learned about soft landings and about how it's definitely much more ideal in hard landings. But in the US history, we've had far more hard landings and soft landings.

And we were just talking about how it's really important that you are monitoring expected inflation.

And I think a lot of that just comes down to the trust between the public and the central bank. And the central bank is known to be much more technocratic.

But I think especially with the rise of populism and previous events, there seems to be a lot of impact of political tensions between or cooperation between the Fed Chair position and administration.

And I wanted to ask you, how do you still keep the public's trust this way?

By sticking to our jobs and doing them well, ultimately, if we deliver the maximum employment and price stability, or at least our scene to be doing everything we possibly can as we meet various shocks and multiple supply shocks in recent years, the public keeps its faith in us.

And if you look at things like longer term inflation expectations, and you'll see that they've remained pretty well anchored right through all of this.

So if you really think inflation is going to be higher, you can make some money betting against that. But people don't do that.

The people who are putting their money to work in the financial markets, not to give too much credit to that.

But that's it. If we stick to our knitting and we do our jobs, we stay out of politics, stay out of the hot political issues of the day and just do your job and keep your head down.

I see this through my dealings with elected people. If they get the sense that you're not there to deliver talking points, you're there to listen to them and you're really somebody who is committed to doing your job and sticking just to that job, and that's all you want and you're not going to get into politics.

That's what we need to do. And I think generally, I think we are accepted in that spirit in Washington, and I think I think generally around the country as well.

Jason.

Remember to name.

Thank you, Chair Powell, for being here. My name is Jake.

As you know, your term ends in May and a potential successor, Kevin Worsh, has indicated a desire to cut rates if he fills the role of chair.

What is your effect? What does your take on the effect that a cut would have on the flexibility of the Fed to maintain well, to remain well position and maintain both sides of its dual mandate, particularly given the fact that inflation has remained elevated above the Fed's 2% target for several years now and progress is further halted by the oil shock and tariffs, especially.

Jake, that's not something I'm going to swing at that pitch. Is that a Red Sox jersey, by the way?

I called on him. I know this must be Red Sox country, so we're going to go to the balcony next.

Hi, my name is Aiman Candital, so earlier you said that you don't know how much you believe in something until someone tries to take it apart.

So my question was, what's the thing you currently believe about the economy that's your least confident?

Interesting question.

I'm not going to give you a particular individual thing at the moment, but I will say that I would say this, and of course this is self serving to an extent, but having worked in the private economy for most of my career,

I don't have any predisposition to believe that models can really capture it, because so much of it is animal spirits, as Cain has called it, and also it's just, again, I go back to the weather.

Will we ever be able to predict the weather with any precision three months ahead other than that seasons?

So the economy, no one has been able to really successfully predict the economy, so I think the temptation is always to place too much stock in models or in one particular outlook.

The other thing is, another thing which is a big takeaway, is you know about fat tails, right? So famously the financial, there's a normal distribution and the tails are what they are.

It's not a normal distribution, the tails are fat, and however fat you think they are, they're fatter than that.

The possibility for the economies at any given time is so much broader. For example, the pandemic inflation, we'd spent 15 years with the inflation below target, and that was at a time of QE and lots of fiscal stimulus, and that kind of thing, we had inflation below target, and people pretty much the profession had, the big problem, the whole profession was trying to solve was how do we get inflation up to 2%, that was really the problem.

And then along comes the pandemic inflation and bang, suddenly you have a 40 year high inflation, so it's hard to keep your mind open to just how broad the possibilities are.

Take down here, yes.

Hi, my name is Robert. Thank you so much for being here. I'm a first year studying econ math and philosophy.

So many economists that I've listened to at least retroactively say that what we really needed during the COVID pandemic was around $3 trillion, and the government printed something along $6 trillion more than that, and so inflation rose, but that money is still out there.

So if rates come down, obviously you took initiative and you raised them very significantly. If rates get lowered again to let's say two or so percent, do you think that the price spikes have already played out, or do you think that all that extra money being out there will, you know, on top of, you know, instability,

do you politically, do you think that's going to push us back into an inflationary spiral, and then also I was wondering for your next press conference.

Chair Powell, at Harvard today, taking some questions there from the economic students with some first year students, joking back and forth, a lot of questions around how the Fed works, what the decision making is like.

I will say that we are seeing a bit of a treasury rally to the highs of the day, where yields are lower.

Not sure that Fedshire Powell tipped his hand really in terms of monetary policy, but maybe he was more, he was less hawkish than the market was positioned.

We're going to continue to monitor these remarks for you, bringing any headlines.

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