---
title: 'Jerome Powell Speaks LIVE at Harvard'
source: 'https://youtube.com/watch?v=YmHh46plXbM'
video_id: 'YmHh46plXbM'
date: 2026-06-30
duration_sec: 4461
---

# Jerome Powell Speaks LIVE at Harvard

> Source: [Jerome Powell Speaks LIVE at Harvard](https://youtube.com/watch?v=YmHh46plXbM)

## Summary



## Transcript

rates. How does the disagreement on the
FOMC make your job harder as you
describe?
>> All right, first policy question here.
So, let's see how it goes.
>> I don't think of it as making my job
harder. Uh I I think it's and I've found
throughout my career that um when you
have a really difficult problem, it
helps to hear from all sides. And in a
way I, for example, when I was a private
equity investor and I was looking at at
at at supporting a transaction that I
wanted to do, I really wanted to hear
from the smartest people, tell me why
it's a bad deal. Tell me now before we
do it. And I I just think you you you
don't really know how much you believe
in something until you've had somebody
literally try to take it apart. So I I
welcome that at the FOMC and at the Fed
generally. Um, and I think it helps us
make better decisions. The Fed has had a
tradition of of of governors not
dissenting, but that's really not
typical of other major central banks
where there's more dissenting or they're
different. Depends on the central bank.
And I to me what matters is is it ascent
thoughtful? Is it helpful? Does it help?
Does it express a point of view? Can can
you stand behind it and say, "Yeah,
that's that's very thoughtful." And that
that kind of a thing is not is not bad
and it doesn't hurt with communications.
You know I I think a situation like the
present situation where you know there's
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
unonymity at a time like that where it's
really quite historically challenging,
it would almost be misleading to be
really confident in in which way that
should go. In fact, it's been said that
uh uh 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 point or are they wrong?
So I think the place to start with that
is to the the 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've 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 not
flourishing and it wants more it wants
more support. So do you just say well
we're done. We're we're out we're out of
uh of ideas here. And there were two
ideas that that that were followed in
the global financial crisis. One of
which was to buy assets, longerterm
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 or 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 both e
efforts were successful at restoring
market function and at restoring
financial stability. At the beginning of
the 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 uh much less
certain question. And I don't think
there is an accepted answer, but but I
would just say there's a oceanic
quantity of of research on this. And
overall, it tends to find that that
buying long-term assets does does lower
interest rates and does provide some
support for economic activity. Um, and I
I guess I'd be in the camp of thinking
that there's some something in that. Uh,
but it's hard to quantify it. And I
think you know in different different
people have different views on how much
those those effects could be. The other
side of it is you know QE is thought by
the critics to to risk all kinds of
other things. So for example you could
buy too much uh of the treasury market
and it would stop functioning well. We
have not seen that here. At the very
beginning uh there was the thought that
it would be inflationary. We have not
seen that or that it would that it would
threaten financial stability or even
create inequality. So we haven't really
seen the the downside risks
>> to money printing.
>> At the same time, I'll the last thing
I'll say is I remember u before I took
over as chair thinking I I'll I'll
almost certainly never have to do
quantitative easing. So what's what's
that expression? Man plans and God
laughs. Something like that. So it just
you know the the the pandemic came
around and and we needed to do a lot of
asset purchases in a big hurry and we
did. So far, no no 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.
>> Great. 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. Um are you concerned about the
time duration of the path from the high
inflation of 2022 back to target? It's
taken time. We're not there yet.
Is that a destination we'll reach or are
you concerned that the last mile will
prove very difficult?
>> So we will reach uh the FOMC is and will
continue to be committed to getting
inflation back to 2% on a sustained
basis. That's that's the place to start.
Um so I feel like we had we had pretty
much gotten there at the end of 2024
um against the uh predictions of almost
the entire economics profession. um when
we raised rates a lot and very quickly
in 2022
um 100% essentially of economists were
forecasting a recession. We didn't have
one actually. We had 23 and 24 were both
very strong years as the supply side
healed and as our our higher rates had
some effect on inflation. So it by by
2024 you had the economy growing at 2
and a.5% you had inflation in in the two
plus a few tenths on a 12-month basis by
the end of the year and um you had the
employment market you still had the
labor market at at essentially full
employment. So I would call that a soft
landing. We had it there. Then since
then we've we've had to face a much
smaller source of inflation which is
that the tariff inflation is vi 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 that's a much
smaller thing than than we saw during
the the pandemic inflation. and um you
know now and of course now we're facing
events in the Middle East which will
certainly affect uh gas prices and and
uh we're we feel like our policyy's in
in a good place for us to wait and see
how that turns out.
>> Great. So 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.
>> Um, sure. So, it's it's you start with
what you said. Um, you know, 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, we our our tool
doesn't have meaningful shorter term
effects on supply. So, uh so when you
have a supply shock, the the first
question is do you respond to it? And
the the classic question has been around
energy uh just in general. Not really
speaking about the current situation,
although I'll get to that, I guess. But
uh you know 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 of a tightening in monetary policy
take effect uh you know the the oil
price shock is probably long gone and
you're you you'reighing 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
have to carefully monitor inflation
expectations because you can have a
series of these supply shocks and that
can lead you know 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 that
inflation is now just a it's 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, you know, we've
been coming down close to 2% post
pandemic, but we've never actually, you
know, gotten right and stayed at 2%. So,
it's been a while. Um, uh, and we're
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 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 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, um, start with monetary policy.
You know, I think there's pretty broad
consensus in both political parties on
both sides of Capitol Hill. And our
oversight, by the way, is 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
uh things at all. We just need to do our
job and stick to our knitting.
Regulation is a little bit different
especially since DoddFrank where the
DoddFrank act created something called
the vice chair for supervision who has a
specific statutory assignment which is
to oversee all of supervision and also
set the agenda for regulation. So the
vice chair for supervision if if she
wants to propose a change in for example
the the Basel 3 Accords as implemented
in the United States she has to bring
that to the board of governors which is
the seven governors uh and vote for it
but she has full control over over
supervision. So as chair, you know, the
the whole the whole idea is is to be
non-political and not, you know, never
working for or against any political
party or individual or never even
considering things like that. So I I
think the way the law works is the chair
should allow the vice chair for
supervision to carry out the the the
role that Congress has assigned to that
person by statute. And that's what that
is. So you'll see and you know that 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 to without regard to
political and should be therefore a
person who can be reappointed by either
side. That's always been the case has
been you know Ben Bernani was
reappointed. I was reappointed. And I
think it's it's it's a good test of the
Fed's nonpartisanship that that your
appeal is really bipartisan. I think
that's that's a critical thing. So if
you're going to if I were to try to
impose my personal views on regulation
that that really wouldn't work. So I
think there's there's um I don't want to
say difference but there's we 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 DoddFrank 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 at 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 I wanted to have
your thoughts on whether we're in a
position of relative safety after all
the DoddFrank 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-financial instit
uh non-banking financial institutions.
We have the private credit market and a
very active debate about its health. We
have concerns about cyber security in
the AJ 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're putting
all the pieces in the right places? You
know after the global financial crisis
um we actually started a new division
called the division of financial
stability and their job is to be you
know sort of the the watchers of all
financial stability issues all the time.
So we don't we're not the old system was
a 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 uh after the
global financial crisis which happened
when you all were extremely young um we
uh with between DoddFrank and and the
Basel agreements we pretty dramatically
raised the amount of capital and
liquidity uh that that the largest firms
and and other banks banks h have and I
think that's been a good thing. I think
they're also much um sort of more
transparent and more aware of their
risks and that kind of thing. So I think
we've significantly hardened the system
against the kinds of things that happen
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 uh
large banks. Um but that's just one part
of the financial system. the the capital
markets. The US has by far the largest
capital market sector relative to the
banking sector. The other countries
still have a much bigger banking sector
relative to their capital markets. And
you know that's going to be less
wellregulated and that's that's a good
thing. You want it to be the place where
you know where you know 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 um we've done some hardening
of that but we shouldn't be trying to
regulate risk out of existence. Um 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. Um the real thing though is the
the econom I mean sorry the financial
sector is just always evolving rapidly
and I think you the vigilance is what
you need. You just need to always know
that there's another thing coming. Uh
and so and 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 financial
institution and that would be quite a
different thing. You know if people are
going to lose money in in in a certain
part of the economy we have a hugely
resilient uh econ financial system. Now
it's more let me say this. more about
resilience than it is about avoiding
crisis. One of our uh former people used
to say that we're in the levy building
business, not the hurricane prevention
business, right? So, um they're going to
be hurricanes and they're going to 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 uh financial system and and we
we do have that, but again, nobody
nobody nobody who's in that business
will ever will ever give you a green
light. They'll always say here these are
the risks and we got to monitor. You
mentioned private credit. So private
credit is something you're as you guys
are probably following. Um it's a
relatively small part of 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. or monitoring it for
looking for things that might lead to
greater contagion or greater losses or
connections to the banking system. And
you know, we're going to do that. You're
again, you're not going to hear people
say, "Oh, there's no problem here
because that's a jinx." Um, 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 on regrets, I I don't allow
myself the luxury of that. I I think
it's really important that that uh in my
job, I'm focused on the windshield and
not not the rear view mirror, and so I
don't I'm tempted to say regrets. I've
had a few,
but uh then again, not so many or
whatever the line is from that Frank
Sinatra song. So, uh, I just think you I
I'll have plenty of time to for that
after I after I'm out of this role, but,
uh, honestly, you just have to keep
looking at the next thing. You can't be
berating yourself for the mistakes that
you've made. You You're going to make
mistakes,
>> but then again, too few to mention.
>> Take it from an expert. Uh, I've made
plenty. But, um, I don't I don't focus
on regrets and things like that. You
know, my overall in terms of what I'm
proud of, I'm more than happy to talk
about that. Um,
>> let's go for it.
>> Yeah. Let's let's go deep there. Uh so
um I 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 to do
some of it. I saw these people around
Washington who were well-known public
servants like George Schultz and I would
think that that looks like a really
interesting thing to do. It's it's
different, you know, in the private
sector. It's I love my private se my
years in the private sector, but there
really is a feeling of what you're doing
is help hope help ideally help 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 at the Fed and
eight and a half of them as chair. I'm
I'll be I'll always be proud of that
>> and I'm very grateful to you for your
service to our country.
>> Thank you. So if you are willing to
share publicly some advice that you
would give to the next Fed chair, we'd
love to hear it.
>> So
one thing you will learn uh when you
when your children are grown up and uh
and they have their own children is uh
is uh never volunteer advice. Only give
advice when asked. So and I I would not
I will not uh I would only give advice
if asked and I would do it privately.
But I'll just say in general a couple
things about about the Fed. It is very
very important to stick to your knitting
and to stick to the things uh that were
actually assigned. And there's there's
always a temptation to want to move into
other areas. And I I think we you know
we have very powerful tools. They're
supposed to be for maximum employment
and price stability and financial
stability. There there's always a time
when an administration looks and says it
would be 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 we're not trying
to be again we're not trying to work
against any any politician or any any
administration but we have to be careful
to stick to what we're doing. The other
thing is I'll just note that you know
the Fed's not a perfect institution.
Don't don't look for perfection. uh what
we do is very challenging and highly
uncertain, but it's 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 and much easier to to
bring them down.
So though you were uncomfortable giving
unsolicited advice to your successor, um
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 what you would advise them. So
they're entering into an uncertain time,
an economy where new job formation um is
lower for many reasons. Um, in
particular, jobs that were plentiful a
couple of years ago for students coming
out of college are no longer so. And AI
sits as this remarkable technological
transformation that is both promising
and existentially threatening. So if
you're advising the 600 students that
sit here today, what would you suggest
they think about as they embark on both
academic and then ultimately
professional careers?
>> Let let me start by saying that I'm well
aware and my colleagues too are well
aware of the current situation um for
students coming out. It's a time of very
low job creation
um and also you have AI going on. You've
got the effects uh on job creation of
significant changes in immigration
policy which have brought down both
demand and supply of workers. The
unemployment rate is really low, but
that doesn't help you uh if you're
coming into that kind of market. So,
it's it's a time when um you're you're
the business I mean the there's a
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. and around technology
and AI. So you're it's yes it is a
challenging time but I'll say a couple
things. One just is that the US economy
compared to other major e open economies
in big market-based economies around the
world is just incredibly dynamic and
productive since World War II. US um
compared to other again large mature
economies our productivity has grown at
like twice the speed for example in
Europe and higher productivity is the
way you know uh compensation and
earnings can grow over time so it's an
incredibly flexible and dynamic economy
it reinvents itself technology it 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 um And the other
thing is my observation is that you know
these these large language models make
people much more productive. I feel like
it's making me more productive because I
can I can learn things really quickly.
Um you know and I talked to you know my
son and others who were out there in the
world and I think if you use it well
it's making you more productive. So, I
think you're you're in a situation where
you need to invest the time to really
master the use of these new technologies
and and uh that should stand you in
goodstead. I I but there's there's no
denying it's a 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 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 there'll be
wind at our back as we use these tools
over the next decade? But at some
horizon, let's say 40 years, there'll be
substitution rather than
complimentarity.
>> You know, it's it's so hard to say.
I mean a lot of people you talk to
business people are are talking about
you know the sort of the next few years
being big years for um AI to come in but
they're mostly talking about existing
you know middle market sorry middle
management back office jobs and things
like that I don't think they're they're
it shouldn't have those kinds of effects
on people who can use AI well and that
kind I don't know but so certainly the
next few years look like whatever the
effects are they'll will start to feel
them because major US companies and we
talked to a lot of of those people who
who run those companies and you know
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 if because
their competitors are doing it and they
they can 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 know, you
may stay in school a little bit and you
may do something that 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 tech world who said
the marginal benefit of a new employee
in this world is actually very high. Now
that's not that's not what you hear all
the time. So um I don't know I mean when
you know if you if you look back through
history uh to generalize tech this has
been going on for a couple hundred years
this you know 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 has wound up
raising productivity and raising living
standards as long as as long as the
society keeps producing people who can
who can who have the skills and
aptitudes to benefit from that
technology.
Um, so that will be the case here, but
you're right. There there can be a
period during which it's challenging and
and this may be one of those, but
nonetheless, I would just say it's out
there and it it's it's out there to be
done and I I would be medium and longer
term very optimistic about about this
economy compared to any other economy.
>> Terrific. Thank you so much. We're now
going to open it up to your questions.
So, um 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 um Oh, Jason, do you have a
question?
>> I think I have a question.
>> Fantastic. We're going to let Jason ask
the first question.
>> Um so, Chair 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? What 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. You know, we have the reserve
banks are in touch. They're in all 50
states, right? 12 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 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 stance is and we we look out the
window and we say, does it look like our
policy stance is 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. You know, 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. You know, they've been
doing this longer than any of us. Um, so
all of those things go into it. I
wouldn't say, you know, I mean, so a
good analogy is, uh, when I was in the
private equity business, we had really
good models of companies and my my big
boss said, "We we 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 we cannot model the US
economy with the kind of precision that
that we will never be able to probably.
It's like modeling the weather. You
can't predict it two months away. So,
but that's So, it's all of those things,
Jason.
>> Thank you.
>> Okay. So, David, why don't 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 studying
economics and government. Um, I'm really
interested in kind of the decision-
making in the in the Fed. How do you
work with situations where like the the
decision might be very tight and like
sometimes there's like expectations of
like the um interest rates increasing or
and it might be very tight in those very
tight decisions like how do you make end
up making the decision?
>> So remember I'm one of 12 voters uh so I
I there's a an FOMC cycle is about seven
weeks between meetings. We have eight of
them a year. So uh and I would say sort
of 3 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 if we're
doing anything in particular. We always
have like a special topic. So a lot of
work is going on. So I I 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. And I've got to 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 I kind of know how they'll
approach a problem. Um and uh that's
that's how it works. So it's a lot of
talking and listening and understanding.
Um I I think an underrated skill is in
um listening to people. listening is,
you know, if you if you listen to people
and you hear them and you can make their
argument and they they understand that
you're actually listening to them and
not just, you know, 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 or Ben Bernanki or Janet
were listening to me. And if that if
they could engage with the pro 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 though. I
mean it's it's a lot of committee
management. That's the big part of it is
to 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 you know they bring in
many cases they bring you know history
going back many years. For example, in
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.
>> Uh, good morning, Mr. Pal. Um, I wanted
to ask you a bit more about um private
credit markets and particularly rising
defaults among non-bank lenders like
Blue Al Capital. Um 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 as I
mentioned we're we're watching very
carefully. Of course you read you what
you can read in public. We're also
getting the backstory from the people
who run these uh organizations and from
all the banks supervisors well aware of
what the bank's exposure is and what is
not. And um 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. We what we see is uh uh you
know a correction going on and um and uh
certainly there'll be people losing
money and things like that, but it
doesn't it doesn't seem to have the the
makings of a of a broader systemic
event. But again, we never, you know, we
never give a a clean bill of health. We
just keep watching for that. We don't we
don't see those characteristics though
right now.
>> Okay, let's go to the balcony and
remember to share your name when you
begin your question. Great.
>> What's over here?
>> Um, hi, my name is Cody. Thank you so
much for being here, Mr. Powell. My
question is about whether international
relations has um impact on your
decision-m. 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 we're
always asking the question, as you'd
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 that's what we're always asking.
We do, you know, meet with, you know, in
Basil, 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 and frankly and 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 we're never
looking to um to get on the on the turf
of you know the national security people
or the or the you know the state
department or you know things like that.
We're not looking 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 let's 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.
>> Okay, 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.
Um, so last lecture we learned about
soft landings and about how it's
definitely much more ideal than hard
landings, but in the US history, we've
had far more hard landings than soft
landings. And we were just talking about
how it's really important that you are
monitoring expected inflation. Um, and I
think a lot of that just buil 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 like the rise of
populism and previous events, there
seems to be a lot of uh impact of like
political tensions between or or
cooperation between the Fed chair
position and the administration. And I
wanted to ask you, how do you still keep
the public's trust this way?
>> Um, by sticking to our jobs and doing
them well. Ultimately, we if we deliver
the maximum employment and price
stability or at at least are seen to be
doing everything we possibly can as we
meet various shocks and, you know,
multiple supply shocks in recent years,
the public keeps its faith in us. And if
you look, you know, we look at things
like longerterm inflation expectations
and you'll you'll see that they they've
remained pretty well anchored right
through all of this, you know. So if you
if you really think inflation is going
to be higher, you can make some money
betting against that. But people don't
do that. You know, the people who are
putting their money to work in the
financial markets, not to give too much
credit to that, but that's but that's
it. If we stick to our knitting and we
do our jobs, we stay out of politics,
stay out of stay out of the hot
political issues of the day and just do
your job and keep your head down. I
think, you know, I see this through the
my dealings with elected people. You
know, if they get the sense that you're
you're you're not there to deliver
talking points, you're there to listen
to them and 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 that's what we
need to do. And I think generally um I
think we are accepted in that spirit in
Washington and I think I think generally
around the country as well.
>> Jason
remember to tell us your name.
Thank you chairp for being here. My name
is Jake. Uh, 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 is your take
on the effect that a cut would have on
the flexibility of the Fed to maintain
well to remain well positioned to
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, um that's that's not something I'm
going to going to uh going to swing at
that pitch. Is that a Red Sox jersey, by
the way?
I called on him.
>> Yeah. Okay.
>> I know this must be Red Sox country.
>> So, we're going to go to the balcony
next.
>> Hi, my name is Aean Candle. 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 you're
least confident of?
>> Interesting question. Um
I can't I'm not going to give you a
particular individual thing uh at the
moment but I I will say that um I I I
would say this and I of course this is
self- serving to an extent but having
worked in the private economy for most
of my career I I don't have any
predisposition
to believe that models can really
capture it um because so much of it is
animal spirits as Kane's called it uh
and also it's just it's again I go back
to the weather will we ever be able to
predict the weather with any precision
three three months ahead other than the
seasons so the economy no one has been
able to really successfully predict the
economy so I I think the temptation is
always to um to place too much uh sort
of stock in uh you know 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 it's there's a
normal distribution and the tales 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. that the the
possibility for the economies at any
given time is so much so 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 finan 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
then along comes the pandemic inflation
and bang, you suddenly you have a
40-year high inflation. So it's hard to
keep your mind open to just how broad
the possibilities are.
>> Okay,
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. Um
so many economists that I've listened to
uh at least retroactively say that what
we really needed uh during the co
pandemic was around $3 trillion and the
government printed you know something
along $6 trillion more than that uh and
so inflation uh rose but that money is
still out there. So if rates come down
you know obviously you took initiative
and you raised them very significantly.
if rates get lowered again to let's say
two or so percent uh 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 uh
geopolitically uh do you think that's
going to uh push us back into an
inflationary spiral uh and then also I
was wondering uh for your next press
conference are you going to start it
with good afternoon or hello everyone
Let's talk about that later.
>> So um sorry the first question was um
the was the expansion the money supply.
>> Yeah. No. So I I think monetary
quantities are a very challenging way to
try to think about inflation and the
economy. There was a time when the
profession thought that you know
monetary quantities and inflation were
tightly linked. And of course it in an
abstract way or a simple model it makes
sense if you if you don't increase the
amount of goods and you double the
amount of money then the price has to go
up but that there has been relatively
little correlation and you know my story
of the pandemic inflation would not be
about monetary quantities mainly not I'm
not saying it might not have played a
role um it was more you did have a lot
of stimulus particularly in the United
States uh at the same time we were
looking at at at the possibility of
another great depression. We didn't know
whether there would ever be a a vaccine.
We didn't know what this was going to
be. How many millions of people was the
is the disease going to kill. So
literally for the first time probably
ever, we're looking at a you know little
alternative simulations that are a great
depression lasting many years. So we did
a lot of stimulus and then when the
global economy reopened after shutting
down, you had this burst of demand,
red-hot demand and constrained supply
still. So automobiles is a great
example. Everybody wanted a car because
they didn't want to take public
transportation and they'd all moved to
the suburbs and out of the city. So I
need a car and yet you couldn't make
cars because you couldn't get the
semiconductors. So you're you're looking
at a vertical supply curve. So a little
bit of demand drove prices up a lot. Um
then of course we took the view, my
colleagues and I did that vertical
supply curve works both ways. If if a
little bit a little bit of demand could
bring that price right down and also it
won't be vertical forever. It'll it'll
start you you'll get supply side
healing. You got those two things. It's
it was always both supply and demand for
me. And you got inflation coming down
very sharply in 23 and 24. We got close
to to to the end of your question. we
got pretty close to 2% in um by the end
of 24. Now we're dealing we were just
dealing with the you know the the effect
of tariffs which have largely fallen
here in the US and not abroad. Um
they've been less than expected because
the the other side the um others didn't
retaliate and also because what was
implemented was less than what had been
announced. Nonetheless, that's that was
the piece. We were we were at about 3%
inflation and somewhere between 0.5 and8
of that is from is from tariffs. So
we're getting we've been pretty close to
2% all this time. Now we have another
supply shock coming. You know, it's it's
one of those uh times where you get a
series of supply shocks. First the
pandemic, then the much smaller one from
tariffs, and then we're getting now an
energy shock. No one knows how big it
will be. We It's way too early to know.
As I mentioned, we do think our
policyy's in a good place for us to wait
and see.
>> Okay. So, one last question.
>> Go.
>> Hi, Mr. Pal. I'm Lola and I was
wondering at what point does the size of
the US's debt break the point of natural
systems repayment and if that's
something you're worried about now or
something you think our generation
should look out for.
Um I don't think we know uh what that
number is sort of ratio of debt to GDP
where it'll be a problem. There are of
course Japan being a great example there
are countries that have much higher um
levels of sovereign debt to their GDP
than we do. What's clear is that our uh
debt is growing much faster. The federal
government debt is growing substantially
faster than our economy and that ratio
is going up. And you know, in the long
run, that's kind of the definition of
unsustainable.
The level of the debt is not
unsustainable, but the path is not
sustainable. And so, it's it's really
important that we get back to we don't
have to pay the debt down. We just need
to to to have, you know, primary balance
and and begin to have the economy
actually growing better, growing uh more
quickly than the economy. It will it
will not end well if we don't do
something fairly soon. This is not the
Fed's job of course and I pretty much
limit myself to those high level points
which which essentially everyone
ignores.
So we're going to thank Chair Powell but
let me just describe the sequence of
events that now follows. So first we'll
thank Chair Powell. Then anyone who
wants to is welcome to join us on the
stage and we'll take a group photo with
Chair Powell. Um because of a tight
schedule, there can't be any selfies
because if there's one selfie, there's
600 selfies. So, you'll need to um make
do with one photograph of the entire
class with our esteemed guest.
>> All right, let's go ahead and uh
summarize uh what just uh what was just
said and then we'll do a little bit of
an update there on uh Iran as well. So,
we'll uh we'll get into all of this.
Jerome Powell just spoke at Harvard and
gave us a little bit of insight into his
thoughts on Iran, private credit,
interest rates, policies, and otherwise.
Uh before we talk about Powell though,
uh and after we talk about Powell, we'll
talk about Iran. But before we talk
about Powell, I'd like to add in what
Fed Myron said right before Powell
spoke. So right before Powell spoke, we
actually ended up hearing that Myron is
still of the mindset that we should be
lowering interest rates. And one of the
reasons for that uh is he says the labor
market as we've heard many times before
uh is almost certainly experiencing a
negative demand shock. We've had 3 years
of a cooling labor market and he says
there's nothing to indicate that that
cooling labor market has changed
directions. Now, that's been a hope,
right? In uh November, December, and
January, we were really hoping that some
of the jobs numbers we were getting
would imply that we're starting to see a
little bit of an inflection point up in
the labor market, actually getting back
to growth again. And then, of course,
unfortunately, we got those horrible
numbers in February, you know, 92,000
jobs, which were quite disappointing and
killed that narrative somewhat. Now,
drum pow threw cold water on the sort of
negative February report and suggested
it sort of balanced out with January.
Now, we have new jobs data coming out
later this week. So, I encourage you to
mark your calendar for some of the
things coming up this week. We're going
to have uh the uh challenger layoffs
report. We'll have the Jolts report and
we'll also have the BLS labor report.
Now, I'll give you just quickly the
catalyst uh dates and expectations for
those. Uh starting with uh let's see
here. We'll start with tomorrow. Let's
see. Today is the 30th. Wow, tomorrow is
already the end of the month, which is
incredible. Uh tomorrow, we'll get
Jolts. Last uh Jolts report from last
month. We had a pretty big miss. This is
the job openings and labor market
turnover survey for February. We're
expecting 6.895,000.
So, uh well, million. So, uh, 6.9ish
million is really what we're expecting.
Uh, then we're expecting on Wednesday,
that's April 1st already, April Fool's
Day, the ADP employment report that's
been holding pretty steady. Uh, prior
report was 63. This is expected to be
40, which aligns with last week's 10,000
report, which is pretty much a sign of
sort of a stabilizing in the labor
market. Certainly not any kind of boom.
Uh, then we'll get challenger job cuts
on Thursday and along with continuing
claims. And then on Friday, we're
looking for 60,000 in non-farm payrolls
and 75k in private payrolls for the BLS
jobs data on Friday. But this myin
comment was very interesting because he
really makes this strong argument to say
the Fed's interest rate policy is still
too high. It's not just uh you know the
labor market shrinking is not solely
because we've had an immigration
collapse. Uh if it were true that the
labor market were collapsing because of
an immigration collapse, then we should
be seeing a lot of job demand uh amongst
lower uh age or sort younger individuals
and uh lower education individuals which
typically compete with immigrants. But
Myron says we're not seeing that which
suggests this is still a negative labor
growth economy and we should really be
supporting rate cuts. Now, that's
Myron's take. He obviously thinks, you
know, we're going to get through some of
these, you know, inflationary impeties
that we're seeing now, not just tariffs,
but also, uh, Iran, but broadly, we
should be looking at lower rates to
support the labor market. Now, we'll see
when Wsh comes in, when and if he comes
in, you'll sort of have these uh uh
you'll have Myron go back to his his
prior job. But, uh it seems like Walsh
still wants to bring in that momentum
of, oh, we're going to lower rates. Now,
the bond market hasn't exactly been
sending us signals that the bond market
is ready for lower rates. I mean, we've
got now over a 40% chance of uh a rate
hike by the end of the year and some
pricing coming in for potentially
multiple rate hikes by the end of the
year, two to three rate hikes. If we
look at the bond market, we can see
today is a good day for the 10-year, but
you're still at 4.33, down 10 basis
points. But a lot of people are paying
attention to this. It's that spread
between the 2-year and the 10-year
Treasury, which on Friday actually
spiked up substantially. Now, we've
cooled off about a basis point today,
but we shot up from about42 to about
0.51 on Friday, and a lot of bond market
experts think this is because markets
are finally starting to price in weaker
growth over the long term. as now Iran's
uh the war in Iran enters a second
month. This isn't great. Uh one thing
that Dr. Powell certainly broke uh uh
broke down, we'll talk more about what
Powell just said, uh is he talked about
inflation break evens, which he
regularly does. And there are two forms
of inflation break evens that you should
really be paying attention to. There is
the 5-year break even inflation, which
is essentially, hey, what do we think
inflation is going to be 5 years from
over the next 5 years on average? That's
currently sitting at about 2.6%. And you
can see it's really it hasn't broken out
to levels like what we saw in early 2022
when we started really raising interest
rates because we had 9% inflation. So
we're kind of more in line with the
inflation that we saw around liberation
day uh or you know what we saw in mid24
or even during the banking crisis of
2023 when people thought the Federal
Reserve was going to print money. So
this level really hasn't unanchored.
Powell is right and he reiterates this
as a way to say, hey, you know, there's
there's really no urgency here uh to to
raise rates because that 5-year break
even isn't moving up. The problem is
there is another chart and it's called
the 5-year forward break even, which
does express uncertainty and urgency,
but maybe not in the direction that you
expect. I'm going to explain the 5-year
forward and how that's different from
the 5-year break even in just a moment
because there's a really important
difference there. But I do want to
express a point where there is urgency
and that is we're doing this super
quiet. Haven't mentioned it much at all.
Uh coupon expiration tomorrow, March
31st, just for the end of the month. Uh
we've got uh a lot of cool things coming
and so we're we're trying to get our
prices uh to a higher level. So, we'll
have another price increase before some
of these uh new features come out uh
probably in April or May, which we're
very excited about. But in the meantime,
you can get every trade alert, all nine
courses, every private live stream and
alpha report over at me.com. Go check
that out. Uh we got that coupon expiring
March 31st tomorrow night. Okay. So, now
let's understand the difference between
that 5-year forward and the 5-year break
even. So, the 5-year forward at 2.69.
This is relatively stable, right? The
five-year forward. So, this is the
5-year break even. The five-year forward
says, "Hey, what do we think inflation
is going to be over the next five years,
five years from now?" So, you're
basically talking about if this chart
you're looking at right here is year 0
to year five, basically the end of year
four, right? That would be five years.
That's your 5year break even. And then
the next chart is essentially 5 to 10.
That's what you're looking at. If the 5
to 10 chart is skyrocketing, it's an
inflation concern. But if the 5-year
forward is plummeting, it's a growth
concern. And take a look at what it's
doing. It's plummeting. This is the
lowest level on the 5-year forward break
even inflation rate that we have seen
since the recession scare of liberation
day. And uh Jerome Powell is astutely
pointing these inflation expectations
out. He doesn't specifically talk about
these two charts, but we we know based
on his prior conversations that these
are two that he definitely considers. Uh
and to me, these actually align more
with what Mr. Myin is saying, which is
hey, we are now not worried so much
about inflation uh you know getting
unleashed. We are much more worried
about a growth shock to the economy
because of the compression that we end
up getting from higher fuel prices which
could lead people not to want to fly.
When people fly, what do they do? They
spend money. They spend money on $6
water bottles at the airport. They spend
money going out at all the restaurants
or stores or whatever where where they
travel because they're not at home where
things are cheaper, right? This is
called demand destruction. Uh you have
people not wanting to pay fuel search
charges for cruises. People don't want
to go on road trips. People just decide
to stay home and they cancel trips.
That's just one form of demand
destruction.
That is when growth concerns get priced
in. And we've just on Friday started to
see those growth concerns finally start
getting priced into the market a little
bit by seeing that spike in the 210. So,
I highly encourage if you're watching
for bond market signals, watch the
spread between the 210. We've certainly
come down from some of those shock
levels we had before the war around 72.
But once this level rises to about 1.25,
you're pretty much in the thick of a
recession. So, you really want to stay
away from this rising. And it's a great,
I think, leading indicator of sort of
what's coming based on the direction
that we're heading in. Now uh drum
Powell also mentioned that uh over the
long term we you know don't really or
haven't seen inflation or financial
stability risks from money printing from
QE. You know, I think people would argue
that is not true that you could
definitely print your way to inflation
and we saw that during co and then of
course one of the reasons he argues that
we really haven't seen much much
inflation uh from printing money is
because he's referring to the Bernanki
era where between 28 uh 2008 after the
great financial crisis all the way to
COVID we were able to print money and
inflation was running below trend. But
the reality is it's probably because our
economy is actually deflating thanks to
technological innovation. And because of
the money printing, we are creating just
enough inflation to get relatively close
to 2%. So if it weren't for money
printing, we'd actually be in a
deflationary regime, which makes sense.
We used to spend $2,000 for a 42-in Sony
Bravia TV, and now you can get, you
know, a Roku 65 in TV for like $379 at
Target or Walmart. It's it's crazy that
that is deflation which is great for the
consumer. That's mostly driven by
technology but also in part because of
the changed uh monetization dynamics in
in uh television thanks to the connected
TV and otherwise but totally different
topic. So uh you know Drum Powell really
applauds the soft landing that he
achieved by 2024. He says the economy
grew at 2 and a.5% and inflation was
slightly above 2% but pretty dang close
to 2%. He says the labor market was at
full employment then and we had it. We
had our soft landing. We did it. So he
really today sort of declared victory
on, hey guys, I got the soft landing.
This was a little bit sort of like
almost like an exit interview about
wanting to sort of brag about the soft
landing that he got. Then he says, you
know, then then we've been dealing with
supply or shocks after shocks,
inflationary shocks after shocks. Uh,
you know, now not only the tariff
inflation, which we think of as one time
but sort of coming in many different
pieces, so it looks really blurry and
messy, but then of course the Middle
East, which on Iran and what's going on
in the Middle East, Jerome Powell is
really blunt here. He says, "We don't
know what to do because we don't know
the effects yet of this war." Now,
remember, we've just moved on to the
second month of this war. Donald Trump
says he's going to destroy and
completely obliterate Iran's uh electric
generating plants, oil wells, and
frankly, Car Island if the strait isn't
immediately reopened, which of course is
the opposite of what Treasury Secretary
Besson says, who says the strait is not
economically important to us. I kind of
can't wait for this war to end and then
maybe we could all go on a uh straight
of Hormuz booze cruise.
Sorry, we made that up this morning.
Thought it was a good one. But anyway,
um you know, Donald Trump says we're in
serious discussions with a new and more
reasonable regime and great progress has
been made. Of course, he's unwilling to
declare which of his 15 points have
actually had any progress. At the same
time, the Wall Street Journal is also
reporting that insiders in the White
House are essentially preparing Donald
Trump for to be able to order a ground
invasion into Iran with special
operations linked uh likely for weeks to
extracting quote nearly 1,000 pounds of
uranium from Iran. Now this is uh the
sort of freedom unit measure of the same
460 kg of roughly 60% highlyenriched
uranium which is expected to be enough
for about 11 to 12 nuclear weapons.
This of course could leave US forces in
Iran for days, weeks or potentially much
longer. At the same time, things are
certainly not deescalating with Israel
as Israel is expanding its buffer zone
into Lebanon uh even more so than
previously due to attacks by Hezbollah.
Israel seems to be escalating uh in in
their push uh against uh extremism which
unfortunately
essentially leads to a broadening of
this conflict and more death. Lebanon is
the second uh largest recipient of
deaths that compared to Iran. Obviously,
Iran takes the cake for being the number
one recipient of dying, which is very
sad. Uh and then of course that's
followed by Lebanon, mostly because of
Israel's incursion into Lebanon, which
of course is in reaction to uh Hezbollah
terrorists who live amongst the Lebanese
uh launch resuming their missile strikes
against Israel. Now, it doesn't help
that the Houthies down uh south in Yemen
are now announcing that they are joining
the war. There are now, of course,
concerns that this supply shock and
inflationary shock that Jerome Powell is
worried about himself uh is going to
expand even more because now potentially
not only do we have to worry about uh
the straight of Hormuz, but we
potentially have to worry about the Red
Sea again. Here is uh the Persian Gulf
and the Gulf of Oman. This is the
straight of Hormuz. Saudi Arabia has
been pumping through their East West
pipeline a lot of oil uh over to the Red
Sea. Approximately 5 million barrels a
day now being brought over to the Red
Sea, suggesting Saudi Arabia might
actually be capable of expanding their
output of oil to about 45% of what it
was before the Straight of Hormuz was
sealed.
Now, if Saudi Arabia loses access uh to
shipping through the Red Sea because we
end up getting uh this choke point over
here, Bob Alman, I always screw it up,
but anyway, the the little passageway
over here, if this ends up getting uh
attacked or ships get attacked over here
as ships leave the Red Sea, go through
uh you know, this little passage here
and then get into the Gulf again uh and
then out to sea. If the Houthies here
strike shipping lanes, then we could see
some of the same damage that we saw in
uh 2023
and 4 to Red Sea uh shipping, which not
only chokes oil again, but also now
substantially more supplies uh which are
important components of industrials
throughout the entire world. So both of
these are unidal and the Houthis in
Yemen have declared that they are
joining the war. We think it's just a
matter of time for them to start
launching attacks. Mind you that the
most of what keeps these straits and
passageways sealed is really the fear of
uh your ship getting sunk. Uh just
because these ships are very difficult
to insure. Some of them operate without
insurance. Uh the cargo is just not
valuable enough for the shipper to to
justify losing uh their entire ship or
worse lawsuits from uh the crew. uh Cruz
family potentially it all turns into a
giant mess. So you know on one hand
while there's optimism including from
Jerome Powell about the medium to longer
term there are real reasons to be
concerned about the short term and this
is where Powell talks about tail risks.
He says anytime there's a tail risk so
normal distribution right bell curve
anytime you have a which let me just
pull up a normal distribution here
normal distribution so you can see it a
little better. I always feel like when
people hear tail risk and they're not
into like stats, they're just not really
going to understand it. Uh what a tail
is, you know, millennials have a
different definition for tail than than
staticians or other generations. But
anyway, uh this is a normal distribution
here, right? And then you would have a
one standard deviation in each
direction, two standard deviations each
direction. Okay, you get the idea. Your
tail risk is really what's on the left
side or the right side. So this would be
your uh in the case of uh growth for the
stock market uh a right risk right tail
risk would be an upside risk upside
hedging you know an explosion to the
upside and bullishness and then of
course the left uh tail would be your
downside risk. Drum Powell says uh
however fat or or risky right the the
greater the risk the fatter the tail
right so let's assume that this right
here is about a 5% risk right here if
you fatten the tail uh then maybe it's a
20% risk right whatever drone Powell
made this interesting quote he says
however fat you think the tails are they
are in reality fatter which actually
implies that the market doesn't really
have this much of a normal distribution
it probably means it has more of a flat
distribution, right? Uh to indicate that
hey, the upside could be greater and the
downside could be greater. Obviously, um
the Christine Lagod of the ECB is uh
quite bearish. She uh she thinks that
the the energy shock that is coming is
devastating and recessionary and and
she's quite worried about the impacts of
this economy. So, she certainly has a
very very high uh left tail risk over
here. One thing that Powell though says
that isn't too risky, which is
interesting, is uh he actually says
private credit uh is uh is is really not
showing any kind of sign of uh
contagion. He does say that we're in a
correction right now, but it's it's not
systemic. One thing that I actually
mentioned to course members, which
remember you can always be a part of
that over at me.com, but one thing that
I mentioned to course members in our
latest alpha report was that private
credit does appear to be stabilizing.
And one of the charts that evidences
this is actually right here. Uh so this
is a a chart that was normalized uh at
the point of the war basically February
27th. So assume that you know these bond
prices are really you know 70 60 cents
on the dollar or whatever. But then what
they did is they took that number and
they normalized it at 100. So even
though it says 100 that probably still
represents minus 30 or 40% because of
the fall that's happened right now. Now,
anyway, since then, uh since February
27th, over the last month, uh private
credit has actually indicated uh less
stress uh than than the stress that we
were seeing previously, which is a
bullish sign that maybe there are
actually banks buying the dip on private
credit and private credit is
stabilizing, which economically is
great. You know, if jobs can stabilize
and private credit can stabilize,
fantastic. Then Jerome Powell is 100%
right to be optimistic on the medium to
longer term. You know, he thinks that
artificial intelligence and the
productivity generated by AI will create
plenty of opportunities. I mean, gosh, I
mean, I think we've, you know, we've
we've hired so many people because of
artificial intelligence because we're
we're developing so much software at my
startup, both for stocks and real
estate, which is so exciting. when we've
got our valuation AI coming uh after the
real estate AI beta that we've already
released. The next iteration is still on
schedule for Q2 here. And what's really
remarkable about it is, you know, we've
hired more because of AI. Uh you know,
even though we let some people go and
sort of the GNA rules, we've hired more
software developers like substantially.
It's incredible what we're able to do.
So I actually agree with Jerome Powell
that you could be optimistic on an
economy creating new opportunities and
and plenty of opportunities, which is uh
really exciting. Uh as far as job
creation though, he admits, you know,
we're in an environment of low job
creation and uh this obviously comes at
the same time as what we're seeing in
Iran being a big poopy dupy. Goldman
Sachs thinks that uh this is still going
to be a uh 1 to two month issue and in
that case they they don't actually think
now is the best time to be shorting
anymore, which also seems somewhat
bullish. They kind of sort of imply that
maybe some of the worst might already be
over. Uh but in part they hedge this by
saying that the market is still pricing
this as an oil price spike not a
longerterm issue. Uh one way that we see
this measured is people will stack up
the 10-year Treasury yield skyrocketing
but then oil skyrocketing even higher.
And the argument is that the longer oil
prices stay up the longer the 10ear
should go up. So one of two things
historically needs to happen. uh
historically we either see gold price or
oil prices plummet or the 10-year goes
up even more. Obviously the 10-year
going up even more would
increase risk in private credit uh be a
negative weight on the stock market and
create other problems which aren't
ideal. Uh then if um you know
alternatively if if oil collapses which
would be the best case scenario on some
form of maybe some negotiated peace
talks or whatever uh then uh then
markets will be right. The stock market
will likely rally rapidly and oil can
hopefully settle back down at $80 a
barrel higher than where it was because
of some of the permanent damage that's
occurred. But uh you know that's that's
better than where we sit today as we
were approaching $120 per barrel this
morning. Not great. Now, in fairness,
some of this has cooled again a little
bit. We're back down to right now about
112 from about the 115 where we were
this morning. Now RBC unfortunately
indicates that there's really no easy
way out of this conflict because if
Donald Trump declares victory too soon
without extracting that uranium uh
Donald Trump may lose whatever
credibility the United States has left
and it basically gives this de facto
control of the straight of Hermuz to
Iran which would be a worse loss than
had you just not invaded in the first
place. Uh again, all eyes also though
not just on Iran and negotiations, but
also the Houthis when they became
involved in a conflict in 2023 with the
Red Sea. They ended up firing 150
attacks against ships in the Red Sea,
the Arabian Sea, and the Gulf of Aiden.
All this is problematic because they're
just now entering the war again. And if
they have any capacity like they did
then, we we expect Red Sea disruptions
to lead to more inflationary impetities,
not fewer. Now, we'll see where all this
goes. Uh obviously, the stock market
today is uh you know, somewhat neutral.
You're getting a little bit of a deadcat
bounce off of uh the collapse that we
saw last week. Uh last week was pretty
much a red day straight through and
through or red, you know, every day was
was essentially a red day. A lot of
people looking for opportunities to buy
the dip though. Uh as uh as Bloomberg is
citing, a lot of people on Robin Hood at
least are not buying the dip. They're
actually uh waiting, which then makes
you wonder, is it time to inverse the
inverse? Who knows? But uh as as we've
been calling since last week uh VCX uh
this is uh an absolute crap show of a
lowflat uh NAV uh play here. Uh and uh
it has been collapsing as expected. I
think it'll go all the way down to $20,
but um honestly it might even slingshot
past that. So anyway, this still has
some work to do. Yet another 37% day
down. Uh remember if you want to hear
all of my takes and calls on the market,
make sure you're part of the membership
over at mekevin.com. Otherwise, there's
uh your summary on what Powell said
today and what's going on in Iran.
Donald Trump at the same time escalating
and trying to deescalate, which he likes
to do Monday morning. So anyway, uh
there you have it. Good luck out there
and uh well, all right. Wish you the
best.