A broad economic recovery is suddenly gathering speed, calling millions of Americans back to work. That's the message tonight of Jerome Powell, the chair of the Federal Reserve. The "Fed," as it's known, regulates our economy by controlling the supply of money, setting interest rates and overseeing major banks. We sat down with Chairman Powell in his Washington headquarters this past Wednesday, one year after the COVID crash wiped out 22 million jobs.
Scott Pelley: Is the economy still in jeopardy?
Jerome Powell: I would say this. What we're seeing now is really an economy that seems to be at an inflection point. And that's because of widespread vaccination and strong fiscal support, strong monetary policy support. We feel like we're at a place where the economy's about to start growing much more quickly and job creation coming in much more quickly. So the principal risk to our economy right now really is that the disease would spread again. It's going to be smart if people can continue to socially distance and wear masks.
Scott Pelley: You seem to be saying, not about COVID, but about the economy, that we're out of the woods.
Jerome Powell: Well, I'd say that we and a lot of private sector forecasters see strong growth and strong job creation starting right now. So really, the outlook has brightened substantially.
Scott Pelley: What are your projections for growth and employment?
Jerome Powell: If you look at what private sector forecasters are saying or what forecasters who sit around this table who are on the Federal Open Market Committee, our rate setting committee, what they're forecasting is growth for this year in the range of 6% or 7%, which would be the highest level in, you know, 30 years. Or even maybe a little bit higher. And forecasting unemployment to move down substantially from 6%, where it is now, maybe to between 4% and 5%.
Scott Pelley: It seems like you're not expecting a recovery, you're expecting a boom.
Jerome Powell: Well, I would say that this growth that we're expecting in the second half of this year is going to be very strong.
Jerome Powell, who prefers to be called "Jay" is 68—a lawyer who made a fortune on Wall Street. He was appointed to the Federal Reserve board by President Obama and elevated to chairman by President Trump.
Scott Pelley: It seems like everywhere I go now, I see a closed storefront next to a business with a "Help Wanted" sign. Can you explain this recovery to me?
Jerome Powell: Yes, it's just a very unusual recovery. What you're seeing is some parts of the economy are doing very well, have fully recovered, have even more than fully recovered in some cases. And some parts haven't recovered very much at all yet. And those tend to be the ones that involve direct contact with the public. Travel, entertainment, restaurants, things like that.
Scott Pelley: I met a woman recently, Courtney Yoder, who was working fulltime but still living in a tent. And then COVID came along and she lost her restaurant job.
Courtney Yoder: There was times where I wanted to give up and, you know what I mean, not be alive anymore. And just be like, you know what I mean, "Things are never going to get better,"
Scott Pelley: When does she, and everyone else like her, get their jobs back?
Jerome Powell: You know, there are something like 8.5, 9 million people, maybe even more than that depending on how you count it, who were working in February of last year before the pandemic and have lost their jobs. It's going to take some time. The good news is that we're starting to make progress now. The numbers show that people are returning to restaurants now. We're not going to forget those people who were left on the beach really without jobs as this expansion continues. We're going to continue to support the economy until recovery is really complete.
Scott Pelley: You have people living in tents about a block from here. Have you seen them?
Jerome Powell: Yes, I have. Yes, I can tell you exactly where they are. I see them coming to and from work regularly.
Scott Pelley: When you see those tents. What do you tell yourself?
Jerome Powell: Well, it tells me that we don't have the answer to everything. But we, the job that we do for the benefit of the public is incredibly important. And we do understand that, that if we get things right, we can really help people. If the people who are at the margins of the economy are doing well, then the rest of it will take care of itself.
We last spoke to Powell 11 months ago as he faced a crash unlike any other. He didn't say it then, but he told us now that the Fed's worst-case predictions at that time were – as he puts it—unspeakable.
Jerome Powell: We did not know how the economy would perform. We did not know the path of the disease. We had no idea when and how long it would take to do a vaccine.
The unknowns were "terrifying" Powell told us. So, he became a vocal advocate for Congress's multi-trillion dollar COVID Relief Bills.
Scott Pelley: What do you think would've happened to the economy if the COVID Relief Bills had never passed?
Jerome Powell: You know, I hate to even think. It would've been so much worse. Congress, in effect, replaced people's incomes. Kept them in their homes, kept them solvent, kept their lives together with what they did in the CARES Act. It was heroic.
For his part, Powell invoked the Fed's emergency lending powers. He lowered the benchmark interest rate to near zero and he continued to buy trillions of dollars in bonds on the open market to keep credit flowing freely.
Jerome Powell: So I think if you look back a year ago to when we last spoke, the economy's actually performed better than we had feared. Substantially better. The other side of that, though, is if you told me at this time last year that 550,000 plus people and counting would die of COVID-19, I would have been shocked. You know, it's a lot of tragedy. It really is. And we don't want to forget that.
The Fed's easy money helped rescue the nation, but cheap borrowing can also fuel excessive risk taking in the stock markets. This year, investors have borrowed more than $800 billion to speculate in stocks. Last time there was a run up that fast was just before 2008's Great Recession.
Scott Pelley: Is what's happening in the stock market today in your view rational or is it a speculative bubble?
Jerome Powell: We look after broader financial stability, which includes a bunch of things. How resilient is the financial system? How much capital? How much liquidity? How much risk management? Does it function in the face of significant shocks? One other piece of it though, we do look at asset prices. And I would say, you know, some asset prices are elevated by some historical metrics. Of course, there are people who think that the stock market is not over-valued, or it wouldn't be at this level. We don't think we have the ability to identify asset bubbles perfectly. So, we focus on, what we focus on is having a strong financial system that's resilient to significant shocks, including if values were to go down.
There was a shock last month when a private hedge fund called Archegos, went bust after it borrowed billions to speculate in stocks. The stocks included ViacomCBS. Banks that loaned Archegos the money suffered massive losses.
Jerome Powell: This is an event that we're monitoring very carefully and working with regulators here and around the world to understand carefully. What's concerning about it though is, and surprising, frankly, is that a single customer, client, of one of these large firms could result in such substantial losses to these large firms in a business that is generally thought to present relatively well understood risks. So that is surprising and concerning. And, you know, we're going to understand that and get to the bottom of it.
Scott Pelley: The chances of a systemic breakdown like in 2008 are what today?
Jerome Powell: The chances that we would have a breakdown that looked anything like that where you had banks making terrible loans and investment decisions and needing and having low levels of liquidity and weak capital positions, and thus needing a government bailout, the chances of that are very, very low. Very low. But the world changes. The world evolves. And the risks change as well. And I would say that the risk that we keep our eyes on the most now is cyber risk. That's really where the risk I would say is now, rather than something that looked like the global financial crisis.
Scott Pelley: Well, when you talk about cyber risk, what are you talking about? What kind of scenarios are you looking at?
Jerome Powell: There are scenarios in which a large financial institution would lose the ability to track the payments that it's making. Where you would have a part of the financial system come to a halt, or perhaps even a broad part. And so, we spend so much time and energy and money guarding against these things. There are cyber-attacks every day on all major institutions now. That's a big part of the threat picture in today's world.
The Federal Reserve system, in its current form, was created by Congress in 1935-- the same time its Washington headquarters was built as a project to create jobs in the Great Depression. The Fed's mandate is to keep the economy warm enough to produce maximum employment but not so hot as to set off runway inflation.
Scott Pelley: What the Fed has done traditionally is use economic models to predict inflation and then raise interest rates, tap the brake if you will, before inflation happens. Is that what you're planning on doing?
Jerome Powell: No, it's not. And really, what we've done is we've updated our understanding of the economy and therefore, our policy framework to the way the economy has evolved. The economy has changed. And what we saw in the last couple of cycles is that inflation never really moved up as unemployment went down. We had 3.5% unemployment, which is a 50-year low for much of the last two years before the pandemic. And inflation didn't really react much. That means that we can afford to wait to see actual inflation appear before we raise interest rates. Now, we don't want inflation to go up materially above 2% and go back to, you know, the bad, old inflation days that we had when you and I were in college back a long time ago. But at the same time, we do have the ability to wait to see real inflation. And that's what we plan on doing.
Scott Pelley: And when it hits 2%, how patient are you going to be?
Jerome Powell: Well, what we said was we want to see inflation move up to 2%. And we mean that on a sustainable basis. We don't mean just tap the base once. But then we'd also like to see it on track to move moderately above 2% for some time. And the reason for that is we want inflation to average 2% over time. And when we get that, that's when we'll raise interest rates.
We forget what Powell calls the "bad old inflation days." In 1980, the Fed's benchmark interest rate was 20%. People took out mortgages near that rate.
Scott Pelley: Whatever happened to inflation? It seems about 1981 it took a nosedive. And now, we have an entire generation of Americans who've never seen rapidly increasing interest rates or prices.
Jerome Powell: That's right. That's one thing that's so interesting about the economy is that it's ever changing. The globalization of the economy and technology have enabled-- manufacturing to take place all around the world. It's very hard for people in wealthy countries to raise prices or to raise wages. It's hard for workers to raise wages when wages can move overseas. It's just a different economy.
Scott Pelley: So all the way through the end of this year, you wouldn't see rates increasing?
Jerome Powell: I think it's highly unlikely we would raise rates anything like this year, no.
Other members of the Fed board don't see a rate increase even in 2022. The board meets in a grand conference room, but Powell has been alone running the meetings online. He's relieved to be vaccinated and hopes to bring the Fed staff back in the fall.
Scott Pelley: At this moment in time, what's the best guarantee that you can make to the American people?
Jerome Powell: I'm in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.
Produced by Henry Schuster. Associate producer, Sarah Turcotte. Broadcast associate, Sheena Samu. Edited by Sean Kelly.