Read the full transcript of Federal Reserve Chair Jerome Powell remarks at the University Of Chicago School of Business 2025 U.S. Monetary Policy Forum on March 7, Friday.
Listen to the audio version here:
TRANSCRIPT:
Introduction
[ANIL KASHYAP:] Hi, we’re about to get started. Can you please silence your cell phones so that they don’t go off? I’m Anil Kashyap. I’m one of the directors of the Clark Center that hosts this conference, and we’re delighted to be able to host Chair Powell. The run of show is going to be that he’ll make some opening remarks, then we’ll have a moderated conversation, and I think he needs no introduction, so please join me in welcoming Chair Powell back to the U.S. Monetary Policy Forum.
Chair Powell’s Opening Remarks
[JEROME POWELL:] Thanks very much, Anil. It’s great to be here and see a lot of familiar faces. I’m glad that it turns out we don’t actually have a majority of the FOMC here, so we can speak to each other without violating the government sunshine law.
I have some brief remarks about the economy and the path of policy, and then I look forward to our discussion. Despite elevated levels of uncertainty, the U.S. economy continues to be in a good place. The labor market is solid, and inflation has moved closer to our 2% longer run goal. At the Fed, we are intently focused on our dual mandate goals given to us by Congress, maximum employment, and stable prices.
Economic Growth
Turning to the recent data, the economy has been growing at a solid pace. GDP expanded at a 2.3% annual rate in the fourth quarter of last year, extending a period of consistent growth that has been supported by resilient consumer spending. Recent indicators point to a possible moderation in consumer spending relative to the rapid growth over the second half of 2024. Further, recent surveys of households and businesses point to heightened uncertainty about the economic outlook.
It remains to be seen how these developments might affect future spending and investment. Recent readings have not been a good predictor of consumption growth in recent years. We continue to carefully monitor a variety of indicators of household and business spending.
Labor Market
Turning to the labor market, many indicators show that the labor market is solid and broadly in balance. The jobs report released this morning showed employers added 151,000 jobs to payrolls in February, and the unemployment rate ticked up one-tenth to 4.1% last month, smoothing over the month-to-month volatility since September. Employers have added a solid 200,000 jobs a month on average.
The unemployment rate remains low and has held in a narrow range between 3.9% and 4.2% over the past year. The jobs-to-workers gap has narrowed and the quits rate has moved below pre-pandemic levels. Wages are growing faster than inflation and at a more sustainable pace than earlier in the pandemic recovery. With wage growth moderating and labor supply and demand having moved into better balance, the labor market is not a significant source of inflationary pressure.
Inflation
For inflation, inflation has come down a long way from its mid-2022 peak above 7% without a sharp increase in unemployment, a historically unusual and most welcome outcome. While progress in reducing inflation has been broad-based, recent readings remain somewhat above our 2% objective. The path to sustainably returning inflation to our target has been bumpy and we expect that to continue.
We see ongoing progress in categories that remain elevated, such as housing services and the market-based components of non-housing services. Inflation can be volatile month-to-month and we do not overreact to one or two readings that are higher or lower than anticipated.
Data released last week show that total PCE prices rose 2.5% over the 12 months ending in January and that core PCE rose 2.6%. We pay close attention to a broad range of measures of inflation expectations and some near-term measures have recently moved up. We see this in both market and survey-based measures and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain stable and consistent with our 2% inflation goal.
Policy Changes and Monetary Policy Outlook
Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas – trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high.
As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry and we are well-positioned to wait for greater clarity. Policy is not on a preset course. If the economy remains strong but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Our current policy stance is well-positioned to deal with the risks and uncertainties that we face in pursuing both sides of our mandate.
Monetary Policy Framework Review
Before I conclude, I will note that at our last FOMC meeting, we began our second five-year review of our monetary policy framework. We will consider changes to our consensus statement and to our communications as part of this review. The consensus statement articulates our framework for the conduct of monetary policy in pursuit of our statutory goals.
We will consider the lessons of the past five years and adapt our approach where appropriate to best serve the American people to whom we are accountable. The 2% longer-run inflation goal will be retained and is not a focus of the review.
This public review will be familiar to those who followed our process five years ago.
We will hold outreach events around the country involving a range of parties, including Fed Listens events. We are open to new ideas and critical feedback. We will host a research conference in Washington in May. Our intent is to wrap up the review by late summer.
Thank you very much. I look forward to your questions, Danielle.
Q&A Session
[INTERVIEWER:] All right, thanks for that. Before we get into the current conjuncture, is there anything more you can share about where you think the framework is going to land? It was nice to hear the parameters that you laid out, but is there anything more that you can say beyond what you just said?
[JEROME POWELL:] Sure. So I said there are two things. Really, there’s changes to the consensus statement, and then they’re looking at really our post-meeting communications. We’re going to look at those two things a lot.
And as it relates to the consensus statement, which is also known as the Statement on Longer-Run Goals in Monetary Policy, therefore it needed a shorter name, we are going to be looking a lot at the changes that we made in 2020.
So if you go back to 2020, what we had was we’d been at the effective lower bound for seven years. We never got rates above 2%. We were at 1.5% when the pandemic hit. And the feeling very much was that if even a mild downturn came, we’d be back to the effective lower bound maybe again for years on end. So we were looking for ways to try to minimize the likelihood of that, and a pretty standard result in the research was a kind of a make-up strategy, so that’s what that was.
So the framework changes that we made were very focused on the importance of the effective lower bound problem, which was thought to be the big problem at the time. And those were the changes that we made. And we thought that those issues would be persistent, but the universe had other ideas. And the pandemic arrived just a few months after we implemented the framework, and really changed the whole mixture, and effectively the idea of a modest overshoot or moderate overshoot of inflation really became irrelevant, and we were back to the regular framework, and we did what we did, and you have the results today.
So I think we’ll be looking at, for example, the focus in a consensus statement, we’ll be looking at the focus that we had on the effective lower bound. It’s probably not the base case anymore, but it’s probably still relevant. We’ll be looking at shortfalls, which is an interesting idea, but there are different ways to express that. And certainly we’ll also be looking at the idea of having a moderate overshoot of inflation over the 2% target following periods when inflation has been low.
We’ll be looking at all of those things, and again, I expect to be done by the end of the summer. On the communications, particularly our post-meeting communications, we’re going to take a close look at the SEP and also compare ourselves to what other central banks around the world do. And this will be a couple of weeks from now, we’ll have…
[INTERVIEWER:] Let me pick up on this question about the level of prices versus the inflation rate. Economists spend a lot of time making the distinction between the rate of change and the level. I’m not sure that the public fully understands this, because you see these surveys about how frustrated people are with inflation. Inflation now is not that different than your target, it’s above, but not meaningfully so. Do you think that price stability needs to take into account how far you were away from the objective, and if you’ve had a big run-up and the level remains high, even if the inflation rate is back to normal, is that something we need to reconsider?
[JEROME POWELL:] What the public experiences is the prices of things, and the prices of things went up a lot in 2021 and 22, and to some extent in 23. And when we talk about inflation, we’re obviously talking about the rate of change now. But the public’s not wrong. They are experiencing high prices, and obviously people, you can have a great labor market, but if people are really struggling because of high prices, that’s what they’re really going to feel. So they’re right about what they’re saying.
In terms of, I don’t think there’s any need to redefine price stability. I think you can always go back to the way Alan Greenspan said it. I won’t get the exact words, but everyone here knows it. The idea is, if you’re making, if businesses and households are making their economic decisions without having to consider the possibility of high inflation, that’s price stability. I don’t think we need to rethink inflation, the way we deal with it. I don’t think we need to reinvent price stability.
Impact of Tariffs on Inflation
[INTERVIEWER:] Okay, the elephant in the room. Let’s normally assume that a tariff is passed into domestic prices, and as the Secretary of Treasury said yesterday, that would change the level of prices once, but wouldn’t mean anything for inflation a year later. If we’re looking at what happens over the next year, how would we know if the conventional view is not correct and it’s leaked into something more troubling?
[JEROME POWELL:] I think that, start with the general thought is that if there’s a spike in prices that’s a one-time thing that is going to go through the economy, then it’s not appropriate to react to it because our policy, by design, will reduce employment and inactivity, and it would not have really been needed to be done. So you look through those things if you can.
So if you put that in the context of tariffs, I think if you look at where forecasts are, look at the blue chip, look where everybody’s forecasting some inflation effect from tariffs. So it’s very likely that if tariffs are imposed, and let’s remember, we really don’t know what’s happening yet. We’re at a stage where we’re still very uncertain about what will be tariffed for how long at what level. We’re going to have to wait to see all of that. But the likelihood is that some of that will find its way, it’ll hit the exporters, the importers, the retailers, and to some extent the consumers, and we’ll see what that is. And in a simple case where we know it’s a one-time thing, you know, the textbook would say look through it.
But I think the situation, you would want to also be sure of a couple of things. One just is that if it turns into a series of things and it’s more than that, and if the increases are larger, that would matter. And what really would matter is what’s happening with longer-term inflation expectations and how persistent are the inflationary effects. You want to look at all of those things. And you want to remember the current context, which is we came off of very high inflation and we haven’t fully returned to 2% on a sustainable basis. So you’ve got to put all that in the mix as you make this decision.
I would point people back to 2019, when we had the Tax Cuts and Jobs Act, we had lower immigration, and we had regulatory policy under President Trump in the first regime, and we wound up cutting three times because growth weakened so much. So there are many effects of tariffs. And as I pointed out, it’s really the effect of all of these policies that matter for our policy. It’s not simply what’s happening with tariffs. It’s what’s happening with growth and all the other things as a result of these broad changes in economic policy, not just tariffs.
Uncertainty and Policy Approach
[INTERVIEWER:] Okay, just to put a point on this, I think I know what you’re going to say, but the usual rule that economists hold is that when an uncertainty is high, we’re gradualist. And I’m wondering whether you view that as the right benchmark or anchor to think about.
[JEROME POWELL:] I view it as the right benchmark or anchor for right now. And that’s because the costs of being cautious are very, very low. You know, the economy’s fine. It doesn’t need us to do anything, really. And so we can wait, and we should. I think there are cases where uncertainty is high, where that would not be the case, where the costs of going slow might be high, and those would be, for example, if inflation expectations were clearly under pressure or if you’re at the beginning of the pandemic and so uncertainty is unquestionably elevated, but you nonetheless act very aggressively because of the costs, potential costs of not doing so.
Basel III Endgame
[INTERVIEWER:] Okay, that’s interesting. I’ll ask a couple more conjunctural questions, but there’s a lot of people in the room here that are very curious about what you want to say about the Basel III endgame. So that’s inside baseball, but people’s wallets depend on this, so you want to say anything about that?
[JEROME POWELL:] Sure, absolutely. So our view at the Fed is we very much intend to complete the Basel III endgame, and we think that’s very important. We think that the Basel Accords really are important to set sort of minimum standards for international banking around the world, and we expect that we will. We’re kind of on hold until the U.S. banking agencies are really back up and running with new leadership, but once they are, we fully expect to get back to that work and complete the Basel III endgame, and I have a good reason to think that we’ll be able to do that.
Economic Statistics and Data Collection
[INTERVIEWER:] That’s good news. Another little bit of inside baseball, but there’s been a lot of discussion in the last few weeks about changing some of the statistics that are emphasized about the economy, and the Commerce Department recently disbanded the Federal Economic Statistics Advisory Committee, and I know during COVID you felt like there were many indicators of the economy that were kind of broken or not so helpful, so do we need to worry about whether the Fed’s ability to do its job might come into question because of deficiencies in the statistics, and are you already?
Let’s do that, and I’ll ask a follow-up.
[JEROME POWELL:] Yeah, so it’s two different things. I think it needs to be said that the government data we get from government-gathered data we get from the Bureau of Economic Analysis and the Bureau of Labor Statistics is incredibly important and really the gold standard for data. Being able to track what’s going on in the economy is very, very important, and it’s something that the United States has led in for a long, long time and something we need to continue to lead in. It’s true that survey responses have gone down and that some of the data have become more volatile. That just means it’s something we need to keep doing and invest in, so I think that’s important.
On the pandemic data, that’s a different thing. You needed to measure things like how many people are going to restaurants. You could look at Open Table data and things like that, so there were lots and lots of pieces of data we were getting that showed how many people are coming back to work riding the subway and that kind of thing, and that was important. It turns out all that data isn’t super relevant except in an emergency.
The other thing is, though, at the Fed, we’ve always, for some time now, we’ve been trying to work with these very large data sets that are available in real time now, for example, from credit card companies and things like that, and trying to use these new and vast data collections in
INTERVIEWER: I was going to ask you about whether or not there’s some favorite private sector statistics that you think everybody should be looking at, but it sounds like you’ve just given us a hint on that. Let me ask a couple longer-term questions. I know you’re not in the job of reflecting yet, but when we look back at the rise of inflation and then its decline, what do you think the lessons are going to be about what we’ve just lived through?
JEROME POWELL: I think it’s actually still early to say. The question of what happened and why – all those questions around the events of the pandemic, the inflation, and the efforts to bring inflation down – economists are going to be battling over that long after all of us are gone. But I would say a couple things.
One thing is just that the tails are fatter than you think. However fat you think the tails are, they’re fatter than you think. We always talk about uncertainty and how we understand everything’s highly uncertain – we say it all the time. Nobody saw the pandemic coming, obviously. It wasn’t reflected in our framework. When it came, we just went back to the old framework and dealt with it.
Secondly, I think, and I talked about this at Jackson Hole last year, if you look back it looks to me like what you had was a global burst of inflation everywhere at the same time. You’ve got to look at global factors, and it amounted to very strong demand, stronger than we thought. The forecast error was two parts. Part one was, demand was just stronger than we thought. We had in mind the recovery from the global financial crisis, and instead we got this really high-powered response, expansion, recovery.
The other side is the supply side. The supply side was constrained. We lost eight million workers, and it took a long time to get them back. All of the supply issues that were happening took longer than we thought to unsnaggle, and we’d never seen it before. We knew in real time that it was going to be really hard to get that right.
Those two things created inflation globally, and central banks stepped in, and pretty broadly we’re back to close to mandate inflation and employment close to the natural rate, not just in the United States, but everywhere. So in a way, the framework worked, but I think we learned some of those lessons, and we’ll still be learning them.
America’s Strong Economic Recovery
INTERVIEWER: The U.S. has actually had the fastest recovery in all the major economies. Do we understand why that is? There was a question in the last panel about Y star and potential growth. Do you think that we are learning something now about what the speed limit for the economy is, or is this just happenstance?
JEROME POWELL: I would put down the U.S.’s outperformance to three things. The first would be structural characteristics – a more flexible labor market, highly developed capital markets, culture of innovation, rule of law, all the things that make this economy strong. We have a venture capital industry. Other countries are trying to do early stage financing out of banks. That’s not going to work. All of those things account for 40 years of productivity that’s double Europe’s productivity increases.
Thing two is just population. We had a big population increase in ’22 and ’23, and that doesn’t help with per capita, but that moves the top line.
And the third thing is productivity. We had a really significant burst in productivity from a range of factors. You can never tell exactly where it’s coming from. Some of those factors suggest that productivity will be kind of a one-time event. People wound up automating a lot of functions in retail because people didn’t want to work in retail anymore, but that may just be a one-time thing. Technological developments, on the other hand, might give us years and years of productivity.
We don’t really know how long this burst in productivity will be sustained, but I never expected to see productivity this high for this long. Our staff is marking up their estimates of potential growth for now and taking some signal about the future. You won’t have that population thing going forward, but productivity has been really strong, and I think it does actually raise, at least for the relatively near term, the level of potential output.
Personal Reflections
INTERVIEWER: Okay, 30 years of teaching Booth students, I’ve learned you have to end these things with a fun question. So, who’s your favorite central banker? And I’ll give you a hall pass on anybody that was on the board while you’ve been there.
JEROME POWELL: What defines your favorite central banker?
INTERVIEWER: Living? Okay, you can constrain to living, or you can specify dead. Open-ended question.
JEROME POWELL: I’ll take the easy route and say Paul Volcker, whom I did know over time. In central banking, nobody wants to be working in a central bank when inflation is really high, but everybody who works in a central bank knows what they have to do when inflation is high, and he set the gold standard for that.
Most of the time for 40 years, we haven’t had to do that. It’s just kind of demand management through a regular cycle, but when you have very high inflation and you have to do this – this is why we’re independent. It’s not for the good times. It’s for the times when we’re doing something which may be unpopular. That is our assignment, and I think Paul Volcker kind of established that. That was really not quite so clearly established at the time, so I’m going to go with Paul Volcker.
INTERVIEWER: Okay, and I’m going to out you on a private conversation, but I don’t think you’re going to mind too much. The Clark Center that hosts this event has a bunch of experts panels of economists where you can answer a bunch of questions, and we’ll tell you who your favorite economist is. Jay Powell’s favorite economist is Anil Kashyap. Let me tell you, this is a true story, and that was not a happy day to learn that.
Anyway, well, thank you, and we’re so glad that you were able to be here and share your thoughts.
