Business Government and Society Forum Conversation with Jerome Powell, Federal Reserve Chair

Business Government and Society Forum Conversation with Jerome Powell, Federal Reserve Chair

Stanford Business School's Business, Government, and Society (BGS) Initiative

  • Aims to address emerging areas of debate and prepare students for responsible leadership.
  • Has generated new classes, conferences, workshops, research projects, and fostered partnerships across campus.
  • Inaugural BGS Forum focuses on leadership responsibility and civil discourse, with Federal Reserve Chair Jerome Powell as the keynote speaker.

Federal Reserve's Monetary Policy and Economic Outlook

  • Powell discusses progress in reducing inflation but emphasizes the need for continued tight monetary policy to achieve the 2% inflation goal.
  • Despite recent higher-than-expected job gains and inflation data, Powell believes the overall economic picture remains positive, with solid growth, a rebalancing labor market, and inflation trending down.
  • The Federal Reserve will maintain its current policy rate until there is greater confidence that inflation is sustainably moving towards 2%.
  • Inflation has come down from 6-7% two years ago to 2.8% due to both the unwinding of pandemic-related distortions and the effects of tight monetary policy.
  • Factors to watch in the future include the potential for further supply-side recovery, inflation expectations, and the impact of monetary policy on interest-sensitive spending and the labor market.
  • Inflation expectations are currently aligned with the Federal Reserve's 2% target, supported by various surveys and market indicators.
  • The strong labor market, with low unemployment despite rapid interest rate hikes, can be attributed to the unusual origins of the current inflation, which was partly independent of demand.
  • The recovery in labor force participation, immigration, and the unwinding of supply chain issues have contributed to increased potential output, allowing inflation to come down without significant job losses.
  • The Federal Reserve acknowledges the importance of immigration in addressing labor shortages but does not comment on immigration policies.
  • The interest rate sensitivity of the economy has been muted in this cycle, with differential impacts across sectors.
  • The housing market, with long-term fixed-rate mortgages, shows low interest rate pass-through, while early-stage growth businesses in Silicon Valley are more affected by higher capital costs.
  • The Federal Reserve believes that monetary policy is working broadly as expected and is confident in its ability to balance the impact of interest rate hikes on different sectors.
  • The US economy grew by 3.1% in a year despite high-interest rates due to a supply-side recovery that created new demand and supply.
  • The Federal Reserve's policy rate is at 5.3%, resulting in a 2.5% real interest rate compared to near-zero rates before the pandemic.
  • The Fed's policy is considered restrictive, and the Taylor rule suggests that the policy rate should be around 4%.
  • The Fed is maintaining a tight policy stance to balance the risks of cutting rates too soon and causing inflation to rise again, or waiting too long and causing a weakening in the labor market and economic output.
  • The Fed does not have a single mandate and must consider both price stability and maximum employment, with a focus on the goal that is furthest from being achieved.

Long-Term Economic Growth and Challenges

  • Long-term growth expectations for the US economy have shifted from 2.8%-3% before the pandemic to below 2% currently, due to low population growth and expectations of lower productivity growth.
  • The recent higher productivity growth may or may not be sustained, and the impact of AI on productivity is still uncertain.
  • The Federal Reserve's focus is on productivity, immigration, trade policy, and industrial policy for long-term growth and economic well-being.
  • The neutral interest rate in the future is not a pressing concern for current policy.

Federal Reserve's Decision-Making Process and Leadership

  • The Fed's pivot to address inflation in 2021 was necessary due to unexpected circumstances.
  • External pressures on the Fed's decision-making process are managed through internal consensus and a focus on economic reasons.
  • Building consensus involves sticking to the Fed's mandate, listening respectfully to different perspectives, and incorporating feedback into decision-making.
  • Chair Powell's background in public service and diverse career experiences have helped him navigate the challenges of leading the Fed.

Career Advice and Leadership

  • For students interested in moving between public and private sectors, it can be a great plan with different levels of volatility to consider.
  • The speaker discusses their career path, which includes working in investment banking, private equity, and public service.
  • They emphasize the importance of being willing to tolerate volatility and steep learning curves in order to succeed in different fields.
  • The speaker highlights that there is no one-size-fits-all model for successful leadership and that different people can be successful in leadership roles in their own unique ways.
  • They encourage individuals to have self-confidence in their abilities to lead, take risks, and take on challenges.

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