Jerome Powell Speaks LIVE at Harvard

[00:00] rates. How does the disagreement on the

[00:02] FOMC make your job harder as you

[00:06] describe?

[00:07] >> All right, first policy question here.

[00:09] So, let's see how it goes.

[00:10] >> I don't think of it as making my job

[00:12] harder. Uh I I think it's and I've found

[00:14] throughout my career that um when you

[00:18] have a really difficult problem, it

[00:19] helps to hear from all sides. And in a

[00:22] way I, for example, when I was a private

[00:24] equity investor and I was looking at at

[00:27] at at supporting a transaction that I

[00:30] wanted to do, I really wanted to hear

[00:32] from the smartest people, tell me why

[00:35] it's a bad deal. Tell me now before we

[00:37] do it. And I I just think you you you

[00:40] don't really know how much you believe

[00:42] in something until you've had somebody

[00:43] literally try to take it apart. So I I

[00:46] welcome that at the FOMC and at the Fed

[00:48] generally. Um, and I think it helps us

[00:51] make better decisions. The Fed has had a

[00:54] tradition of of of governors not

[00:57] dissenting, but that's really not

[00:59] typical of other major central banks

[01:01] where there's more dissenting or they're

[01:03] different. Depends on the central bank.

[01:04] And I to me what matters is is it ascent

[01:08] thoughtful? Is it helpful? Does it help?

[01:10] Does it express a point of view? Can can

[01:12] you stand behind it and say, "Yeah,

[01:14] that's that's very thoughtful." And that

[01:16] that kind of a thing is not is not bad

[01:18] and it doesn't hurt with communications.

[01:20] You know I I think a situation like the

[01:22] present situation where you know there's

[01:25] there's sort of downside risk to the

[01:26] labor market which suggests keep rates

[01:28] low but there's upside risk to inflation

[01:30] which suggests maybe don't keep rates

[01:31] low. You've got tension between the two

[01:33] objectives. And I think to try to expect

[01:36] unonymity at a time like that where it's

[01:38] really quite historically challenging,

[01:40] it would almost be misleading to be

[01:43] really confident in in which way that

[01:45] should go. In fact, it's been said that

[01:47] uh uh confidence is what you feel before

[01:50] you really understand the problem.

[01:53] >> Okay, let's turn to the Fed's balance

[01:55] sheet. In 2008, 2009, that great

[02:00] financial crisis, there was a massive

[02:03] expansion in the Fed's balance sheet.

[02:06] And then again in 2020, under your

[02:08] leadership, there was a second vast

[02:11] expansion in the Fed's balance sheet to

[02:13] address these two economic and financial

[02:16] crises. The balance sheet has since come

[02:18] down a bit, but it still sits at over $6

[02:21] trillion. So I'd like to hear your views

[02:24] on how efficacious this vast bond buying

[02:29] program has been both in the 2008 and

[02:32] then again in the 2020 episode and also

[02:35] hear your reaction to the critics who

[02:37] say that the Fed has become too big a

[02:39] player in the bond market. The Fed has

[02:41] become too influential. There's been a

[02:43] muddying of as according to the critics

[02:46] of monetary policy and fiscal policy. Do

[02:49] they have a point or are they wrong?

[02:52] So I think the place to start with that

[02:54] is to the the the problem that people

[02:57] were struggling with from about 2008 to

[03:00] 2022 let's say in central banking

[03:03] everywhere in the world with is once

[03:05] you've cut interest rates to zero. Do

[03:07] you have anything else you can do? Let's

[03:08] say you cut interest rates to zero and

[03:10] the economy is still clearly not not

[03:13] flourishing and it wants more it wants

[03:16] more support. So do you just say well

[03:18] we're done. We're we're out we're out of

[03:20] uh of ideas here. And there were two

[03:22] ideas that that that were followed in

[03:24] the global financial crisis. One of

[03:26] which was to buy assets, longerterm

[03:28] assets. And what you're doing there is

[03:30] you're buying longer term government

[03:32] guaranteed securities which would hold

[03:33] down longer term rates and that should

[03:36] stimulate the economy or also forward

[03:37] guidance which would tend to hold down

[03:40] forward rates as well or just rates

[03:41] generally. So we did those two things

[03:43] rather than do nothing. And I think in

[03:46] the first instance they were both both e

[03:48] efforts were successful at restoring

[03:50] market function and at restoring

[03:52] financial stability. At the beginning of

[03:54] the of the global financial crisis and

[03:56] the pandemic we had massive problems of

[03:58] market function. They were solved. I

[04:00] think the question getting to your

[04:02] question David of the macroeconomic

[04:05] effects is a much more uh much less

[04:08] certain question. And I don't think

[04:10] there is an accepted answer, but but I

[04:12] would just say there's a oceanic

[04:14] quantity of of research on this. And

[04:17] overall, it tends to find that that

[04:20] buying long-term assets does does lower

[04:23] interest rates and does provide some

[04:25] support for economic activity. Um, and I

[04:28] I guess I'd be in the camp of thinking

[04:29] that there's some something in that. Uh,

[04:32] but it's hard to quantify it. And I

[04:34] think you know in different different

[04:35] people have different views on how much

[04:37] those those effects could be. The other

[04:40] side of it is you know QE is thought by

[04:43] the critics to to risk all kinds of

[04:45] other things. So for example you could

[04:47] buy too much uh of the treasury market

[04:50] and it would stop functioning well. We

[04:52] have not seen that here. At the very

[04:54] beginning uh there was the thought that

[04:56] it would be inflationary. We have not

[04:58] seen that or that it would that it would

[05:00] threaten financial stability or even

[05:01] create inequality. So we haven't really

[05:04] seen the the downside risks

[05:06] >> to money printing.

[05:07] >> At the same time, I'll the last thing

[05:08] I'll say is I remember u before I took

[05:12] over as chair thinking I I'll I'll

[05:15] almost certainly never have to do

[05:17] quantitative easing. So what's what's

[05:19] that expression? Man plans and God

[05:22] laughs. Something like that. So it just

[05:25] you know the the the pandemic came

[05:27] around and and we needed to do a lot of

[05:29] asset purchases in a big hurry and we

[05:31] did. So far, no no no Treasury

[05:36] Department has ever said, "Stop doing

[05:38] that. You're supporting the economy too

[05:39] much." Maybe that'll happen someday, but

[05:41] hasn't happened yet.

[05:43] >> Great. So, let's talk about the dynamics

[05:46] of inflation since the spike in 2022.

[05:49] Inflation has been coming down since

[05:51] then, but it still hasn't reached its 2%

[05:54] target. Some have argued that that last

[05:57] mile is extremely difficult and to

[06:00] obtain that we will need a recession.

[06:03] Others have argued that you've gotten us

[06:05] very close and you'll get us the rest of

[06:07] the way. Um are you concerned about the

[06:11] time duration of the path from the high

[06:13] inflation of 2022 back to target? It's

[06:17] taken time. We're not there yet.

[06:20] Is that a destination we'll reach or are

[06:24] you concerned that the last mile will

[06:26] prove very difficult?

[06:27] >> So we will reach uh the FOMC is and will

[06:31] continue to be committed to getting

[06:32] inflation back to 2% on a sustained

[06:34] basis. That's that's the place to start.

[06:36] Um so I feel like we had we had pretty

[06:39] much gotten there at the end of 2024

[06:43] um against the uh predictions of almost

[06:47] the entire economics profession. um when

[06:50] we raised rates a lot and very quickly

[06:52] in 2022

[06:55] um 100% essentially of economists were

[06:58] forecasting a recession. We didn't have

[07:00] one actually. We had 23 and 24 were both

[07:03] very strong years as the supply side

[07:05] healed and as our our higher rates had

[07:09] some effect on inflation. So it by by

[07:13] 2024 you had the economy growing at 2

[07:16] and a.5% you had inflation in in the two

[07:19] plus a few tenths on a 12-month basis by

[07:22] the end of the year and um you had the

[07:25] employment market you still had the

[07:26] labor market at at essentially full

[07:28] employment. So I would call that a soft

[07:29] landing. We had it there. Then since

[07:32] then we've we've had to face a much

[07:34] smaller source of inflation which is

[07:36] that the tariff inflation is vi is

[07:38] visible and we think it's really just a

[07:40] one-time price increase. That's been our

[07:42] thinking since the beginning. Right now

[07:44] we think it's adding somewhere between a

[07:46] half and a full percentage point to

[07:47] inflation. But that's that's a much

[07:49] smaller thing than than we saw during

[07:51] the the pandemic inflation. and um you

[07:54] know now and of course now we're facing

[07:56] events in the Middle East which will

[07:58] certainly affect uh gas prices and and

[08:01] uh we're we feel like our policyy's in

[08:03] in a good place for us to wait and see

[08:04] how that turns out.

[08:06] >> Great. So let me turn to the current

[08:08] crisis in the Middle East and the effect

[08:10] on energy prices. Indeed, this classroom

[08:12] is familiar with that question from the

[08:14] last problem set where we asked, how

[08:17] would you advise the Fed to respond to

[08:20] the rising price of oil? And we teach

[08:23] that when there's a demand shock, it's a

[08:25] pretty natural set of recommendations

[08:27] that emerge for the Fed. But when

[08:28] there's a supply shock like this energy

[08:31] price shock, there's trade-offs that the

[08:33] Fed has to juggle. How do you make those

[08:35] trade-offs in general? And how do you

[08:37] make those trade-offs in this particular

[08:38] instance? And can you help everyone with

[08:40] their piece?

[08:40] >> Well, maybe they should tell me.

[08:44] >> Um, sure. So, it's it's you start with

[08:46] what you said. Um, you know, our tools

[08:48] work on demand. higher rates will tend

[08:51] to moderate demand. Lower rates will

[08:52] tend to stimulate demand. And when you

[08:54] have a supply shock, we our our tool

[08:57] doesn't have meaningful shorter term

[08:59] effects on supply. So, uh so when you

[09:03] have a supply shock, the the first

[09:04] question is do you respond to it? And

[09:06] the the classic question has been around

[09:08] energy uh just in general. Not really

[09:10] speaking about the current situation,

[09:12] although I'll get to that, I guess. But

[09:14] uh you know energy shocks have tended to

[09:16] come and go pretty quickly. Monetary

[09:19] policy works with long and variable lags

[09:21] famously. And so by the time the effects

[09:24] of of a tightening in monetary policy

[09:27] take effect uh you know the the oil

[09:30] price shock is probably long gone and

[09:32] you're you you'reighing on the economy

[09:34] at a time when it's not appropriate. So

[09:36] the tendency is to look through any kind

[09:39] of a supply shock. But a critical

[09:41] essential aspect of that is you have to

[09:44] have to carefully monitor inflation

[09:46] expectations because you can have a

[09:48] series of these supply shocks and that

[09:50] can lead you know the public generally

[09:53] businesses price setters households lead

[09:56] them to start expecting higher inflation

[09:58] over time. Why wouldn't they? At the end

[10:00] of a certain number of years that

[10:01] inflation is now just a it's just higher

[10:03] and that can happen. So you monitor that

[10:05] very very carefully. Also in the current

[10:08] situation, you have to be mindful of the

[10:10] whole broader context. And the broader

[10:12] context is we're still, you know, we've

[10:15] been coming down close to 2% post

[10:17] pandemic, but we've never actually, you

[10:20] know, gotten right and stayed at 2%. So,

[10:23] it's been a while. Um, uh, and we're

[10:26] we're very mindful of that fact.

[10:27] inflation expectations do appear to be

[10:29] well anchored beyond the short term, but

[10:32] nonetheless, it's something as we we

[10:33] will eventually maybe face the question

[10:36] of what to do here. We're not really

[10:38] facing it yet because we don't know what

[10:39] the what the economic effects will be,

[10:41] but we'll certainly be mindful of that

[10:43] broader context when we make that

[10:44] decision.

[10:45] >> Great.

[10:47] You've been a powerful and vigorous

[10:49] defender of the independence of the Fed

[10:52] with respect to monetary policy.

[10:56] You've also been collaborative with

[10:58] administrations with respect to

[11:00] financial regulation. So under President

[11:03] Biden, you worked for or you

[11:06] collaborated in a program of increasing

[11:08] regulation. Under President Trump,

[11:10] you've worked together to reduce

[11:12] regulation. So on the one hand, we've

[11:14] got an independent Fed with respect to

[11:17] monetary policy and on the other hand,

[11:19] we have a collaborative Fed with respect

[11:21] to financial regulation. I don't think

[11:24] there's a tension there, but can you

[11:25] explain to us the two different

[11:26] approaches and how you understand them?

[11:29] >> Yes. So, um, start with monetary policy.

[11:32] You know, I think there's pretty broad

[11:34] consensus in both political parties on

[11:36] both sides of Capitol Hill. And our

[11:38] oversight, by the way, is is Congress,

[11:40] not the administration, but pretty broad

[11:43] agreement that on monetary policy, the

[11:45] Fed needs to be fully politically

[11:48] independent, not reactive to political

[11:50] uh things at all. We just need to do our

[11:53] job and stick to our knitting.

[11:54] Regulation is a little bit different

[11:56] especially since DoddFrank where the

[11:58] DoddFrank act created something called

[12:00] the vice chair for supervision who has a

[12:02] specific statutory assignment which is

[12:05] to oversee all of supervision and also

[12:08] set the agenda for regulation. So the

[12:10] vice chair for supervision if if she

[12:13] wants to propose a change in for example

[12:16] the the Basel 3 Accords as implemented

[12:19] in the United States she has to bring

[12:20] that to the board of governors which is

[12:22] the seven governors uh and vote for it

[12:24] but she has full control over over

[12:27] supervision. So as chair, you know, the

[12:30] the whole the whole idea is is to be

[12:33] non-political and not, you know, never

[12:36] working for or against any political

[12:38] party or individual or never even

[12:41] considering things like that. So I I

[12:43] think the way the law works is the chair

[12:47] should allow the vice chair for

[12:49] supervision to carry out the the the

[12:51] role that Congress has assigned to that

[12:53] person by statute. And that's what that

[12:55] is. So you'll see and you know that the

[12:57] two parties really have a big difference

[12:59] on regulation now. So I like to think

[13:02] that the chair should always be someone

[13:04] who is working to without regard to

[13:07] political and should be therefore a

[13:10] person who can be reappointed by either

[13:11] side. That's always been the case has

[13:13] been you know Ben Bernani was

[13:15] reappointed. I was reappointed. And I

[13:18] think it's it's it's a good test of the

[13:19] Fed's nonpartisanship that that your

[13:21] appeal is really bipartisan. I think

[13:23] that's that's a critical thing. So if

[13:26] you're going to if I were to try to

[13:27] impose my personal views on regulation

[13:30] that that really wouldn't work. So I

[13:31] think there's there's um I don't want to

[13:33] say difference but there's we any chair

[13:36] needs to let the vice chair for

[13:37] supervision take the lead on those

[13:39] issues and then I'm another voter is

[13:41] what I am.

[13:42] >> Great. So let's talk about DoddFrank and

[13:46] the reforms to the financial system.

[13:49] 2008 was a terrible crisis and there

[13:52] were many efforts made in the years

[13:54] afterwards to tighten the bolts and

[13:57] create a safer financial system less

[13:59] prone to these kinds of cataclysmic

[14:01] events. But today we look out at the

[14:04] world and we see lots of threats both

[14:06] inside the formal banking system that

[14:08] you regulate and in the non-bank

[14:10] financial system which is lightly or not

[14:13] at all regulated. So I I wanted to have

[14:16] your thoughts on whether we're in a

[14:19] position of relative safety after all

[14:22] the DoddFrank and other reforms

[14:25] following the 2008 financial crisis or

[14:28] whether the new threats actually have

[14:30] brought us to another period of concern.

[14:33] And just to illustrate with a couple

[14:35] examples inside the banking system,

[14:38] there's commercial real estate that has

[14:40] fallen in value that affects both the

[14:42] banking system and non-financial instit

[14:45] uh non-banking financial institutions.

[14:47] We have the private credit market and a

[14:50] very active debate about its health. We

[14:53] have concerns about cyber security in

[14:55] the AJ of AI. Do you worry that another

[14:59] financial crisis looms out there? Of

[15:01] course there's always a possibility but

[15:03] is it something that's a issue of high

[15:06] alert or do you feel that we're putting

[15:08] all the pieces in the right places? You

[15:11] know after the global financial crisis

[15:14] um we actually started a new division

[15:16] called the division of financial

[15:17] stability and their job is to be you

[15:20] know sort of the the watchers of all

[15:22] financial stability issues all the time.

[15:24] So we don't we're not the old system was

[15:26] a crisis arrives we get the team

[15:27] together and we battle the crisis. This

[15:29] is much more of an ongoing monitoring

[15:31] thing with a framework that can be

[15:33] checked. So I would say uh after the

[15:36] global financial crisis which happened

[15:39] when you all were extremely young um we

[15:42] uh with between DoddFrank and and the

[15:44] Basel agreements we pretty dramatically

[15:47] raised the amount of capital and

[15:49] liquidity uh that that the largest firms

[15:52] and and other banks banks h have and I

[15:55] think that's been a good thing. I think

[15:56] they're also much um sort of more

[15:59] transparent and more aware of their

[16:00] risks and that kind of thing. So I think

[16:03] we've significantly hardened the system

[16:05] against the kinds of things that happen

[16:07] in the global financial crisis where you

[16:09] had a lot of credit losses really around

[16:12] mortgages and that's so that kind of a

[16:15] situation we've got well capitalized uh

[16:18] large banks. Um but that's just one part

[16:21] of the financial system. the the capital

[16:23] markets. The US has by far the largest

[16:26] capital market sector relative to the

[16:28] banking sector. The other countries

[16:30] still have a much bigger banking sector

[16:32] relative to their capital markets. And

[16:34] you know that's going to be less

[16:35] wellregulated and that's that's a good

[16:37] thing. You want it to be the place where

[16:39] you know where you know where biotech

[16:41] companies can do IPOs and they may or

[16:44] may not succeed but they can get capital

[16:46] out of that market and you know you're

[16:47] taking a lot of risk but great things

[16:49] happen because people put money into

[16:51] biotech. So um we've done some hardening

[16:54] of that but we shouldn't be trying to

[16:56] regulate risk out of existence. Um but

[16:58] so I think and we did fix some of the

[17:00] things that broke in the global

[17:02] financial crisis and the pandemic we did

[17:03] address. Um the real thing though is the

[17:07] the econom I mean sorry the financial

[17:09] sector is just always evolving rapidly

[17:12] and I think you the vigilance is what

[17:16] you need. You just need to always know

[17:17] that there's another thing coming. Uh

[17:20] and so and I think in particular we've

[17:22] had all kinds of financial crises but

[17:25] we've never really had a successful

[17:27] cyber attack on a large financial

[17:31] utility let's say or financial

[17:32] institution and that would be quite a

[17:35] different thing. You know if people are

[17:37] going to lose money in in in a certain

[17:39] part of the economy we have a hugely

[17:41] resilient uh econ financial system. Now

[17:44] it's more let me say this. more about

[17:46] resilience than it is about avoiding

[17:48] crisis. One of our uh former people used

[17:52] to say that we're in the levy building

[17:54] business, not the hurricane prevention

[17:56] business, right? So, um they're going to

[17:59] be hurricanes and they're going to come

[18:00] and you just have to assume you won't

[18:01] know what direction or what the nature

[18:03] of it will be. So, you want a highly

[18:04] resilient uh financial system and and we

[18:07] we do have that, but again, nobody

[18:10] nobody nobody who's in that business

[18:11] will ever will ever give you a green

[18:13] light. They'll always say here these are

[18:15] the risks and we got to monitor. You

[18:16] mentioned private credit. So private

[18:19] credit is something you're as you guys

[18:21] are probably following. Um it's a

[18:23] relatively small part of of a very large

[18:26] asset pool. We're watching it super

[18:28] carefully as everyone is. We're talking

[18:31] to the people in the industry and

[18:33] investors and everything. I think we

[18:35] understand it. or monitoring it for

[18:37] looking for things that might lead to

[18:39] greater contagion or greater losses or

[18:41] connections to the banking system. And

[18:43] you know, we're going to do that. You're

[18:45] again, you're not going to hear people

[18:46] say, "Oh, there's no problem here

[18:47] because that's a jinx." Um, but

[18:50] nonetheless, it's something that we're

[18:51] following very carefully.

[18:55] What is one of your biggest regrets in

[18:58] your time as Fed chair? And on the other

[19:01] hand, what is something that you're very

[19:03] proud of?

[19:05] you know, on on regrets, I I don't allow

[19:08] myself the luxury of that. I I think

[19:10] it's really important that that uh in my

[19:13] job, I'm focused on the windshield and

[19:16] not not the rear view mirror, and so I

[19:19] don't I'm tempted to say regrets. I've

[19:21] had a few,

[19:23] but uh then again, not so many or

[19:27] whatever the line is from that Frank

[19:28] Sinatra song. So, uh, I just think you I

[19:32] I'll have plenty of time to for that

[19:34] after I after I'm out of this role, but,

[19:36] uh, honestly, you just have to keep

[19:38] looking at the next thing. You can't be

[19:40] berating yourself for the mistakes that

[19:42] you've made. You You're going to make

[19:43] mistakes,

[19:44] >> but then again, too few to mention.

[19:46] >> Take it from an expert. Uh, I've made

[19:49] plenty. But, um, I don't I don't focus

[19:52] on regrets and things like that. You

[19:54] know, my overall in terms of what I'm

[19:55] proud of, I'm more than happy to talk

[19:57] about that. Um,

[19:58] >> let's go for it.

[19:59] >> Yeah. Let's let's go deep there. Uh so

[20:02] um I basically I'll just say it's an

[20:06] incredible honor to do public service as

[20:09] many of you will find out at some point

[20:11] in your life. I always wanted to to do

[20:14] some of it. I saw these people around

[20:15] Washington who were well-known public

[20:17] servants like George Schultz and I would

[20:19] think that that looks like a really

[20:21] interesting thing to do. It's it's

[20:22] different, you know, in the private

[20:23] sector. It's I love my private se my

[20:26] years in the private sector, but there

[20:27] really is a feeling of what you're doing

[20:29] is help hope help ideally help helping

[20:31] all Americans and that kind of thing.

[20:33] It's a great honor to serve the public

[20:35] and particularly in a job like this. So

[20:37] that is my the main thing I'm proud of

[20:39] is you know 14 years at the Fed and

[20:42] eight and a half of them as chair. I'm

[20:44] I'll be I'll always be proud of that

[20:45] >> and I'm very grateful to you for your

[20:47] service to our country.

[20:48] >> Thank you. So if you are willing to

[20:51] share publicly some advice that you

[20:53] would give to the next Fed chair, we'd

[20:55] love to hear it.

[20:56] >> So

[20:59] one thing you will learn uh when you

[21:01] when your children are grown up and uh

[21:03] and they have their own children is uh

[21:05] is uh never volunteer advice. Only give

[21:09] advice when asked. So and I I would not

[21:11] I will not uh I would only give advice

[21:14] if asked and I would do it privately.

[21:15] But I'll just say in general a couple

[21:17] things about about the Fed. It is very

[21:20] very important to stick to your knitting

[21:23] and to stick to the things uh that were

[21:26] actually assigned. And there's there's

[21:28] always a temptation to want to move into

[21:31] other areas. And I I think we you know

[21:33] we have very powerful tools. They're

[21:35] supposed to be for maximum employment

[21:37] and price stability and financial

[21:39] stability. There there's always a time

[21:41] when an administration looks and says it

[21:43] would be it would be good to use that

[21:45] tool for something else. What if we were

[21:47] just to like and call that like that's

[21:49] part of the mandate? Happens all the

[21:51] time and we just have to be in a

[21:52] situation where we're we're not trying

[21:55] to be again we're not trying to work

[21:56] against any any politician or any any

[21:59] administration but we have to be careful

[22:00] to stick to what we're doing. The other

[22:03] thing is I'll just note that you know

[22:05] the Fed's not a perfect institution.

[22:07] Don't don't look for perfection. uh what

[22:09] we do is very challenging and highly

[22:11] uncertain, but it's it's a great

[22:13] American institution and I'm very proud

[22:16] to work with the people I work with.

[22:18] They're extraordinary right across the

[22:20] board, an incredible group of people.

[22:21] And I'll just close by saying it's very

[22:24] hard to build great democratic

[22:27] institutions and and much easier to to

[22:30] bring them down.

[22:33] So though you were uncomfortable giving

[22:36] unsolicited advice to your successor, um

[22:40] I know that the students in this room

[22:41] would love to hear your advice. They've

[22:43] asked me for my advice and asked me what

[22:46] you what you would advise them. So

[22:48] they're entering into an uncertain time,

[22:52] an economy where new job formation um is

[22:56] lower for many reasons. Um, in

[22:59] particular, jobs that were plentiful a

[23:02] couple of years ago for students coming

[23:04] out of college are no longer so. And AI

[23:08] sits as this remarkable technological

[23:12] transformation that is both promising

[23:15] and existentially threatening. So if

[23:18] you're advising the 600 students that

[23:21] sit here today, what would you suggest

[23:24] they think about as they embark on both

[23:27] academic and then ultimately

[23:28] professional careers?

[23:30] >> Let let me start by saying that I'm well

[23:32] aware and my colleagues too are well

[23:34] aware of the current situation um for

[23:37] students coming out. It's a time of very

[23:39] low job creation

[23:42] um and also you have AI going on. You've

[23:44] got the effects uh on job creation of

[23:47] significant changes in immigration

[23:49] policy which have brought down both

[23:50] demand and supply of workers. The

[23:52] unemployment rate is really low, but

[23:54] that doesn't help you uh if you're

[23:56] coming into that kind of market. So,

[23:58] it's it's a time when um you're you're

[24:03] the business I mean the there's a

[24:05] business cycle, right? And you're coming

[24:06] out in the business cycle at a time when

[24:08] getting hired is a little bit

[24:09] challenging. There's also probably

[24:10] something more longer term, more secular

[24:13] that's happening. and around technology

[24:15] and AI. So you're it's yes it is a

[24:18] challenging time but I'll say a couple

[24:20] things. One just is that the US economy

[24:23] compared to other major e open economies

[24:26] in big market-based economies around the

[24:29] world is just incredibly dynamic and

[24:33] productive since World War II. US um

[24:38] compared to other again large mature

[24:39] economies our productivity has grown at

[24:41] like twice the speed for example in

[24:44] Europe and higher productivity is the

[24:46] way you know uh compensation and

[24:49] earnings can grow over time so it's an

[24:52] incredibly flexible and dynamic economy

[24:54] it reinvents itself technology it always

[24:57] comes from the United States so just be

[25:00] optimistic about the medium and longer

[25:02] term I'm very optimistic about the

[25:03] medium and longer term um And the other

[25:07] thing is my observation is that you know

[25:10] these these large language models make

[25:13] people much more productive. I feel like

[25:16] it's making me more productive because I

[25:17] can I can learn things really quickly.

[25:20] Um you know and I talked to you know my

[25:23] son and others who were out there in the

[25:25] world and I think if you use it well

[25:28] it's making you more productive. So, I

[25:30] think you're you're in a situation where

[25:32] you need to invest the time to really

[25:34] master the use of these new technologies

[25:36] and and uh that should stand you in

[25:39] goodstead. I I but there's there's no

[25:41] denying it's a it's a challenging time

[25:43] to enter the labor market, but it may

[25:45] take some patience and all that, but in

[25:47] the longer term, this economy is going

[25:49] to give you great opportunities and just

[25:51] be be a little optimistic about that. So

[25:53] when you talk about the longer term, are

[25:56] you talking about 10 years, 20 years, 40

[25:59] years? Are you worried that there'll be

[26:02] wind at our back as we use these tools

[26:04] over the next decade? But at some

[26:07] horizon, let's say 40 years, there'll be

[26:10] substitution rather than

[26:12] complimentarity.

[26:13] >> You know, it's it's so hard to say.

[26:16] I mean a lot of people you talk to

[26:18] business people are are talking about

[26:21] you know the sort of the next few years

[26:23] being big years for um AI to come in but

[26:26] they're mostly talking about existing

[26:29] you know middle market sorry middle

[26:31] management back office jobs and things

[26:34] like that I don't think they're they're

[26:36] it shouldn't have those kinds of effects

[26:38] on people who can use AI well and that

[26:41] kind I don't know but so certainly the

[26:43] next few years look like whatever the

[26:44] effects are they'll will start to feel

[26:46] them because major US companies and we

[26:49] talked to a lot of of those people who

[26:51] who run those companies and you know

[26:53] they're all looking at what they can do

[26:55] and the truth is they can take out a lot

[26:58] of jobs that can be automated by a very

[27:00] smart large language model. They just

[27:02] can and they will because if because

[27:04] their competitors are doing it and they

[27:05] they can afford to have higher costs

[27:07] than their competitors. What's that

[27:09] going to mean for you? It may not mean

[27:10] that much. It depends on what you're

[27:12] going to wind up doing. you know, you

[27:13] may stay in school a little bit and you

[27:15] may do something that that is it's going

[27:17] to create new jobs too over time and

[27:19] again it makes people more productive. I

[27:21] did talk to a CEO in tech world who said

[27:24] the marginal benefit of a new employee

[27:26] in this world is actually very high. Now

[27:29] that's not that's not what you hear all

[27:30] the time. So um I don't know I mean when

[27:34] you know if you if you look back through

[27:36] history uh to generalize tech this has

[27:40] been going on for a couple hundred years

[27:41] this you know since the loom was

[27:43] invented right and to put all the people

[27:44] who were doing weaving out of business

[27:47] but so in all cases it has wound up

[27:50] raising productivity and raising living

[27:52] standards as long as as long as the

[27:54] society keeps producing people who can

[27:57] who can who have the skills and

[27:58] aptitudes to benefit from that

[27:59] technology.

[28:00] Um, so that will be the case here, but

[28:04] you're right. There there can be a

[28:06] period during which it's challenging and

[28:08] and this may be one of those, but

[28:09] nonetheless, I would just say it's out

[28:11] there and it it's it's out there to be

[28:14] done and I I would be medium and longer

[28:16] term very optimistic about about this

[28:19] economy compared to any other economy.

[28:22] >> Terrific. Thank you so much. We're now

[28:23] going to open it up to your questions.

[28:26] So, um I think I've got Jason and David

[28:30] in the in the well and I've got two

[28:34] microphones in the balcony. Why don't we

[28:36] start with um Oh, Jason, do you have a

[28:39] question?

[28:39] >> I think I have a question.

[28:40] >> Fantastic. We're going to let Jason ask

[28:41] the first question.

[28:42] >> Um so, Chair Powell, when you're making

[28:46] decisions at the Fed, I'm curious, how

[28:49] much are you relying on very specific

[28:52] economic models? The Fed has its own big

[28:54] fancy model, Furbus. How much are you

[28:57] relying on information you get from

[28:59] talking to people out in the real world

[29:01] to businesses, your own intuition and

[29:04] experience? What what do you bring

[29:06] together as a way of thinking about

[29:08] these decisions with a role of

[29:10] economics, but everything else that

[29:12] feeds into it?

[29:13] >> So, it's really all it's really all of

[29:16] the above. We have to start with the

[29:19] perimeter. You know, we have the reserve

[29:21] banks are in touch. They're in all 50

[29:24] states, right? 12 12 reserve banks. And

[29:27] they bring summaries of these extensive

[29:30] conversations they have with the public

[29:32] sector, the private sector,

[29:34] universities, healthcare, everything in

[29:36] their district. And we see all of that

[29:38] in the Beige book and in the meetings.

[29:39] We we get all of that. We also look at

[29:43] several models. It's never just the

[29:44] Furbus model. It's many, many different

[29:46] models. And we look at different

[29:47] alternative simulations. You look at all

[29:49] of that and then we look at where our

[29:51] policy stance is and we we look out the

[29:53] window and we say, does it look like our

[29:56] policy stance is affecting the economy

[29:58] in a way that moves us closer to our

[30:00] goal variables or keeps us at our goal

[30:02] variables. You do all of that. We also

[30:04] talk to each other. You know, I talk to

[30:06] the other 18 participants on the FOMC a

[30:09] couple of times each cycle and people

[30:11] have different thoughts and ways of

[30:13] thinking about things. Talk to the

[30:14] senior staff. You know, they've been

[30:16] doing this longer than any of us. Um, so

[30:19] all of those things go into it. I

[30:21] wouldn't say, you know, I mean, so a

[30:24] good analogy is, uh, when I was in the

[30:26] private equity business, we had really

[30:28] good models of companies and my my big

[30:31] boss said, "We we we want to have the

[30:33] best model in the industry, but if you

[30:35] think that model is going to make the

[30:36] decision for you, you're in the wrong

[30:38] business." So the models are just

[30:41] illustrative. We we cannot model the US

[30:43] economy with the kind of precision that

[30:45] that we will never be able to probably.

[30:47] It's like modeling the weather. You

[30:48] can't predict it two months away. So,

[30:50] but that's So, it's all of those things,

[30:52] Jason.

[30:53] >> Thank you.

[30:54] >> Okay. So, David, why don't you pick the

[30:57] first hand and then Jason, you'll get

[30:58] the second hand

[31:01] and then we'll go to the balcony. So,

[31:03] looking for someone upstairs. Hi, my

[31:05] name is Fabio. I'm a first year studying

[31:07] economics and government. Um, I'm really

[31:09] interested in kind of the decision-

[31:11] making in the in the Fed. How do you

[31:15] work with situations where like the the

[31:17] decision might be very tight and like

[31:19] sometimes there's like expectations of

[31:21] like the um interest rates increasing or

[31:24] and it might be very tight in those very

[31:26] tight decisions like how do you make end

[31:28] up making the decision?

[31:30] >> So remember I'm one of 12 voters uh so I

[31:34] I there's a an FOMC cycle is about seven

[31:37] weeks between meetings. We have eight of

[31:40] them a year. So uh and I would say sort

[31:42] of 3 weeks before the meeting by then I

[31:47] have to have a pretty good sense of what

[31:49] I think we need to do and staff will

[31:51] already have been working on if we're

[31:53] doing anything in particular. We always

[31:55] have like a special topic. So a lot of

[31:57] work is going on. So I I I almost need

[31:59] to make a decision about the probable

[32:02] thing we're going to do. And then I have

[32:03] to talk to everybody a couple of times

[32:05] because I got to get people to vote for

[32:07] this. And I've got to a lot of it is

[32:09] finding out where the sentiment of the

[32:10] committee is. I've been working with

[32:12] these people for many years. So most of

[32:14] the time I I kind of know how they'll

[32:15] approach a problem. Um and uh that's

[32:19] that's how it works. So it's a lot of

[32:21] talking and listening and understanding.

[32:24] Um I I think an underrated skill is in

[32:29] um listening to people. listening is,

[32:32] you know, if you if you listen to people

[32:34] and you hear them and you can make their

[32:36] argument and they they understand that

[32:38] you're actually listening to them and

[32:39] not just, you know, communicating at

[32:41] them for most of the people most of the

[32:44] time, that's going to be enough. And by

[32:45] the way, that's true on Capitol Hill.

[32:47] That's true. It was true when I was a

[32:49] governor. If I felt I mean, I always

[32:51] felt like Ben or Ben Bernanki or Janet

[32:54] were listening to me. And if that if

[32:56] they could engage with the pro the

[32:58] points I was making then I felt like I

[33:00] could support what they wanted me to

[33:02] support. So it's a lot of that though. I

[33:04] mean it's it's a lot of committee

[33:05] management. That's the big part of it is

[33:08] to is to have active dialogues going

[33:11] with all of the FOMC participants. And

[33:14] by the way also with all the senior

[33:15] staff who've been doing this a very long

[33:17] time and they you know they bring in

[33:20] many cases they bring you know history

[33:22] going back many years. For example, in

[33:24] in the public communications that we

[33:25] make, you know, somebody who's been

[33:27] doing that for 30 years will tell you,

[33:30] don't use that word, even though that

[33:31] word might make sense in another

[33:33] context.

[33:34] >> Okay.

[33:36] >> Over here.

[33:37] >> Uh, good morning, Mr. Pal. Um, I wanted

[33:40] to ask you a bit more about um private

[33:43] credit markets and particularly rising

[33:45] defaults among non-bank lenders like

[33:48] Blue Al Capital. Um so I wanted to ask

[33:51] to what extent could stress in these

[33:53] private credit markets spill over into

[33:56] the traditional banking system.

[33:58] >> So that's the question we ask ourselves

[34:00] quite a bit and you know as I as I

[34:02] mentioned we're we're watching very

[34:05] carefully. Of course you read you what

[34:06] you can read in public. We're also

[34:08] getting the backstory from the people

[34:10] who run these uh organizations and from

[34:12] all the banks supervisors well aware of

[34:16] what the bank's exposure is and what is

[34:18] not. And um you know I'm reluctant to

[34:20] say anything that suggests that we're

[34:22] dismissive of the risk, but we're

[34:24] looking for connections to the banking

[34:26] system and things that might you know

[34:28] result in contagion. We don't see those

[34:31] right now. We what we see is uh uh you

[34:34] know a correction going on and um and uh

[34:38] certainly there'll be people losing

[34:39] money and things like that, but it

[34:41] doesn't it doesn't seem to have the the

[34:43] makings of a of a broader systemic

[34:45] event. But again, we never, you know, we

[34:48] never give a a clean bill of health. We

[34:50] just keep watching for that. We don't we

[34:52] don't see those characteristics though

[34:54] right now.

[34:55] >> Okay, let's go to the balcony and

[34:57] remember to share your name when you

[34:58] begin your question. Great.

[35:03] >> What's over here?

[35:04] >> Um, hi, my name is Cody. Thank you so

[35:05] much for being here, Mr. Powell. My

[35:07] question is about whether international

[35:09] relations has um impact on your

[35:11] decision-m. I know you mentioned that,

[35:13] you know, the Fed's job to do exactly

[35:15] what's best objectively for the American

[35:18] economy, but I'm wondering, you know, if

[35:20] you're competing with, you know, let's

[35:21] say, China or other powerful countries,

[35:23] whether or not you would kind of, you

[35:24] know, cut interest rates or do something

[35:26] like that to stimulate the economy to

[35:27] kind of get ahead of other countries.

[35:30] >> No, it doesn't. You know, we're we're

[35:32] always asking the question, as you'd

[35:34] suggest, you know, what we serve the

[35:37] American public always in all of our

[35:39] decisions and what is best for them. How

[35:41] do we achieve maximum employment and

[35:43] price stability on a sustainable basis?

[35:45] That's that's what we're always asking.

[35:48] We do, you know, meet with, you know, in

[35:51] Basil, the central banks all meet

[35:53] without the finance ministries and we

[35:55] can talk privately about what's going on

[35:57] in global financial markets. It is a

[35:59] global economy. We all know each other

[36:01] and and frankly and many of us have

[36:04] regular communications going on just

[36:06] privately, you know, or you know, by

[36:08] telephone, email and text and things

[36:10] like that. But we're never we're never

[36:12] looking to um to get on the on the turf

[36:15] of you know the national security people

[36:18] or the or the you know the state

[36:20] department or you know things like that.

[36:22] We're not looking looking at things that

[36:24] way. We're looking at our goals. That

[36:26] would be I think a classic case of

[36:28] mission creep. If we were to say hey

[36:30] let's let's let's deviate from just

[36:33] chasing these two goals and let's do

[36:34] something for a third purpose. that

[36:36] would almost by definition make us less

[36:38] effective at the things we're supposed

[36:40] to be doing. So, we try to stick to

[36:41] that.

[36:42] >> Okay, great. David, you're next.

[36:46] >> Good morning. My name is Jenny and thank

[36:49] you so much for coming. We're all very

[36:50] honored that you took the time to come.

[36:53] Um, so last lecture we learned about

[36:56] soft landings and about how it's

[36:58] definitely much more ideal than hard

[37:00] landings, but in the US history, we've

[37:02] had far more hard landings than soft

[37:03] landings. And we were just talking about

[37:06] how it's really important that you are

[37:08] monitoring expected inflation. Um, and I

[37:11] think a lot of that just buil comes down

[37:13] to the trust between the public and the

[37:16] central bank. And the central bank is

[37:18] known to be much more technocratic. But

[37:20] I think especially with like the rise of

[37:21] populism and previous events, there

[37:24] seems to be a lot of uh impact of like

[37:26] political tensions between or or

[37:29] cooperation between the Fed chair

[37:31] position and the administration. And I

[37:34] wanted to ask you, how do you still keep

[37:36] the public's trust this way?

[37:39] >> Um, by sticking to our jobs and doing

[37:42] them well. Ultimately, we if we deliver

[37:46] the maximum employment and price

[37:47] stability or at at least are seen to be

[37:50] doing everything we possibly can as we

[37:52] meet various shocks and, you know,

[37:54] multiple supply shocks in recent years,

[37:57] the public keeps its faith in us. And if

[37:59] you look, you know, we look at things

[38:00] like longerterm inflation expectations

[38:03] and you'll you'll see that they they've

[38:05] remained pretty well anchored right

[38:06] through all of this, you know. So if you

[38:08] if you really think inflation is going

[38:10] to be higher, you can make some money

[38:11] betting against that. But people don't

[38:13] do that. You know, the people who are

[38:14] putting their money to work in the

[38:16] financial markets, not to give too much

[38:18] credit to that, but that's but that's

[38:20] it. If we stick to our knitting and we

[38:22] do our jobs, we stay out of politics,

[38:24] stay out of stay out of the hot

[38:25] political issues of the day and just do

[38:27] your job and keep your head down. I

[38:29] think, you know, I see this through the

[38:31] my dealings with elected people. You

[38:33] know, if they get the sense that you're

[38:35] you're you're not there to deliver

[38:37] talking points, you're there to listen

[38:38] to them and and you're really somebody

[38:40] who is committed to doing your job and

[38:42] sticking just to that job and that's all

[38:44] you want and you're not going to get

[38:45] into politics. That's that's what we

[38:48] need to do. And I think generally um I

[38:51] think we are accepted in that spirit in

[38:53] Washington and I think I think generally

[38:55] around the country as well.

[38:58] >> Jason

[39:04] remember to tell us your name.

[39:09] Thank you chairp for being here. My name

[39:12] is Jake. Uh, as you know, your term ends

[39:15] in May and a potential successor, Kevin

[39:17] Worsh, has indicated a desire to cut

[39:19] rates if he fills the role of chair.

[39:22] What is your effect? What is your take

[39:23] on the effect that a cut would have on

[39:25] the flexibility of the Fed to maintain

[39:27] well to remain well positioned to

[39:29] maintain both sides of its dual mandate,

[39:32] particularly given the fact that

[39:33] inflation has remained elevated above

[39:35] the Fed's 2% target for several years

[39:37] now and progress is further halted by

[39:40] the oil shock and tariffs especially.

[39:43] >> Jake, um that's that's not something I'm

[39:47] going to going to uh going to swing at

[39:49] that pitch. Is that a Red Sox jersey, by

[39:51] the way?

[39:53] I called on him.

[39:54] >> Yeah. Okay.

[39:55] >> I know this must be Red Sox country.

[39:57] >> So, we're going to go to the balcony

[39:58] next.

[40:08] >> Hi, my name is Aean Candle. So, earlier

[40:12] you said that you don't know how much

[40:14] you believe in something until someone

[40:16] tries to take it apart. So my question

[40:18] was, what's the thing you currently

[40:20] believe about the economy that you're

[40:22] least confident of?

[40:24] >> Interesting question. Um

[40:32] I can't I'm not going to give you a

[40:34] particular individual thing uh at the

[40:37] moment but I I will say that um I I I

[40:41] would say this and I of course this is

[40:43] self- serving to an extent but having

[40:44] worked in the private economy for most

[40:46] of my career I I don't have any

[40:49] predisposition

[40:51] to believe that models can really

[40:54] capture it um because so much of it is

[40:57] animal spirits as Kane's called it uh

[41:00] and also it's just it's again I go back

[41:02] to the weather will we ever be able to

[41:05] predict the weather with any precision

[41:08] three three months ahead other than the

[41:11] seasons so the economy no one has been

[41:14] able to really successfully predict the

[41:17] economy so I I think the temptation is

[41:19] always to um to place too much uh sort

[41:25] of stock in uh you know in models or in

[41:29] one particular outlook. The other thing

[41:32] is another thing which is a big takeaway

[41:34] is you know about fat tails right? So

[41:38] famously the financial it's there's a

[41:39] normal distribution and the tales are

[41:41] what they are. It's not a normal

[41:43] distribution. The tails are fat and

[41:45] however fat you think they are they're

[41:47] fatter than that. that the the

[41:49] possibility for the economies at any

[41:51] given time is so much so so much

[41:54] broader. For example, the pandemic

[41:55] inflation. We'd spent 15 years with the

[41:58] inflation below target and that was at a

[42:01] time of QE and lots of finan fiscal

[42:04] stimulus and that kind of thing. We had

[42:05] inflation below target and people pretty

[42:07] much the profession had the big problem

[42:10] the whole profession was trying to solve

[42:11] was how do we get inflation up to 2%.

[42:14] That was really the problem. And then

[42:15] then along comes the pandemic inflation

[42:17] and bang, you suddenly you have a

[42:19] 40-year high inflation. So it's hard to

[42:21] keep your mind open to just how broad

[42:24] the possibilities are.

[42:26] >> Okay,

[42:27] take down here. Yes.

[42:29] >> Hi, my name is Robert. Thank you so much

[42:31] for being here. I'm a first year

[42:33] studying econ, math, and philosophy. Um

[42:37] so many economists that I've listened to

[42:39] uh at least retroactively say that what

[42:41] we really needed uh during the co

[42:43] pandemic was around $3 trillion and the

[42:46] government printed you know something

[42:48] along $6 trillion more than that uh and

[42:50] so inflation uh rose but that money is

[42:53] still out there. So if rates come down

[42:56] you know obviously you took initiative

[42:58] and you raised them very significantly.

[43:00] if rates get lowered again to let's say

[43:02] two or so percent uh do you think that

[43:04] the price spikes have already played out

[43:06] or do you think that all that extra

[43:08] money being out there will you know on

[43:10] top of you know instability uh

[43:13] geopolitically uh do you think that's

[43:15] going to uh push us back into an

[43:17] inflationary spiral uh and then also I

[43:20] was wondering uh for your next press

[43:21] conference are you going to start it

[43:22] with good afternoon or hello everyone

[43:30] Let's talk about that later.

[43:33] >> So um sorry the first question was um

[43:36] the was the expansion the money supply.

[43:39] >> Yeah. No. So I I think monetary

[43:41] quantities are a very challenging way to

[43:43] try to think about inflation and the

[43:46] economy. There was a time when the

[43:48] profession thought that you know

[43:50] monetary quantities and inflation were

[43:51] tightly linked. And of course it in an

[43:53] abstract way or a simple model it makes

[43:56] sense if you if you don't increase the

[43:58] amount of goods and you double the

[43:59] amount of money then the price has to go

[44:01] up but that there has been relatively

[44:03] little correlation and you know my story

[44:06] of the pandemic inflation would not be

[44:08] about monetary quantities mainly not I'm

[44:10] not saying it might not have played a

[44:11] role um it was more you did have a lot

[44:15] of stimulus particularly in the United

[44:17] States uh at the same time we were

[44:20] looking at at at the possibility of

[44:22] another great depression. We didn't know

[44:24] whether there would ever be a a vaccine.

[44:27] We didn't know what this was going to

[44:28] be. How many millions of people was the

[44:30] is the disease going to kill. So

[44:32] literally for the first time probably

[44:34] ever, we're looking at a you know little

[44:38] alternative simulations that are a great

[44:40] depression lasting many years. So we did

[44:41] a lot of stimulus and then when the

[44:44] global economy reopened after shutting

[44:46] down, you had this burst of demand,

[44:49] red-hot demand and constrained supply

[44:52] still. So automobiles is a great

[44:54] example. Everybody wanted a car because

[44:57] they didn't want to take public

[44:58] transportation and they'd all moved to

[44:59] the suburbs and out of the city. So I

[45:01] need a car and yet you couldn't make

[45:03] cars because you couldn't get the

[45:04] semiconductors. So you're you're looking

[45:06] at a vertical supply curve. So a little

[45:08] bit of demand drove prices up a lot. Um

[45:12] then of course we took the view, my

[45:15] colleagues and I did that vertical

[45:17] supply curve works both ways. If if a

[45:19] little bit a little bit of demand could

[45:20] bring that price right down and also it

[45:23] won't be vertical forever. It'll it'll

[45:25] start you you'll get supply side

[45:27] healing. You got those two things. It's

[45:28] it was always both supply and demand for

[45:30] me. And you got inflation coming down

[45:32] very sharply in 23 and 24. We got close

[45:36] to to to the end of your question. we

[45:37] got pretty close to 2% in um by the end

[45:40] of 24. Now we're dealing we were just

[45:43] dealing with the you know the the effect

[45:46] of tariffs which have largely fallen

[45:49] here in the US and not abroad. Um

[45:52] they've been less than expected because

[45:54] the the other side the um others didn't

[45:57] retaliate and also because what was

[45:59] implemented was less than what had been

[46:00] announced. Nonetheless, that's that was

[46:02] the piece. We were we were at about 3%

[46:05] inflation and somewhere between 0.5 and8

[46:08] of that is from is from tariffs. So

[46:10] we're getting we've been pretty close to

[46:12] 2% all this time. Now we have another

[46:14] supply shock coming. You know, it's it's

[46:16] one of those uh times where you get a

[46:18] series of supply shocks. First the

[46:20] pandemic, then the much smaller one from

[46:23] tariffs, and then we're getting now an

[46:25] energy shock. No one knows how big it

[46:27] will be. We It's way too early to know.

[46:29] As I mentioned, we do think our

[46:31] policyy's in a good place for us to wait

[46:32] and see.

[46:34] >> Okay. So, one last question.

[46:39] >> Go.

[46:42] >> Hi, Mr. Pal. I'm Lola and I was

[46:44] wondering at what point does the size of

[46:47] the US's debt break the point of natural

[46:51] systems repayment and if that's

[46:52] something you're worried about now or

[46:54] something you think our generation

[46:56] should look out for.

[46:57] Um I don't think we know uh what that

[47:01] number is sort of ratio of debt to GDP

[47:04] where it'll be a problem. There are of

[47:05] course Japan being a great example there

[47:07] are countries that have much higher um

[47:09] levels of sovereign debt to their GDP

[47:12] than we do. What's clear is that our uh

[47:16] debt is growing much faster. The federal

[47:18] government debt is growing substantially

[47:20] faster than our economy and that ratio

[47:23] is going up. And you know, in the long

[47:24] run, that's kind of the definition of

[47:26] unsustainable.

[47:28] The level of the debt is not

[47:29] unsustainable, but the path is not

[47:31] sustainable. And so, it's it's really

[47:34] important that we get back to we don't

[47:37] have to pay the debt down. We just need

[47:39] to to to have, you know, primary balance

[47:41] and and begin to have the economy

[47:44] actually growing better, growing uh more

[47:46] quickly than the economy. It will it

[47:49] will not end well if we don't do

[47:51] something fairly soon. This is not the

[47:53] Fed's job of course and I pretty much

[47:56] limit myself to those high level points

[47:59] which which essentially everyone

[48:01] ignores.

[48:04] So we're going to thank Chair Powell but

[48:07] let me just describe the sequence of

[48:09] events that now follows. So first we'll

[48:12] thank Chair Powell. Then anyone who

[48:14] wants to is welcome to join us on the

[48:16] stage and we'll take a group photo with

[48:20] Chair Powell. Um because of a tight

[48:23] schedule, there can't be any selfies

[48:27] because if there's one selfie, there's

[48:28] 600 selfies. So, you'll need to um make

[48:31] do with one photograph of the entire

[48:34] class with our esteemed guest.

[48:37] >> All right, let's go ahead and uh

[48:38] summarize uh what just uh what was just

[48:42] said and then we'll do a little bit of

[48:44] an update there on uh Iran as well. So,

[48:47] we'll uh we'll get into all of this.

[48:50] Jerome Powell just spoke at Harvard and

[48:52] gave us a little bit of insight into his

[48:54] thoughts on Iran, private credit,

[48:56] interest rates, policies, and otherwise.

[48:58] Uh before we talk about Powell though,

[49:00] uh and after we talk about Powell, we'll

[49:02] talk about Iran. But before we talk

[49:03] about Powell, I'd like to add in what

[49:05] Fed Myron said right before Powell

[49:08] spoke. So right before Powell spoke, we

[49:11] actually ended up hearing that Myron is

[49:14] still of the mindset that we should be

[49:17] lowering interest rates. And one of the

[49:19] reasons for that uh is he says the labor

[49:23] market as we've heard many times before

[49:26] uh is almost certainly experiencing a

[49:29] negative demand shock. We've had 3 years

[49:32] of a cooling labor market and he says

[49:34] there's nothing to indicate that that

[49:36] cooling labor market has changed

[49:38] directions. Now, that's been a hope,

[49:41] right? In uh November, December, and

[49:44] January, we were really hoping that some

[49:46] of the jobs numbers we were getting

[49:48] would imply that we're starting to see a

[49:50] little bit of an inflection point up in

[49:52] the labor market, actually getting back

[49:54] to growth again. And then, of course,

[49:56] unfortunately, we got those horrible

[49:57] numbers in February, you know, 92,000

[50:00] jobs, which were quite disappointing and

[50:03] killed that narrative somewhat. Now,

[50:05] drum pow threw cold water on the sort of

[50:08] negative February report and suggested

[50:10] it sort of balanced out with January.

[50:13] Now, we have new jobs data coming out

[50:15] later this week. So, I encourage you to

[50:17] mark your calendar for some of the

[50:19] things coming up this week. We're going

[50:20] to have uh the uh challenger layoffs

[50:23] report. We'll have the Jolts report and

[50:26] we'll also have the BLS labor report.

[50:29] Now, I'll give you just quickly the

[50:30] catalyst uh dates and expectations for

[50:33] those. Uh starting with uh let's see

[50:36] here. We'll start with tomorrow. Let's

[50:39] see. Today is the 30th. Wow, tomorrow is

[50:41] already the end of the month, which is

[50:42] incredible. Uh tomorrow, we'll get

[50:44] Jolts. Last uh Jolts report from last

[50:47] month. We had a pretty big miss. This is

[50:48] the job openings and labor market

[50:50] turnover survey for February. We're

[50:52] expecting 6.895,000.

[50:54] So, uh well, million. So, uh, 6.9ish

[50:58] million is really what we're expecting.

[51:00] Uh, then we're expecting on Wednesday,

[51:03] that's April 1st already, April Fool's

[51:04] Day, the ADP employment report that's

[51:07] been holding pretty steady. Uh, prior

[51:09] report was 63. This is expected to be

[51:11] 40, which aligns with last week's 10,000

[51:14] report, which is pretty much a sign of

[51:17] sort of a stabilizing in the labor

[51:18] market. Certainly not any kind of boom.

[51:20] Uh, then we'll get challenger job cuts

[51:22] on Thursday and along with continuing

[51:25] claims. And then on Friday, we're

[51:26] looking for 60,000 in non-farm payrolls

[51:29] and 75k in private payrolls for the BLS

[51:32] jobs data on Friday. But this myin

[51:35] comment was very interesting because he

[51:37] really makes this strong argument to say

[51:39] the Fed's interest rate policy is still

[51:42] too high. It's not just uh you know the

[51:46] labor market shrinking is not solely

[51:48] because we've had an immigration

[51:51] collapse. Uh if it were true that the

[51:53] labor market were collapsing because of

[51:55] an immigration collapse, then we should

[51:57] be seeing a lot of job demand uh amongst

[52:01] lower uh age or sort younger individuals

[52:05] and uh lower education individuals which

[52:09] typically compete with immigrants. But

[52:11] Myron says we're not seeing that which

[52:13] suggests this is still a negative labor

[52:15] growth economy and we should really be

[52:18] supporting rate cuts. Now, that's

[52:21] Myron's take. He obviously thinks, you

[52:24] know, we're going to get through some of

[52:25] these, you know, inflationary impeties

[52:28] that we're seeing now, not just tariffs,

[52:30] but also, uh, Iran, but broadly, we

[52:33] should be looking at lower rates to

[52:35] support the labor market. Now, we'll see

[52:36] when Wsh comes in, when and if he comes

[52:39] in, you'll sort of have these uh uh

[52:40] you'll have Myron go back to his his

[52:43] prior job. But, uh it seems like Walsh

[52:46] still wants to bring in that momentum

[52:49] of, oh, we're going to lower rates. Now,

[52:51] the bond market hasn't exactly been

[52:54] sending us signals that the bond market

[52:55] is ready for lower rates. I mean, we've

[52:57] got now over a 40% chance of uh a rate

[53:01] hike by the end of the year and some

[53:03] pricing coming in for potentially

[53:05] multiple rate hikes by the end of the

[53:07] year, two to three rate hikes. If we

[53:09] look at the bond market, we can see

[53:11] today is a good day for the 10-year, but

[53:13] you're still at 4.33, down 10 basis

[53:15] points. But a lot of people are paying

[53:17] attention to this. It's that spread

[53:19] between the 2-year and the 10-year

[53:21] Treasury, which on Friday actually

[53:25] spiked up substantially. Now, we've

[53:27] cooled off about a basis point today,

[53:30] but we shot up from about42 to about

[53:33] 0.51 on Friday, and a lot of bond market

[53:36] experts think this is because markets

[53:38] are finally starting to price in weaker

[53:40] growth over the long term. as now Iran's

[53:44] uh the war in Iran enters a second

[53:46] month. This isn't great. Uh one thing

[53:50] that Dr. Powell certainly broke uh uh

[53:52] broke down, we'll talk more about what

[53:54] Powell just said, uh is he talked about

[53:55] inflation break evens, which he

[53:57] regularly does. And there are two forms

[53:59] of inflation break evens that you should

[54:01] really be paying attention to. There is

[54:03] the 5-year break even inflation, which

[54:06] is essentially, hey, what do we think

[54:07] inflation is going to be 5 years from

[54:09] over the next 5 years on average? That's

[54:11] currently sitting at about 2.6%. And you

[54:14] can see it's really it hasn't broken out

[54:16] to levels like what we saw in early 2022

[54:19] when we started really raising interest

[54:21] rates because we had 9% inflation. So

[54:24] we're kind of more in line with the

[54:26] inflation that we saw around liberation

[54:27] day uh or you know what we saw in mid24

[54:31] or even during the banking crisis of

[54:32] 2023 when people thought the Federal

[54:34] Reserve was going to print money. So

[54:36] this level really hasn't unanchored.

[54:39] Powell is right and he reiterates this

[54:42] as a way to say, hey, you know, there's

[54:44] there's really no urgency here uh to to

[54:48] raise rates because that 5-year break

[54:49] even isn't moving up. The problem is

[54:52] there is another chart and it's called

[54:54] the 5-year forward break even, which

[54:57] does express uncertainty and urgency,

[55:02] but maybe not in the direction that you

[55:04] expect. I'm going to explain the 5-year

[55:06] forward and how that's different from

[55:07] the 5-year break even in just a moment

[55:09] because there's a really important

[55:10] difference there. But I do want to

[55:11] express a point where there is urgency

[55:13] and that is we're doing this super

[55:15] quiet. Haven't mentioned it much at all.

[55:17] Uh coupon expiration tomorrow, March

[55:20] 31st, just for the end of the month. Uh

[55:22] we've got uh a lot of cool things coming

[55:25] and so we're we're trying to get our

[55:26] prices uh to a higher level. So, we'll

[55:29] have another price increase before some

[55:31] of these uh new features come out uh

[55:34] probably in April or May, which we're

[55:35] very excited about. But in the meantime,

[55:37] you can get every trade alert, all nine

[55:38] courses, every private live stream and

[55:40] alpha report over at me.com. Go check

[55:41] that out. Uh we got that coupon expiring

[55:43] March 31st tomorrow night. Okay. So, now

[55:46] let's understand the difference between

[55:47] that 5-year forward and the 5-year break

[55:50] even. So, the 5-year forward at 2.69.

[55:52] This is relatively stable, right? The

[55:55] five-year forward. So, this is the

[55:57] 5-year break even. The five-year forward

[55:59] says, "Hey, what do we think inflation

[56:00] is going to be over the next five years,

[56:04] five years from now?" So, you're

[56:06] basically talking about if this chart

[56:08] you're looking at right here is year 0

[56:11] to year five, basically the end of year

[56:14] four, right? That would be five years.

[56:15] That's your 5year break even. And then

[56:17] the next chart is essentially 5 to 10.

[56:20] That's what you're looking at. If the 5

[56:22] to 10 chart is skyrocketing, it's an

[56:25] inflation concern. But if the 5-year

[56:28] forward is plummeting, it's a growth

[56:30] concern. And take a look at what it's

[56:33] doing. It's plummeting. This is the

[56:36] lowest level on the 5-year forward break

[56:39] even inflation rate that we have seen

[56:41] since the recession scare of liberation

[56:44] day. And uh Jerome Powell is astutely

[56:48] pointing these inflation expectations

[56:50] out. He doesn't specifically talk about

[56:52] these two charts, but we we know based

[56:54] on his prior conversations that these

[56:56] are two that he definitely considers. Uh

[56:58] and to me, these actually align more

[57:02] with what Mr. Myin is saying, which is

[57:04] hey, we are now not worried so much

[57:08] about inflation uh you know getting

[57:10] unleashed. We are much more worried

[57:13] about a growth shock to the economy

[57:16] because of the compression that we end

[57:19] up getting from higher fuel prices which

[57:21] could lead people not to want to fly.

[57:24] When people fly, what do they do? They

[57:26] spend money. They spend money on $6

[57:28] water bottles at the airport. They spend

[57:30] money going out at all the restaurants

[57:32] or stores or whatever where where they

[57:34] travel because they're not at home where

[57:35] things are cheaper, right? This is

[57:37] called demand destruction. Uh you have

[57:41] people not wanting to pay fuel search

[57:43] charges for cruises. People don't want

[57:45] to go on road trips. People just decide

[57:46] to stay home and they cancel trips.

[57:48] That's just one form of demand

[57:50] destruction.

[57:51] That is when growth concerns get priced

[57:54] in. And we've just on Friday started to

[57:57] see those growth concerns finally start

[58:00] getting priced into the market a little

[58:01] bit by seeing that spike in the 210. So,

[58:04] I highly encourage if you're watching

[58:06] for bond market signals, watch the

[58:08] spread between the 210. We've certainly

[58:11] come down from some of those shock

[58:12] levels we had before the war around 72.

[58:16] But once this level rises to about 1.25,

[58:20] you're pretty much in the thick of a

[58:22] recession. So, you really want to stay

[58:24] away from this rising. And it's a great,

[58:28] I think, leading indicator of sort of

[58:30] what's coming based on the direction

[58:31] that we're heading in. Now uh drum

[58:33] Powell also mentioned that uh over the

[58:36] long term we you know don't really or

[58:39] haven't seen inflation or financial

[58:41] stability risks from money printing from

[58:43] QE. You know, I think people would argue

[58:46] that is not true that you could

[58:48] definitely print your way to inflation

[58:49] and we saw that during co and then of

[58:52] course one of the reasons he argues that

[58:54] we really haven't seen much much

[58:56] inflation uh from printing money is

[58:59] because he's referring to the Bernanki

[59:00] era where between 28 uh 2008 after the

[59:04] great financial crisis all the way to

[59:05] COVID we were able to print money and

[59:07] inflation was running below trend. But

[59:09] the reality is it's probably because our

[59:12] economy is actually deflating thanks to

[59:14] technological innovation. And because of

[59:17] the money printing, we are creating just

[59:18] enough inflation to get relatively close

[59:21] to 2%. So if it weren't for money

[59:23] printing, we'd actually be in a

[59:24] deflationary regime, which makes sense.

[59:26] We used to spend $2,000 for a 42-in Sony

[59:29] Bravia TV, and now you can get, you

[59:32] know, a Roku 65 in TV for like $379 at

[59:37] Target or Walmart. It's it's crazy that

[59:39] that is deflation which is great for the

[59:42] consumer. That's mostly driven by

[59:45] technology but also in part because of

[59:47] the changed uh monetization dynamics in

[59:50] in uh television thanks to the connected

[59:52] TV and otherwise but totally different

[59:54] topic. So uh you know Drum Powell really

[59:58] applauds the soft landing that he

[1:00:00] achieved by 2024. He says the economy

[1:00:03] grew at 2 and a.5% and inflation was

[1:00:06] slightly above 2% but pretty dang close

[1:00:08] to 2%. He says the labor market was at

[1:00:10] full employment then and we had it. We

[1:00:13] had our soft landing. We did it. So he

[1:00:16] really today sort of declared victory

[1:00:18] on, hey guys, I got the soft landing.

[1:00:22] This was a little bit sort of like

[1:00:23] almost like an exit interview about

[1:00:25] wanting to sort of brag about the soft

[1:00:27] landing that he got. Then he says, you

[1:00:29] know, then then we've been dealing with

[1:00:30] supply or shocks after shocks,

[1:00:33] inflationary shocks after shocks. Uh,

[1:00:36] you know, now not only the tariff

[1:00:38] inflation, which we think of as one time

[1:00:40] but sort of coming in many different

[1:00:41] pieces, so it looks really blurry and

[1:00:43] messy, but then of course the Middle

[1:00:45] East, which on Iran and what's going on

[1:00:49] in the Middle East, Jerome Powell is

[1:00:51] really blunt here. He says, "We don't

[1:00:53] know what to do because we don't know

[1:00:56] the effects yet of this war." Now,

[1:00:58] remember, we've just moved on to the

[1:01:01] second month of this war. Donald Trump

[1:01:04] says he's going to destroy and

[1:01:05] completely obliterate Iran's uh electric

[1:01:07] generating plants, oil wells, and

[1:01:09] frankly, Car Island if the strait isn't

[1:01:12] immediately reopened, which of course is

[1:01:14] the opposite of what Treasury Secretary

[1:01:16] Besson says, who says the strait is not

[1:01:17] economically important to us. I kind of

[1:01:20] can't wait for this war to end and then

[1:01:23] maybe we could all go on a uh straight

[1:01:26] of Hormuz booze cruise.

[1:01:29] Sorry, we made that up this morning.

[1:01:31] Thought it was a good one. But anyway,

[1:01:33] um you know, Donald Trump says we're in

[1:01:35] serious discussions with a new and more

[1:01:38] reasonable regime and great progress has

[1:01:40] been made. Of course, he's unwilling to

[1:01:42] declare which of his 15 points have

[1:01:45] actually had any progress. At the same

[1:01:48] time, the Wall Street Journal is also

[1:01:49] reporting that insiders in the White

[1:01:51] House are essentially preparing Donald

[1:01:54] Trump for to be able to order a ground

[1:01:57] invasion into Iran with special

[1:01:59] operations linked uh likely for weeks to

[1:02:02] extracting quote nearly 1,000 pounds of

[1:02:06] uranium from Iran. Now this is uh the

[1:02:09] sort of freedom unit measure of the same

[1:02:12] 460 kg of roughly 60% highlyenriched

[1:02:18] uranium which is expected to be enough

[1:02:20] for about 11 to 12 nuclear weapons.

[1:02:23] This of course could leave US forces in

[1:02:26] Iran for days, weeks or potentially much

[1:02:30] longer. At the same time, things are

[1:02:33] certainly not deescalating with Israel

[1:02:35] as Israel is expanding its buffer zone

[1:02:37] into Lebanon uh even more so than

[1:02:40] previously due to attacks by Hezbollah.

[1:02:42] Israel seems to be escalating uh in in

[1:02:46] their push uh against uh extremism which

[1:02:49] unfortunately

[1:02:52] essentially leads to a broadening of

[1:02:53] this conflict and more death. Lebanon is

[1:02:56] the second uh largest recipient of

[1:03:00] deaths that compared to Iran. Obviously,

[1:03:03] Iran takes the cake for being the number

[1:03:05] one recipient of dying, which is very

[1:03:07] sad. Uh and then of course that's

[1:03:09] followed by Lebanon, mostly because of

[1:03:11] Israel's incursion into Lebanon, which

[1:03:13] of course is in reaction to uh Hezbollah

[1:03:16] terrorists who live amongst the Lebanese

[1:03:18] uh launch resuming their missile strikes

[1:03:21] against Israel. Now, it doesn't help

[1:03:23] that the Houthies down uh south in Yemen

[1:03:26] are now announcing that they are joining

[1:03:29] the war. There are now, of course,

[1:03:31] concerns that this supply shock and

[1:03:34] inflationary shock that Jerome Powell is

[1:03:36] worried about himself uh is going to

[1:03:38] expand even more because now potentially

[1:03:41] not only do we have to worry about uh

[1:03:43] the straight of Hormuz, but we

[1:03:45] potentially have to worry about the Red

[1:03:46] Sea again. Here is uh the Persian Gulf

[1:03:49] and the Gulf of Oman. This is the

[1:03:51] straight of Hormuz. Saudi Arabia has

[1:03:54] been pumping through their East West

[1:03:56] pipeline a lot of oil uh over to the Red

[1:03:59] Sea. Approximately 5 million barrels a

[1:04:02] day now being brought over to the Red

[1:04:04] Sea, suggesting Saudi Arabia might

[1:04:06] actually be capable of expanding their

[1:04:09] output of oil to about 45% of what it

[1:04:12] was before the Straight of Hormuz was

[1:04:14] sealed.

[1:04:16] Now, if Saudi Arabia loses access uh to

[1:04:21] shipping through the Red Sea because we

[1:04:23] end up getting uh this choke point over

[1:04:26] here, Bob Alman, I always screw it up,

[1:04:29] but anyway, the the little passageway

[1:04:32] over here, if this ends up getting uh

[1:04:35] attacked or ships get attacked over here

[1:04:37] as ships leave the Red Sea, go through

[1:04:40] uh you know, this little passage here

[1:04:42] and then get into the Gulf again uh and

[1:04:44] then out to sea. If the Houthies here

[1:04:48] strike shipping lanes, then we could see

[1:04:50] some of the same damage that we saw in

[1:04:52] uh 2023

[1:04:54] and 4 to Red Sea uh shipping, which not

[1:04:59] only chokes oil again, but also now

[1:05:01] substantially more supplies uh which are

[1:05:04] important components of industrials

[1:05:06] throughout the entire world. So both of

[1:05:08] these are unidal and the Houthis in

[1:05:11] Yemen have declared that they are

[1:05:13] joining the war. We think it's just a

[1:05:15] matter of time for them to start

[1:05:16] launching attacks. Mind you that the

[1:05:19] most of what keeps these straits and

[1:05:22] passageways sealed is really the fear of

[1:05:27] uh your ship getting sunk. Uh just

[1:05:30] because these ships are very difficult

[1:05:31] to insure. Some of them operate without

[1:05:33] insurance. Uh the cargo is just not

[1:05:36] valuable enough for the shipper to to

[1:05:37] justify losing uh their entire ship or

[1:05:41] worse lawsuits from uh the crew. uh Cruz

[1:05:44] family potentially it all turns into a

[1:05:46] giant mess. So you know on one hand

[1:05:51] while there's optimism including from

[1:05:53] Jerome Powell about the medium to longer

[1:05:56] term there are real reasons to be

[1:05:58] concerned about the short term and this

[1:06:00] is where Powell talks about tail risks.

[1:06:03] He says anytime there's a tail risk so

[1:06:05] normal distribution right bell curve

[1:06:07] anytime you have a which let me just

[1:06:09] pull up a normal distribution here

[1:06:11] normal distribution so you can see it a

[1:06:13] little better. I always feel like when

[1:06:14] people hear tail risk and they're not

[1:06:16] into like stats, they're just not really

[1:06:18] going to understand it. Uh what a tail

[1:06:20] is, you know, millennials have a

[1:06:22] different definition for tail than than

[1:06:24] staticians or other generations. But

[1:06:26] anyway, uh this is a normal distribution

[1:06:28] here, right? And then you would have a

[1:06:30] one standard deviation in each

[1:06:31] direction, two standard deviations each

[1:06:32] direction. Okay, you get the idea. Your

[1:06:34] tail risk is really what's on the left

[1:06:36] side or the right side. So this would be

[1:06:38] your uh in the case of uh growth for the

[1:06:41] stock market uh a right risk right tail

[1:06:43] risk would be an upside risk upside

[1:06:46] hedging you know an explosion to the

[1:06:48] upside and bullishness and then of

[1:06:50] course the left uh tail would be your

[1:06:52] downside risk. Drum Powell says uh

[1:06:56] however fat or or risky right the the

[1:06:59] greater the risk the fatter the tail

[1:07:01] right so let's assume that this right

[1:07:03] here is about a 5% risk right here if

[1:07:06] you fatten the tail uh then maybe it's a

[1:07:08] 20% risk right whatever drone Powell

[1:07:12] made this interesting quote he says

[1:07:13] however fat you think the tails are they

[1:07:16] are in reality fatter which actually

[1:07:19] implies that the market doesn't really

[1:07:21] have this much of a normal distribution

[1:07:23] it probably means it has more of a flat

[1:07:26] distribution, right? Uh to indicate that

[1:07:28] hey, the upside could be greater and the

[1:07:30] downside could be greater. Obviously, um

[1:07:34] the Christine Lagod of the ECB is uh

[1:07:38] quite bearish. She uh she thinks that

[1:07:40] the the energy shock that is coming is

[1:07:43] devastating and recessionary and and

[1:07:45] she's quite worried about the impacts of

[1:07:48] this economy. So, she certainly has a

[1:07:51] very very high uh left tail risk over

[1:07:53] here. One thing that Powell though says

[1:07:55] that isn't too risky, which is

[1:07:58] interesting, is uh he actually says

[1:08:00] private credit uh is uh is is really not

[1:08:04] showing any kind of sign of uh

[1:08:07] contagion. He does say that we're in a

[1:08:09] correction right now, but it's it's not

[1:08:10] systemic. One thing that I actually

[1:08:12] mentioned to course members, which

[1:08:13] remember you can always be a part of

[1:08:14] that over at me.com, but one thing that

[1:08:16] I mentioned to course members in our

[1:08:18] latest alpha report was that private

[1:08:20] credit does appear to be stabilizing.

[1:08:22] And one of the charts that evidences

[1:08:24] this is actually right here. Uh so this

[1:08:27] is a a chart that was normalized uh at

[1:08:30] the point of the war basically February

[1:08:32] 27th. So assume that you know these bond

[1:08:35] prices are really you know 70 60 cents

[1:08:38] on the dollar or whatever. But then what

[1:08:39] they did is they took that number and

[1:08:41] they normalized it at 100. So even

[1:08:43] though it says 100 that probably still

[1:08:45] represents minus 30 or 40% because of

[1:08:47] the fall that's happened right now. Now,

[1:08:49] anyway, since then, uh since February

[1:08:52] 27th, over the last month, uh private

[1:08:54] credit has actually indicated uh less

[1:08:57] stress uh than than the stress that we

[1:08:59] were seeing previously, which is a

[1:09:02] bullish sign that maybe there are

[1:09:05] actually banks buying the dip on private

[1:09:07] credit and private credit is

[1:09:09] stabilizing, which economically is

[1:09:11] great. You know, if jobs can stabilize

[1:09:13] and private credit can stabilize,

[1:09:16] fantastic. Then Jerome Powell is 100%

[1:09:18] right to be optimistic on the medium to

[1:09:20] longer term. You know, he thinks that

[1:09:22] artificial intelligence and the

[1:09:24] productivity generated by AI will create

[1:09:26] plenty of opportunities. I mean, gosh, I

[1:09:28] mean, I think we've, you know, we've

[1:09:30] we've hired so many people because of

[1:09:33] artificial intelligence because we're

[1:09:34] we're developing so much software at my

[1:09:36] startup, both for stocks and real

[1:09:38] estate, which is so exciting. when we've

[1:09:40] got our valuation AI coming uh after the

[1:09:42] real estate AI beta that we've already

[1:09:44] released. The next iteration is still on

[1:09:46] schedule for Q2 here. And what's really

[1:09:48] remarkable about it is, you know, we've

[1:09:50] hired more because of AI. Uh you know,

[1:09:53] even though we let some people go and

[1:09:55] sort of the GNA rules, we've hired more

[1:09:57] software developers like substantially.

[1:09:59] It's incredible what we're able to do.

[1:10:00] So I actually agree with Jerome Powell

[1:10:02] that you could be optimistic on an

[1:10:04] economy creating new opportunities and

[1:10:06] and plenty of opportunities, which is uh

[1:10:08] really exciting. Uh as far as job

[1:10:11] creation though, he admits, you know,

[1:10:13] we're in an environment of low job

[1:10:14] creation and uh this obviously comes at

[1:10:17] the same time as what we're seeing in

[1:10:19] Iran being a big poopy dupy. Goldman

[1:10:21] Sachs thinks that uh this is still going

[1:10:23] to be a uh 1 to two month issue and in

[1:10:26] that case they they don't actually think

[1:10:28] now is the best time to be shorting

[1:10:30] anymore, which also seems somewhat

[1:10:32] bullish. They kind of sort of imply that

[1:10:34] maybe some of the worst might already be

[1:10:36] over. Uh but in part they hedge this by

[1:10:40] saying that the market is still pricing

[1:10:41] this as an oil price spike not a

[1:10:44] longerterm issue. Uh one way that we see

[1:10:47] this measured is people will stack up

[1:10:49] the 10-year Treasury yield skyrocketing

[1:10:51] but then oil skyrocketing even higher.

[1:10:54] And the argument is that the longer oil

[1:10:56] prices stay up the longer the 10ear

[1:10:58] should go up. So one of two things

[1:11:01] historically needs to happen. uh

[1:11:03] historically we either see gold price or

[1:11:06] oil prices plummet or the 10-year goes

[1:11:08] up even more. Obviously the 10-year

[1:11:10] going up even more would

[1:11:12] increase risk in private credit uh be a

[1:11:15] negative weight on the stock market and

[1:11:17] create other problems which aren't

[1:11:19] ideal. Uh then if um you know

[1:11:22] alternatively if if oil collapses which

[1:11:25] would be the best case scenario on some

[1:11:27] form of maybe some negotiated peace

[1:11:29] talks or whatever uh then uh then

[1:11:31] markets will be right. The stock market

[1:11:34] will likely rally rapidly and oil can

[1:11:36] hopefully settle back down at $80 a

[1:11:38] barrel higher than where it was because

[1:11:40] of some of the permanent damage that's

[1:11:41] occurred. But uh you know that's that's

[1:11:45] better than where we sit today as we

[1:11:46] were approaching $120 per barrel this

[1:11:48] morning. Not great. Now, in fairness,

[1:11:51] some of this has cooled again a little

[1:11:52] bit. We're back down to right now about

[1:11:54] 112 from about the 115 where we were

[1:11:57] this morning. Now RBC unfortunately

[1:12:00] indicates that there's really no easy

[1:12:02] way out of this conflict because if

[1:12:04] Donald Trump declares victory too soon

[1:12:05] without extracting that uranium uh

[1:12:07] Donald Trump may lose whatever

[1:12:09] credibility the United States has left

[1:12:11] and it basically gives this de facto

[1:12:14] control of the straight of Hermuz to

[1:12:16] Iran which would be a worse loss than

[1:12:19] had you just not invaded in the first

[1:12:21] place. Uh again, all eyes also though

[1:12:24] not just on Iran and negotiations, but

[1:12:26] also the Houthis when they became

[1:12:28] involved in a conflict in 2023 with the

[1:12:31] Red Sea. They ended up firing 150

[1:12:34] attacks against ships in the Red Sea,

[1:12:36] the Arabian Sea, and the Gulf of Aiden.

[1:12:39] All this is problematic because they're

[1:12:42] just now entering the war again. And if

[1:12:44] they have any capacity like they did

[1:12:46] then, we we expect Red Sea disruptions

[1:12:49] to lead to more inflationary impetities,

[1:12:53] not fewer. Now, we'll see where all this

[1:12:56] goes. Uh obviously, the stock market

[1:12:58] today is uh you know, somewhat neutral.

[1:13:00] You're getting a little bit of a deadcat

[1:13:02] bounce off of uh the collapse that we

[1:13:05] saw last week. Uh last week was pretty

[1:13:08] much a red day straight through and

[1:13:10] through or red, you know, every day was

[1:13:12] was essentially a red day. A lot of

[1:13:15] people looking for opportunities to buy

[1:13:16] the dip though. Uh as uh as Bloomberg is

[1:13:19] citing, a lot of people on Robin Hood at

[1:13:21] least are not buying the dip. They're

[1:13:23] actually uh waiting, which then makes

[1:13:25] you wonder, is it time to inverse the

[1:13:27] inverse? Who knows? But uh as as we've

[1:13:29] been calling since last week uh VCX uh

[1:13:33] this is uh an absolute crap show of a

[1:13:36] lowflat uh NAV uh play here. Uh and uh

[1:13:41] it has been collapsing as expected. I

[1:13:44] think it'll go all the way down to $20,

[1:13:46] but um honestly it might even slingshot

[1:13:49] past that. So anyway, this still has

[1:13:51] some work to do. Yet another 37% day

[1:13:54] down. Uh remember if you want to hear

[1:13:56] all of my takes and calls on the market,

[1:13:58] make sure you're part of the membership

[1:13:59] over at mekevin.com. Otherwise, there's

[1:14:01] uh your summary on what Powell said

[1:14:02] today and what's going on in Iran.

[1:14:05] Donald Trump at the same time escalating

[1:14:07] and trying to deescalate, which he likes

[1:14:10] to do Monday morning. So anyway, uh

[1:14:13] there you have it. Good luck out there

[1:14:15] and uh well, all right. Wish you the

[1:14:18] best.