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tv   Discussion on the Federal Reserve  CSPAN  April 12, 2016 8:46am-10:01am EDT

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that hearing is being held by the senate finance committee. live coverage on c-span3. next, federal reserve chair janet yellen joins three of her predecessors for a discussion on monetary policy and decision making by the fed. the other speakers are ben bernanke, alan greenspan and paul volcker. this was at the international house of new york. it's an hour and 15 minutes. [applause] >> well, welcome, everybody. i'm the dude from the video. [laughter] i'm also the president and ceo of international house. i want to thank you so much for this historic occasion. we are very, very excited this evening to have what we call the fabulous four fed chairs. and this evening is going to be spectacular for a variety of reasons.
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but first, i want to take a cue from adam mckay who was the former lead writer for "saturday night live," and he once said there's nothing that people love more than a federal reserve joke. [laughter] so i will tell you a joke. and it is a joke by a federal reserve chair, yam martin, who served from 1951-970 under five presidents. yo i may have heard this before -- you may have heard this before, i be i i this -- but i think it's worth stating. the job of the federal reserve, he famously said s to take away the punch bowl just before the party gets going. [laughter] so tonight we're going to be learn the process of taking away the punch bowl or adding something to the punch in the bowl. is so you heard in the video a little bit about this house. its mission has always been about values, values that promote empathy, respect and moral courage among people and
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among countries. so there's no question that you could get some global perspective by taking an international course at a university or college. but nothing compares to the daily exchange, which is what denise talked about, our resident -- [inaudible] here in this wonderful community. they together live, work, study, dine and, yes, have a lot of fun. so this makes these permanent bonds that are forged here at i house a hallmark for this institution for 90 years. and it would not be possible for this to happen if there weren't certain people that i need to recognize. and i want to start with our residents. and is so as denise says, there are 750 to of them, they come from 150 different countries. they attend institutions across new york that represent about 60 different fields of study. there's a lot of cross-pollination. so we're proud of our residents who are here tonight. and so i'd like all our residents to actually clap and
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make yourselves known, because we want to know that you're here. [applause] we also would like to thank our trustees who do so much to help this place keep its mission and to keep it alive and relevant for the last 90 years. so could our trustees also stand up and be recognized, please. [applause] thank you. as well, we are enormously grateful to our underwriters. every dollar of their support will go toward scholarships and fellowships here that enable our i-house students to sustain this wonderful community. and so i'll just mention quickly our underwriters are morgan stanley, jpmorgan chase and co., bcg henderson institute, peter g. peterson, ubs and bny melon.
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thank you very much for your support. [applause] so i'll just say quickly throughout our history here i-house has convened thought leaders on international affairs impacting our demographic which we call the global millennials. so tonight's event, which continues that legacy, is special not just because of the honored panels of speakers. it is the inaugural event of the paul volcker speak or program which was named in honor of paul volcker as a trustee and chair of our board. so we're grateful to paul, who you will meet later burke i just want -- later, but i just wanted to acknowledge that this is the first, and i think we have done him justice with turnout. thank you. [applause] so i'd like to turn quickly to what will happen on the stage momentarily. so this historic conversation has less to do with interest rates, whether they rise or they fall and at what percentage, and
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more to do with the fed chairs' perspective on leadership and the values in their decision making. in other words, this is a focus on values which is i-house's mission. so we hope you will agree that this conversation and many more like it to come in the future demonstrates that i-house can be a beacon of international harm and understanding, proving day in and day out that humanity can surpass the barriers of race, or nationality, culture and traditions that have so long divided the world. and now i'd like to make a special introduction to someone who i think embodies global leadership at international house, and that is none other than james gorman, the chairman and ceo of morgan stanley. and james is also a 1987 alumnus of international house, and he will bring to you the bridge that you've been waiting for to understand why we're hosting this event and why it corresponds to i-house. james?
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[applause] >> thank you, calvin. thank you, everybody. and good afternoon. it is, indeed, a terrific honor to be invited to participate in what is a historic event. i was very humbled to be asked to come to the stage as something of a warm-up act before you get the real deal. [laughter] of course, the four great chairs of the federal roadway -- federal reserve. i've been honored to work directly with three of these four chairs, and i have tremendous admiration for their public service, their intellectual capacity and their careful stewardship of monetary policy and the financial system. each has made an outsized contribution to economic growth and stability of this great country x to each we owe a debt of enormous gratitude.
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calvin asked me to reflect for a few short minutes on my experience as a student at international house, a different topic. it was three decades ago. and he asked me to reflect on how it had helped develop the fortunate career i've been so lucky to have here in the united states of america. i was accepted to international house, very lucky to be so, and arrived here on the 7th of september, 1985, and it was a hot and humid day. i can still feel it. like so many other foreign students who lived here, i was tremendously relieved to have such a safe and welcoming community to move to in new york city. that week i began the tradition of writing a letter to my family in australia, something i continued for many years after i arrived in the u.s. my father passed away several months ago, but before he did,
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he gave me several shoe boxes filled with my letters. each numbered and each kept in their original envelopes. [laughter] for those of you in the upper decks, this is a letter with an envelope. [laughter] [applause] or -- i have a child in berlin who has not in three months written the equivalent of one of these. [laughter] so i thought just very briefly i would touch on five extracts from those letters, a paragraph on each capturing, hopefully, some of the essence of the life i experienced to and was welcomed to in international house. the first was arrival. i wrote with, dear all. by the way, that might not feel very personal, but if you had nine siblings like i did -- [laughter]
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you are not about to spell out their names every week. well, i arrived safely after 36 hours of flying. the former tenant of my room is still asleep in my bed. [laughter] let's say the changeover was finely tuned. then again, everything is a little on the margin. my room is small, very small. but i discovered i can see the empire state building if i lean out my window far enough. [laughter] e-house reflect -- i-house reflects new york; fantastic facilities, dirty and very security conscious. [laughter] [applause] life experiences. sun kinner was a -- dinner was a big event. actually, it was in this room. suit, tie and entertainment. the president spoke, and as he mentioned that the australians had come from the farthest place, 11,000 miles, for what i
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thought was a relative my minor accomplishment we were, much to my amusement, roundly applauded. [laughter] thereafter followed one hour of violin, piano and jazz. it was great fun. jesse jackson is coming to i-house this week as is prime minister gandhi and former president gerald ford. where wells in the world -- else in the world would you be so lucky as to have those people speak within one month? and then on friends. tonight i studied with a pan yard, a fill -- spaniard, a filipino and a frenchman. sounds hike the beginning of a joke. [laughter] the yanks are incredible; loud, happy, friendly and buzzing with energy. they ask questions in class continuously, many of them needlessly. [laughter] as participation is graded, i'm forced to do the same, adopting the simple rule when in rome,
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put your hand up. [laughter] fourthly, money. i purchased a hewlett-packard 12c calculator today for $100. [applause] and with books of $200, my finances are riding a bit of a storm. by the way, not part of the letter, that was good practice for the financial crisis i would confront 25 years later. [laughter] i was always short of money. i borrowed as a student loan x those of you concerned about your student debts, i borrowed at 24%. then along came volcker. [laughter] [applause] finally on career, international house was highly instrumental in pointing me toward a career in banking as this final extract will evidence.
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i've been lucky to be assigned to a trustee as part of the student trustee link program. mine is shelby column davis, a legendary wall street banker. indeed, mr. davis -- this is me speaking -- tremendous supporter of i-house and whose family name adorns the very room we're sitting in tonight. he took me to lunch at a fancy club in midtown new york, and at the end of the lunch he turned and pointed at me and said you, son, should pursue a career in finance. [laughter] and so i did. [laughter] thank you, international house, on behalf of myself and so many others who have benefited from your welcome, your warmth and your worldliness. it is now my great pleasure to introduce fareed zakaria, our moderator for the evening. most of you know fareed's work. suffice to say he's had an
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extraordinarily dedicated career from running foreign affairs at the ender age -- tender age of 28 to writing two, two new york times bestsellers among his many accomplishments. he's universally recognized for the quality, depth and insight of his commentary, and as a trustee of i-house, he understands and appreciates its mission, and he's a wonderful -- and he has a wonderful addition with this celebrated panel we're about to hear from. thank you very much. [applause] >> thank you so much, james. that was a fantastic introduction. i loved the letter. i hope they will be published one day, the letters of james gorman. let me just say a few things before we have our distinguished
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guests join us which is this is being recorded for my show -- [laughter] so can you, please, turn your phones off and refrain from applauding, you know, until the end? because in any case, we adopt want to create -- we don't want to create that sense that the fed chairmen have to pander to popular whims -- [laughter] but more importantly, it will interrupt the broadcast. i think that's about all i have to say. ..
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37 years of federal reserve history which is essentially one-third of the history of the federal reserve. and at some point perhaps somebody will make a musical out of all those in the style of hamilton. [laughter] i would like to ask the current chairman of the federal reserve janet yellen to come in. then we have ben bernanke, her immediate predecessor. we have paul volcker, the legendary fed chair who also happens to be of course deeply associate with international house. and from washington where he has just celebrated his 90th birthday, alan greenspan. welcome all. thank you. [applause]
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>> madam chairman, i have to begin with you because i think everybody is going to be interested in some of the things that you're going to see. so let me ask you to start your if you look at the economy very carefully, our weekend and economic bubble? -- are we in -- >> is the economy as perilous as some people on the political campaign trail are suggesting? >> i would say the u.s. economy has made tremendous progress in recovering from the damage from the financial crisis. slowly but surely the labor market is healing for well over a year, we've averaged about 225,000 jobs a month. the unemployment rate now stands
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at 5%. so we are coming close to outside congressional gold of maximum employment. -- congressional goal. my colleagues spent much of their time as chair of bring inflation down from unacceptably high levels for a number of years, now inflation has been running under our 2% goal and we are focused on moving it up to 2%. but we think that it's partly transitory influences into declining oil prices and a strong dollars that are responsible for pulling inflation below the 2% level we think is most desirable. we are making progress there as well. and this is an economy on a
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solid course, not a bubble economy. we tried carefully to look at evidence of potential financial instability that might be brewing your some of the hallmarks that clearly overvalued asset prices, high leverage, rising leverage, and rapid credit growth. we certainly don't see those imbalances. although interest rates are low and that is something that can encourage, reach for your behavior, i would not describe this as a bubble economy. we have relatively weak global growth, but the us economy has been doing well in domestic strength has been propelling us forward, in spite of the fact we are suffering a drag from the global economy.
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>> let me ask you about what those statistics that you cited, the unemployment rate. the army people again who say the actual unemployment rate is not 5%. it's muc much higher. yothere are people who say it'sn the '20s. do you think the unemployment rate is accurately reflecting the realities out of there? >> the artistic concepts of unemployment, -- there are different concepts. >> 5% is the most commonly used metric to judge the labor market. there are broader definitions, for example, one definition the accounts of discouraged workers and those who are working part part-time but want full-time jobs can't find it, and that's quite a bit higher. that's closer to 9%. so broader definitions that count more people who may be underemployed are always higher.
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i think any metric you look at shows broad improvement in the labor market. part-time, involuntary unemployment, employment is higher than one would expect given with a standard unemployment rate is. so they are icy some additional slack or improvements that we could have that suggests the 5% understates the state of the economy. over all whatever measure of the labor market you look at, and i go beyond unemployment measures and too many other different kinds of measures of labor markets functioning, really suggest a labor market that is vastly improved. >> for most ordinary people they must wonder, the federal reserve has all the power over the economy.
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you have a mandate to provide, to keep inflation under check but also to see that people are employed. why not take extraordinary measures to help boost employment, help perhaps wage growth so people's wages rise? you mentioned the federal reserve tries to set a target of about 2% for inflation, but that is not a ceiling. it's a target. why not take incredibly aggressive measures and maybe overshoot the target a little bit. after all, you've undershot the target for seven years now. i think people might wonder why not try to do something that would actually help ordinary working people? >> maximum employment and price stability is the mandate that congress gave to us. we take both parts of it very seriously. we have had i would say the
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aggressive monetary policies over the last six or seven years, when you contemplate the fact that it was december 2008, over 7 years ago, that would've the short term overnight interest rate essentially down to zero, and then engaged in a very large-scale asset purchases, communications, forward guidance policies to provide more stimulus. we've really done great deal to foster a more rapid recovery. most of my colleagues anticipate that unemployment will actually dip somewhat below levels now with the policies that we have in place that they would see unsustainable in the longer run. so they do see some overshooting
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in that sense, but we are not shooting for a target that's in excess of 2%. with inflation running, even extracting from energy prices and the dollar below our 2% objective, a path like that serves both of our goals, namely strong employment, putting people back to work, progressing, moving up in job chains, getting greater experience. but also inflation moving at a faster pace back to 2%. we do not seek to consciously overshoot our 2% objective, but it's also the case, 2% is our goal and it's not a ceiling. we do envision some paths similar to what you described. >> in december you raised rates. many people, including larry
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summers, commentators and economists felt it was a mistake or in retrospect wasn't a mistake? >> i don't regard it as a mistake. i said at the time and continue to deal that the economy had made very substantial progress toward our goal. [laughter] we -- [laughter] spiff i think alan greenspan was registering agreement with that. [laughter] madam chairman, you could just begin again. >> sure. we sit at two criteria to boost the funds rate that led to the december decision. one was we wanted to see substantial progress in the labor market, and we felt that
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have been satisfied. we also, recognizing that inflation was running below our 2% objective, wanted to feel reasonably confident that inflation would move up over the medium term back to 2%. we also think those conditions were satisfied in the summer and justify taking a step. now, monetary policy is not on any preset course. so every three months my colleagues and i set out our individual projections, both of what we anticipate for the economy and also going along with that, what we think is a monetary policy path that would be appropriate. we set out projections like that, that gives a suggestion of what people think the economy is
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going, but we tried to make very clear there's not a preset course of rate increases. we watched very carefully what is happening in the economy, and a just policy as appropriate. so we took one step. now, the u.s. economy has continued to progress in a satisfactory way. we have continued to seek good job performance. some evidence of inflation moving up. so that was our expectation when we raised rates in december. we indicated that we thought the path of rate increases would be gradual. that remains our best guess and expectation, that if the economy continues on the path it's on of recovery, that further rate increases will be justified, but for a variety of reasons, particularly acetic headwinds that are at the legacy of the
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financial crisis, that we suffered. and we could global growth and a strong dollar that has gone without, that the level of rights that sometimes called the neutral rate, a level of short-term rates that would need to be particularly stimulating the economy or holding it back, that that level of neutral rights is quite low. and so yes, there is accommodation in the monetary policy that we have, but we think a gradual path of rate increases will be appropriate and stand ready to adjust what we do depending on how our views of the economy evolve. i think we remain on a reasonable path added opaque december was a mistake. >> the dollar has been weakening. is that a positive trend or a
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negative one? >> we don't have a goal for the dollar. what we are looking at is the economy as a whole, and the likely path for inflation and employment to achieve our goals. and financial conditions, broadly speaking, the state of financial conditions impacts our forecast for economic variables. the dollar is one of those, i would call it part of financial conditions, along with longer-term interest rates, equity prices, other asset prices, credit market spreads. so it is the case that appreciation of the dollar to we've seen over the last year and a half, along with slower global growth, has created a
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drag on the u.s. economy in the sense that our net exports have been holding back growth. but u.s. consumer spending has been strong enough to offset that, and look at the balance between those two things. and taking their bows into account, the u.s. economy is moving forward. i think financial conditions are forecast, taking everything into account. the prospects for continued growth and progress of the labor market and inflation look good. >> one of the regional fed chairs, neel kashkari, made a speech recently in which he said the big banks need to be broken up. do they? >> well, we have been very focused since the financial crisis and the dodd-frank act has directed us to pay attention and try to put in place policies
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that will do with too big to fail. so we certainly, i certainly share his concern with too big to fail. i feel more positive on the progress that we've made. first of all, we have put in place policies to supervision and regulation that has greatly enhanced the safety and soundness of the banking system. and so we have more capital, higher quality capital, more liquidity. we do rigorous stress tests in our supervision. site think the odds of failure of large financial institutions is lower. but we are also dealing with the issue of how would we resolve such an institution if one were to fail? i think we've also made
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considerable progress there as well. we are working internationally with other countries. we've identified strategies that could be successful in resolving a company. we've asked the firms to produce living wills that address a number of areas that could be problematic in a resolution. for example, under the bankruptcy code or under title ii, and i think the firms are working hard on the living wills and simplifying their structure and identifying resolution strategies. we recently passed a rule that will require them to hold in addition to a substantial amount of capital in of long-term debt that if a company were to encounter distress, there would
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be essentially resources that could be bailed in in a resolution to recapitalize that company. so i think we've made considerable progress, and so i certainly haven't arrived at the conclusion that my colleague has. i'm pleased with where things are going. >> one more question before i opened it up to a larger conversation. lawrence summers who some thought was one of the contenders for the job you hold says that there's no question that bernie sanders is right on one central point, which is the financial industry has too much influence over the structure and governance of the federal reserve. do you think that's true? >> i don't think it's true. i think we are charged by congress with regulating
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financial institutions, and we take that mission seriously and are toughest supervisors and regulators. we talk to bankers of course on a regular basis. we are actually required, and we have bodies like the federal advisory council which james gorman has served on where we meet regularly to exchange views and understand the perspectives of bankers. but we are very focused on regulating and supervising the banking system in a way that will achieve congresses goals. >> chairman bernanke, can ask you about something that i suspect that the janet yellen she would be even more evasive than she has been in the last
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few minutes? which, of course, anti-what you're supposed to do and i respect and admire it. [laughter] about every seven or eight years there is a recession, both globally and the united states. that's roughly how long these recoveries last. we are about seven years since the last recovery. so there are statistically or two for a recession. my question is, if that, nobody has ever been able to predict these. the fed has not. the cbo has not. if there is a recession, traditionally the federal reserve cuts interest rates by about 3%. 300 basis points. what's it going to do now given that there are 300 points come from the point to cut? >> that's an excellent question. let me say first, as jen has pointed out there's no sense in
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which it doesn't always get the risk is more or less constant in every year. 10, 15% as you suggested. the weekend forecast it's no reason think just because we had been in this case seven years of recovery doesn't mean we are due for another session at all. we are facing, and i agree with a lot of janet earlier analysis can we are facing some risks like developments globally which aggressive headwinds to the united states. productivity growth is only modest which is also a problem but the domestic u.s. economy is moving forward. householdhouseholder for strongl speaking. housing sectors continue to expand. idles any particular reason think a recession is a more likely in 2016 that was in 2015 or 2014. that being said, it is true if the recession which began in the next year or two will be starting from a lower level of short-term interest rates.
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the extent to which the fed would cut would be less. my reaction to that i think a couple of things. one is the or some other tools and one of the things we learned over the last decade is central banks of a set of tools besides cutting short-term interest rates. for example, there is communication for guidance which can be very helpful in easing policy. we did quantitative easing and it was hopeful. there are other tools as well. missing some experiments globally in japan and in europe. there are other tools. the fed in particular is not out of ammunition. that being said, also i think we have learned that it's a mistake to put all of the burden on central banks and monetary policy. a more balanced policy with a greater physical component, for example, offer a broader set of policies would no doubt work, even in a situation where
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central banks were pushed to the limit. we do have a range of policies we can use. i do think it's unfortunate that around the world central banks have cared so much of the burden. we've gotten the wrong impression all the central banks can respond to downturns. >> expand on that. are you saying that you think that there's been too much of an emphasis on austerity and that in effect governments should spend more money to boost the economy speak was under appropriate circumstances, yes. and 2013 the united states, between sequestration of budget cuts and tax increases and the like, cbo estimated that year that fiscal policy was taking 1.5 percentage points of growth of what otherwise would've been the case, which was something at that point we couldn't afford. i'm not saying the government should always be spending. we are looking out longer-term fiscal sustainability, very
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important, but at certain times, taken in a recession when the central bank is out of ammunition, the fiscal policy does have a role to play, just. >> alan greenspan, i asked if he would agree with ben bernanke, that this is a moment at which governments around the world, particularly and the western world, should be spending more money? >> i didn't say this moment. use of hypothetical. [laughter] >> there is -- if there isn't a recession which presumably at some point there will be, in order to combat that recession, should governments spend more money? >> let me just say this. i thought i about out of time with my sneeze. i appreciate about. [laughter] no. in fact, i think the major problem that exists is essentially the issue that productivity growth over pretty
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much across the spectrum of all economies has been under 1% per year for the last five years. this is true in the oecd. it's true in the ec. it's true in the united states. and i think our major problem as i see it is how do we create a gdp growth rate which enables us to get all the values we get out of growth without giving productivity? because the gdp growth rate is essentially -- times the expansion in the labor force. as jen as correctly and accurately pointed out, our labor force is, our slack in implement is gradually
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dissipating. the unemployment rate is going to reach a level soon below which it cannot get realistically. and so endlessly come to grips -- unless we come to grips with the issue of productivity, then we have no major advance to the future. i think that david that i see is that the productivity slowdown pretty much across the globe as a function of the fact that capital investment pretty much everywhere has slowed down to a significant extent, and as i percent the gdp has been dramatically lower than it's been historically. our function should be, and i agree that monetary policy should not have the whole boat of giving us out of this phenomenon. it's fundamentally a fiscal
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problem. and spending money on increases the debt. i think that the data very importantly show that what we are facing with the demographics that we have in this country is a major expansion of debt under existing policy. i think unless and until we address that issue, we're going to have problems that are not going to get resolved. i agree with janet and everyone else that if there's a bubble, it's not a major problem. and i doubt very much if the recession is what our problem is, i think it is fundamentally the issue of economic growth over the long run. >> paul, what do you think the economy looks like it is conversation, fundamentally? >> i agree with everybody.
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[laughter] >> i would supply a little historic perspective. we used to have recessions before we had a federal reserve. there are other factors at work and economy that tends to produce ups and downs, and i wouldn't worry too much about the present situation. >> you don't think we are in a bubble economy? >> i sorted don't think we are in a bubble economy. i think the are aspects of the financial world out of overextended and are conducting unduly risky activities. there's a lot of good lines on very short-term borrowing to make liquid investments. large part of it in the financial system itself. without contributing to productivity a real investment. and increasing risk in the economy. >> you said you thought the last financial sector innovation action to adequate activity for
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the economy was at the atm. do you still feel that way? >> there may be some others i can't think of any others last night i can think of some that have contributed to uncertainty and complexity and problems. >> ben bernanke, when you took over the federal reserve it had about 900, u.s. assets of about $900 billion. the ramp that up to about $4 trillion over $4 trillion. the are a lot of people, a lot of people as you know on the right who look at that with horror and they say, how will this end? so how will you unwind at enrollment a has a portfolio of? >> fortunately i don't have to do it last night. [applause] [laughter] >> i think it was an enormous amount of understanding an
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immediate advance a lot of very important views on the subject. for example, if you would like a few years and listened to media, congressman, variety of people, they would say it would cause hyperinflation, cost a dollar to collapse, energy spikes, financial bubbles and bursts and collapses. none of that has happened. what has happened is that those policies, maybe they were not by themselves but they were helpful. to help our economy recover. even if it's not perfect but it is made a lot of progress and monetary policy has helped. many if not all of the things people were afraid of or some people were, informed people were not afraid. has not come to pass. in terms of the unwinding it is a very straightforward process at this point. the fed has been clear and we discussed this when i was there as well, is that at some point and the fed statement makes this very clear, at some point the fed will stop reinvesting
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securities as they mature, simply step back and say from now on we will let things roll off and mature. over a period of a number of years it will just go down. in the end all we have to show for is the fact that over the last five years, from the securities can besides the fact help our economy recover, the fed has sent prophets to the treasure of half a trillion dollars in profit which is reduce the burden on the taxpayer by $500 billion, approximately. on the whole a successful policy and it is one where the role of has been plan and like other i don't it's going to be terribly problematic. it should be noted that that even today the fed decides of its asset, its balance sheet is roughly the same as other major setbacks like the european it's a debate of the bank of england. the main counterexample is the bank of japan were relative to gdp the assets held by the bank of japan are three times the size of the fans.
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it's obvious many of the concerns people have have not manifested. those policies are panaceas. as i've said before, central banks need help from other policymakers. so far think many of the concerns have not come to pass. >> it's worth pointing out japan with three times the size of the balance sheet has not experienced hyperinflation or the debasement of its currency. >> they would like a bit more inflation i think than they have now. >> are you comfortable with what he said? >> yes. certainly can. we have laid out as ben indicated a strategy for how we wind up our balance sheet. we have made clear that eventually we want a substantially smaller balance sheet. and at the present time we hold a large quantity of mortgage-backed securities, agency, fannie and freddie
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mortgage-backed securities. eventually we would like to go back to at all treasury portfolio. we have the move in december showed that we have the tools and ability to successfully manage short-term interest rates. we moved that up, not a lot, but 25 basis point. that occurred smoothly in spite of the fact we had this very large balance sheet. so we have the tools to tighten monetary policy as we think is appropriate for the economy. and we would like to get a little bit further underway in terms of moving short-term interest rates toward more normal levels before we follow the strategy than what outlined of allied assets to run off our balance sheet. if we do have another adverse
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shock him if there's a recession, we would most likely to be able to use short-term interest rates, manage it, and waiting to start that process of having assets world off our balance sheet until short-term rates are a little bit higher. the economy has gotten to the point were that's appropriate. that creates a little more scope for us to cut interest rates if we need to. but it's all going quite smoothly. i completely agree with ben. the are a lot of fears about this. i think people didn't really understand the economics of this properly. nothing terrible, none of these terrible things have happened. >> let me switch gears and ask you all about what it's like to have this much concentrated power. alan greenspan, when you are running the federal reserve, people would sometimes describe your performance of their as god
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on a good day last night i think senator john mccain said his strategy to succeed you was to have a dummy made up of alan greenspan and putting in the federal reserve chair like weekend at bernie's, that movie. wall street would celebrate your birthday with cakes and things like that. did that go to your head? [laughter] >> no, but it sure enough embarrassed to me. [laughter] i very much appreciated that. [laughter] >> i got past the embarrassment very easily. >> paul volcker, you had a slightly different situation to you were hung in effigy -- [laughter]
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-- when he raised interest rates because people thought you single-handedly plunged the american economy into a recession. how difficult was it to deal with that? >> i thought they were cheering me. >> you thought they were cheering you? >> to answer your basic question, you've got a board, a public, reserve by president. you can't quite do exactly what you want without a lot of people being encouraged or agree with you. sometimes some disagreed. so it's not quite so absolute as you suggest. look, i always get asked this question about -- we would not have survived without a lot of public support. people thought there was a big problem and they did know all the answers, but people were unhappy with the malaise come inflation rate going up a couple percent every quarter. they were unhappy.
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i think they gave ourselves some rope to hang ourselves. they felt were going to be doing something. they were going to be patient for a while. >> because inflation was very high can you raise rates to break the back of inflation. did you worry you have run out of time, that the public would lose patience? >> we had a longer period than i would have anticipated. did i worry? i worried all the time. [laughter] the federal reserve office floor shows why was walking all the time. is that still there? >> ben bernanke, we do a dr. george extraordinary measures to save the american economy through this global recession and crisis, you faced a lot of people from, what was in this venture own part of the you are
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appointed by a republican president and you have republican congressman, republican senators. you have the republican governor of texas say that you were engaging in treason. how did that make you feel? [laughter] >> it didn't make me happy. [laughter] you describe the job a powerful. i think both responsibly sight of which are huge responsibilities, all of us, in different contexts in different events to try to use the power of the federal reserve a long with our colleagues and the static it's a wonderful institution. it's not a single person organization. there are a lot of people working together but we had tremendous responsibility to try to address these terrible risks. i think it's a good thing that within reason that the federal reserve does have some independents and some room to operate so that the critics, the billy to say what they can say
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but we can do what was needed, at least within, as long as we could maintain the broad support. that was our strategy. it didn't take the job for congratulations eric cerda if i had it when i worked. there's really no alternative to doing what has to be done in your best judgment to try to address whatever problem you see. >> and then there's the issue of communication. how do you communicate that use you want to communicate, but at the same time you want to leave things, you want to give yourself room to maneuver. so, alan greenspan, i recall one senate hearing i think it was called the senator said, i think i heard you say clearly, it interrupted him and said, if i said it clearly, senator, i must have misspoke and. [laughter] were you trying to be
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deliberately incomprehensible at times? [laughter] >> i thought i had succeeded marvelously. [laughter] that's where fed speak comes from. >> but is that part of the goal, that you don't want to say something to definitive because it constrains you? >> well, i think the real problem is that monetary policy is very largely economic forecasting, and our ability to forecast is significantly limited. and we have to keep the context of what we say in the context of what we know. and this is a very serious problem that's always existed, and i think janet has mentioned she is confronting this all of the time. and the four of us have lived through all of that. so how do you convey what you
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know and what is clear without going into the a reality forecasting beyond our knowledge? >> you have a reputation. just work habits. very thorough, very prepared. i read in one of the profiles you always get to the airport so early that you're the first person on a plane. how does that translate into the way you approach this job? >> i think that's a lifelong habit that is probably accurate about me. i am prepared, like ben, and managing, for example, the fomc. we have a very thorough process in the run up to meetings of trying to prepare materials that will generate useful, productive
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discussions, that will reach closure over time on complicated matters. i confer regularly with my colleagues to try to understand their point of view. >> there's a lot of uncertainty, you know, no matter how much you prepare, do you think there's some level of just intuition? >> i think that's absolutely true. i don't disagree in any way with what alan said. but i think ben and i encountered a very unusual situation, wind at the end of 2008, short-term interest rates came down to zero, and we still felt the need to add accommodation. we have to think about what could we do that would provide more accommodation. we focused on longer-term
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interest rates. that they were still several hundred basis points. there did seem to be scope to move those down. and since one of the factors that influences long-term interest rates is the public's expectation for how short-term interest rates will move over time, we needed to think a lot about how to appropriately communicate to the public our expectation that we would be keeping short-term interest rates at rock-bottom levels for a very long time. so communication became a tool of policy, and probably the most potent tool we have along with asset purchases that we could use in a situation where we really had no scope to move short-term rates. so we experimented over time.
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at one point we said, i think it was in 2011, but we didn't expect to raised short-term rates at least until mid-2013. we pushed that date out, and then we became more inventive in trying to provide some conditions which we said, that we could not see raising rates until the unemployment rate had declined at least the 6.5%. but we fought very hard how to make it as good as we could shape expectations. that was a policy tool in and of itself. >> one more question to paul volcker and i'm going to open it up to all of you. the one person who isn't here, william martin, a great fed chairman from the 1950s, once defined the role of the federal reserve chairman.
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he said, i'm the guy who is meant to take the punch bowl away just when the party has begun. meaning as soon as the economy starts going i've got to raise rates. you have attended -- you have tended to about that. do you feel some of their successors put in the punch bowl? [laughter] >> i watched all my successors with great awe. spirit that is a very diplomatic answer. [laughter] >> i think we have questions from the floor. the lights are not great so i think, yes. okay, here they are. if you introduce yourself and ask a question, and i hope it is brief. >> my question is about the responsibility cartoon international economy. when the fed takes the decision,
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it can have drastic effects in other countries, specially through the foreign exchange rates. what is offensive responsibility with regards to minimizing international -- the feds responsibly -- economic blunders or trouble in other countries? >> let me ask alan greenspan to take this. there is a dual function. you pasted in your term, argue the central bank or other type or are you the central bank of the world? in 1990 does the russian default long-term capital management explodes, and you cut rates. it may been the right thing for the world economy a boost economy was going at% at that point. was at the right thing for the u.s. economy? how did you resolve that tension? >> well, at the time and, indeed, i think even now, you cannot disassociate what's happening in the united states from the rest of the world.
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in that particular instance in the late 1990s, we had a situation in which, if we did not endeavor to stem some of the problems that were going on elsewhere, it would be just a matter of time before it impacted on the united states. so even though statutorily and legally we are responsible only for the monetary policy of the united states, it would be foolish to believe that we can act in an isolated manner from the rest of the world. there is no way that can happen, especially in recent years where the integration globally has been so extraordinary. so i think i made that distinction. >> madam chairman, you faced the opposite situation where you have the central bank of india who has publicly criticized the fed saying you're not taking into account the effect that
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your policies are having on us. >> well, we do look very carefully and try to minimize adverse spillovers where possible of our policies. one thing we can do that tends to minimize volatility around policy changes is to committee gave as clearly as we can how we are framing policy, to attempt to avoid surprises. we need with other central bankers to make sure that we are explaining how we are thinking about policy. we do have a domestic mandate. we recognize how important the influences are from the global economy to the u.s. economy. we recognize that if we, in fact, foreign countries that will in turn affect us. so that's a key part of our analysis.
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but when the u.s. is doing well, when the u.s. is growing, with our job market is good and we are growing in a healthy way, it tends to be a plus for the global economy. and i think we have experienced it that way. >> thanks. >> my question would be, the political profile have significant increase over the past years. political creation of fed governors -- clinton campaign recently. my question would be, so i just find that point and decision making process will do more political and less technical as what we've seen in the is the supreme court. >> ben, do you want to take that? it's interesting, i think you've 30 senators vote against her confirmation which is the highest ever. and then janet yellen had
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roughly 30 people vote against you. has the fed become more politicized? >> i center next to paul volcker, the fed has always had political pressures of the fairest kind. the fed is trying to do the right thing, sometimes the right thing is nobody agrees on. so yeah, i understand why there is political pressure out of there. there. people, many people unhappy with economy and they're very unhappy a few years ago. so i think all the fed can do is try to do the right thing for the economy and help a better economy will make people more open. and also to be as transparent as possible. one of the important goals, we talked about education, has many purposes including clarity to the markets and the like. one of the purposes is to explain why do doing what you're doing and hope that people who
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are paying careful attention will understand and appreciate the decisions you take and why you are taking them. >> paul would like to add. >> a comment about congressional reactions. i did not any votes against it when i was first appointed. when i was reappointed i had a perfect situation. 12 right wing republicans were against me and 12 left wing democrats were against me. so i figured i was in pretty good terrain. [laughter] >> i'm a ph.d student at the university of new york in economics. federal reserve announcements are usually conditional statements. so should the fed be more discreet in its announcements in order to avoid ambiguity that might have caused for high volatility? how is this reconciled with the
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potential of credibility? >> ben, i have to ask you to enter. the man who created the paper tantrum is you. >> the basic principle can't be clear and to spare, explain what you're doing, it's a very important one. but it is to get to keep things relatively simple. if there's too many conditional parts o of the statement then sometimes they can be less well understood. in the case of the paper tantrum, if you go back and see what we said it was very straightforward. we said what we thought were going to do and we ended up doing that. also the effects on the us economy where pretty much nil. u.s. economy continued to recover and there was essentially no discernible effects of the bond market volatility. i don't view it as being a really bad episode. but i do think it illustrates that communication is very difficult.
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it's much harder than the textbooks would suggest, if i may say so. but it's still important to be clear and to communicate, and as janet understands as well, and as alan was saying, because we can only make conditional statements essential because we have to respond what's happening in the economy, there's really no way to avoid that kind of conditionality are what's called data dependence as you talk about policy. >> i wanted to follow-up on -- [inaudible] saying that banks are still too big to fail. [inaudible] >> i guess the question is
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maybe, how can this guy who is original fed governor make a speech that seems to contradict what you are saying? >> so, when congress decided on the structure of the federal reserve, i think it purposely chose a decentralized structure with reserve banks and president of reserve banks who would be able to take independent views. now, on regulation and supervision, the responsibility is invested in the board of governors, whereas the president's to participate in our monetary policy decisions. but they all engage in research, on topics that are of interest to them that they think are important. and we've encouraged that in the federal reserve system, that people have different interests
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and different points of view, and that diversity of opinion is a positive attribute. we don't want to fall into group think. and think it's within his purview to look at these issues. >> thank you. i am a university teacher in china. the question is related to china. sing that in recent years chinese -- becoming increasingly unborn, the kurds and economy. for example, the new establishment of the nature and infrastructure and investment bank. and being accepted by imf and reserve currency with special drawing rights. so my question is would you comment on those challenges of
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the rising r&d -- [inaudible] as a response how d.c. changes to maintain dominant position of u.s. dollar? >> made i'll ask hu each of youo quickly. the question is, will china's currency, is china's currency likely to be in the next 15 years the single greatest challenge to the reserve currency status that the dollar currently holds? album, due want to start us off? >> -- alan, do you want to start us off the? >> i think china has made progress. and, indeed, it's evident that the yuan is getting close to be a floating currency. the yen has not come to a point
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where it is accepted internationally, and a total amount of holdings of your yuan and international reserves privately is really very small trick so they have a long way to go and i don't see that the yuan is a significant threat to the dollar as of yet. but obviously could be. if in doubt, it changes its overall structure, which it's doing very slowly. >> paul, do you have any thought on the? >> i'm not sure i understand this is about a threat to the dollar. what are they threatening? the dollar will be an interesting international currency so long as we pay attention to stability at home and operating economy and we don't follow advice of increasing the inflation rate at all about.
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china is very big. how many years ahead are you looking? 20 years ahead. they will be a lot bigger than the united states 20 years ahead, economically as well as in population. if you look that far ahead. r&b becomes an international currency, it probably will reflect an opening of the chinese economy which probably will be good for the world. i don't see what is going to hurt us. >> baggara people said in domestic strife significant privileges from having the dollar at the reserve currency spent i don't think that's at all too. i think the our modest benefits but there's some cost as well. but in any case the chinese have taken this as a very big symbolic issue. for example, i think the actual economic implications of being in a special drawing right basket are not very large but they been treated as a very important symbolic step. to the extent these symbolic
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steps motivate time to open their markets and reform the financial markets to increase liquidity and approve regulation and the like, then these are only positive things. not things we should be worried about. >> is there anything you can say on this? >> i think my colleagues have covered it, thanks. [laughter] >> this is an absolutely fascinating conversation and great, great honor for all of us, international house, for a coherent and everyone watching. thanks so much. [applause] >> live now to the senate floor this tuesday morning as members continue working o on legislatin setting federal aviation administration policy and programs. the bill would authorize just
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over $33 billion in funding over the next year. it includes a new consumer protections for airline passengers and sets new rules for drones. this is live senate coverage on c-span2. the president pro tempore: the senate will come to order. the chaplain, dr. barry black, will lead the senate in prayer. the chaplain: let us pray. eternal god, you are our rock and salvation. you are our high tower, and we shall not be moved. forgive us when we forget to trust you to order our steps and

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