Read the Full Transcript of Powell’s Interview With CBS’s ’60 Minutes’

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(Bloomberg) — Following is a transcript of Federal Reserve Chair Jerome Powell’s interview with the CBS program 60 Minutes, as provided by CBS. The interview was conducted Thursday and was set to air Sunday evening.

For a web version of the transcript and video of the interview, see this link.

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60 MINUTES CORRESPONDENT SCOTT PELLEY: I’ll start with this. Is inflation dead?

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FEDERAL RESERVE CHAIR JEROME POWELL: I wouldn’t go quite so far as that. What I can say is that inflation has come down really over the past year, and fairly sharply over the past six months. We’re making good progress. The job is not done and we’re very much committed to making sure that we fully restore price stability for the benefit of the public.

PELLEY: But inflation has been falling steadily for 11 months.

POWELL: Right.

PELLEY: You’ve avoided a recession. Why not cut the rates now?

POWELL: Well, we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is coming down. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.

And, you know, we want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.

PELLEY: What is it you’re looking at?

POWELL: Basically, we want to see more good data. It’s not that the data aren’t good enough. It’s that there’s really six months of data. We just want to see more good data along those lines. It doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good. And so, we do expect to see that. And that’s why almost every single person on the, on the Federal Open Market Committee believes that it will be appropriate for us to reduce interest rates this year.

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PELLEY: When?

POWELL: Well, that will depend on the data. You know, the best we can do is to weigh the risk of moving too soon against the risk of moving too late and make that judgment in real time. So that time is coming, I would say, based on what we expect. The kinds of things that would make us want to move sooner would be if we saw weakness in the labor market or if we saw inflation really persuasively coming down. The kind of things that would make us want to move later would be if inflation were to be more persistent, for example.

PELLEY: What’s the danger of moving too soon?

POWELL: Danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading. We don’t think that’s the case. But the prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.

PELLEY: Moving too soon would set off inflation again.

POWELL: You could. Or you could just halt the progress. I think more likely if you move too soon, you’d see inflation settling out somewhere well above our 2% target. So, we think we can be careful in approaching this decision just because of the strength that we’re seeing in the economy.

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PELLEY: And what is the danger of moving too late?

POWELL: If you move too late, then policy would be too tight. And that could easily weigh on economic activity and on the labor market.

PELLEY: Making a recession.

POWELL: Right. And we have to, we have to balance those two risks. There is no, you know, easy, simple, obvious path. We have to balance the risk of moving too soon, which, as you mentioned, or too late. And there are different risks. We think the economy’s in a good place. We think inflation is coming down. We just want to gain a little more confidence that it’s coming down in a sustainable way toward our 2% goal.

PELLEY: You disappointed a lot of people on Wednesday.

POWELL: We’re very focused on our jobs, you know? We’re focused on the real economy and doing the right thing for the economy and for the American people over the medium and long term. And I can’t overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don’t have to think about it in their daily lives. In their daily economic lives, inflation is just not something that you talk about. That’s where we were for 20 years. We want to get back to that, and I think we are on a path to that. We just want to kind of make sure of it.

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PELLEY: Why is your target rate 2%?

POWELL: So over, really over the course of the last few decades, central banks around the world have adopted – advanced economy central banks have adopted a 2% target. Why isn’t it zero, I guess, is the question. And the reason is 2% is if interest rates always include an estimate of future inflation.

If that estimate is 2%, that means you’ll have 2% more that you can cut in interest rates. The central bank will have more ammunition, more power to fight a downturn if rates are a little bit higher. In any case, that’s become the global norm. And it’s a pretty stable equilibrium and it seems to serve the public well.

PELLEY: Are you committed to getting all the way to 2.0 before you cut the rates?

POWELL: No, no. That’s not what we say at all, no. We’re committed to returning inflation to 2% over time. I’ve said that we wouldn’t wait to get to 2% to cut rates. In fact, you know, we’re actively considering now going forward cutting rates, and on a 12-month basis inflation, you know, is not at 2%. It’s between 2-3%. But it’s moving down in a way that, that it gives us some comfort.

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PELLEY: So what is your best forecast for inflation right now?

POWELL: I think the base case, the main expectation I would have, is that inflation will continue to move down in the first six months of this year, we expect. So, we look at inflation over a 12-month basis. That’s our target. And the first five months of last year were fairly high readings.

Those are going to fall out of the 12-month window and be replaced by lower readings. So, I do expect that you will see the 12-month inflation readings coming down over the course of this year. We’ve seen inflation pressures subsiding really for a couple of reasons.

One is the reversal, the unwinding of these unusual pandemic-related distortions to both, to both supply and demand. And the other is our tightening of policy, which was absolutely essential in getting — it’s a part of the story for why inflation’s coming down. Not the whole story, by far.

PELLEY: Inflation is one thing. Prices are another. And I wonder if there’s any reason to believe that people will see the prices of things decline?

POWELL: So, the prices of some things will decline. Others will go up. But we don’t expect to see a decline in the overall price level. That doesn’t tend to happen in economies, except in very negative circumstances. What you will see, though, is inflation coming down.

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People are experiencing high prices. If you think about the basic necessities, things like, you know, bread and milk and eggs and meats of various kinds, if you look back, prices are substantially higher than they were before the pandemic. And so, we think that’s a big reason why people are, have been relatively dissatisfied with what is otherwise a pretty good economy.

PELLEY: But those prices will not soften short of something like a recession?

POWELL: Some of them will. In particular, things that are affected by commodity prices, like, for example, gasoline prices have come way down. Some food prices that incorporate the price of commodities, grains and things like that, those can come down.

But the overall price level doesn’t come down. It will fluctuate. And some goods will, goods and services will go up, others will go down. But overall, in aggregate, the price level doesn’t tend to go down except in fairly extreme circumstances.

PELLEY: Many in the financial industry expect you to lower rates sitting around this table in your (next) meeting in March.

POWELL: So we’re very focused on doing the right thing for the economy in the medium and the longer term. Of course we pay attention to markets and we understand what’s going on in financial markets around the world, really. It’s part of our job.

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But I would say our focus is on the goals Congress has assigned us, which are maximum employment and price stability. And so, what the overall situation, as we see it now, is we’ve got strong economic growth. We’ve got healthy labor market with historically low unemployment, and we’ve got inflation moving down.

This is, this is a very positive collection of things. This is a good economy. There’s every reason to think that it (will) continue to get better, provided that there aren’t events around the world which disrupt that. And also, we’re focused on using our tools to make sure that that’s what happens.

Part of that is picking the time to begin to dial back the restrictive policy. And we want to approach that question carefully. It’s a very important decision. And I said yesterday after our meeting, after our FOMC meeting, that we would approach that question carefully.

PELLEY: The next meeting around this table that will decide the direction of interest rates is in this coming March. Knowing what you know now, is a rate cut more likely or less likely at that time?

POWELL: So, the broader situation is that the economy is strong, the labor market is strong, and inflation is coming down. And my colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance.

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That time is coming. We’ve said that we want to be more confident that inflation is moving down to 2%. And I would say, and I did say yesterday, that I think it’s not likely that this committee will reach that level of confidence in time for the March meeting, which is in seven weeks.

So, I would say that’s not the most likely or base case. However, all but a couple of our participants do believe it will be appropriate to, for us to begin to dial back the restrictive stance by cutting rates this year. And so, it is certainly the base case that, that we will do that. We’re just trying to pick the right time, given the overall context.

PELLEY: This past December in your quarterly report, the Fed predicted rate cuts this year down to about 4.6%. Still likely?

POWELL: Those forecasts were made in December. And those are individual forecasts made by participants. It’s not a committee plan. We don’t update those at every meeting. We’ll update them at the March meeting. I will say, though, nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.

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PELLEY: So something around a 4.6% interest rate is likely?

POWELL: I would say it this way. It’s really going to depend on the data. The data will drive these decisions. And we can’t do any better than to look at the data and ask ourselves, “How is this affecting the outlook and the balance of risks?” That’s what we’ll be doing. So, what we actually do will depend on how the economy evolves.

PELLEY: How would you characterize the consensus around this table for rate cuts? Is everyone onboard? Most people?

POWELL: Almost all. Almost all of the 19 participants who sit around this table believe that it will be appropriate in their most likely case for us to cut the federal funds rate this year. So, the consensus, though, the thing that really comes out in people’s thinking as we discuss this around the table, is that what we actually do is really going to depend on the evolution of the economy.

So, if the economy were to weaken, then we could reduce rates earlier and perhaps faster. If the economy were to prove — if inflation were to prove more persistent, that could call for us to reduce rates later and perhaps slower. So, it really is going to be dependent on the incoming data as that affects the outlook.

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PELLEY: Your decisions inevitably are going to have a bearing on this year’s election. And I wonder, to what degree does politics determine your timing?

POWELL: We do not consider politics in our decisions. We never do. And we never will. And I think the record — fortunately, the historical record really backs that up. People have gone back and looked. This is my fourth presidential election in the Fed, and it just doesn’t come into our thinking, and I’ll tell you why.

Two reasons. One, we are a non-political organization that serves all Americans. It would be wrong for us to start taking politics into account. Secondly, though, it’s not easy to get the economics of this right in the first place. These are complicated, you know, risk-balancing decisions.

If we tried to incorporate a whole ‘nother set of factors in politics into those decisions, it could only lead to worse economic outcomes. So, we simply don’t do that, and we’re not going to do it. We haven’t done it in the past, and we’re not going to do it now.

PELLEY: There are people watching this interview who are skeptical about that.

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POWELL: You know, I would just say this. Integrity is priceless. And at the end, that’s all you have. And we in, we plan on keeping ours.

PELLEY: As you look toward adjusting rates, what are the specific factors in the economy that are going to guide that decision?

POWELL: So, we look at the totality of economic activity, in particular I’ll point to two things. One just is the progress of inflation, what’s happening with inflation. What’s the story behind the numbers that we’re seeing?

Are we see(ing) continuing progress down to 2%? Does it give us more confidence that we’re on a sustainable path to 2%? That’s a critical thing. The second thing is, you know, we are dual-mandate central bank. We have a maximum employment mandate which is equal to our price stability mandate.

So, we’ll be looking at lots of labor market data to reach a judgment about the ongoing strength of the labor market. So right now, what we’re seeing in the labor market is a very strong labor market. But it’s one that’s been coming back into better balance.

If you go back a couple of years ago, there was an extreme labor shortage, and the labor market was overheating. And businesses couldn’t find workers. We lost several million people who were not in the labor force after the pandemic. We’re in a much better place now. The people have come back into the labor force. There are more workers. And the labor market is well along the road of getting back to a better balance. And we’ll be watching those things.

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PELLEY: You said that you were watching the story behind the numbers. What do you mean by that?

POWELL: So, sometimes things happen which tell you a lot about the real direction of things. And sometimes they seem idiosyncratic or transitory. And which means that they will go away quickly without any action on our part. So, we have to judge that.

Looking at any set of economic data, you’ve got to ask yourself, “OK, how much — what’s this telling me about the future?” What is the past. That’s the rearview mirror. What we’re always trying to ascertain is what’s going to happen going forward. And that’s not easy.

But you’ve got to distinguish between (those) that will have persistent effects and those that won’t. So, the story does matter. For example, with inflation, we break it down into goods inflation, housing services inflation, and non-housing services inflation.

Behind each of those three buckets, there’s a lot going on. And they, together — we don’t care what the allocation is, but together they’ve got to put together a story that says that inflation is coming back down to 2%. And by the way, we think it is. We think we’re making this progress. It’s just we want more confidence in that. We think we best serve the public by having a little more confidence before we make this important step.

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PELLEY: I’m curious. Do you, Mr. Chairman, have a favorite metric that you look at to keep your finger on the pulse of the economy?

POWELL: A single metric?

PELLEY: Just one thing that you look at and you think, “That really tells me something.”

POWELL: I might be able to limit myself to 20 metrics. I could not identify a single one. I would say, you know, with the labor market there’s so much. The labor market is the place where we have lots and lots of data, and better-quality data than a lot of places. And so all of us follow many things.

Inflation we tend to target. Headline inflation, which is total inflation including, you know, energy and food prices, that’s our target. But we look at core inflation, which excludes energy and food prices because that tends to be a better indication of where things are going.

PELLEY: Why did inflation surge in 2021?

POWELL: You know, it’s a complicated story as usual with economics. So, there were a number of factors. And I would say one big factor was just the effects of the pandemic. We did see inflation break out all over the world. And really, it was this unique event in modern history where the economy shut down briefly and then reopened.

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And there were big effects in many countries, including in the United States, on the number of workers that were available. But when the economy reopened, there was a lot of pent-up demand. In addition, the things people spent money on, they couldn’t spend money during the pandemic on in-person services.

So, no restaurants and things like that. So, they bought a lot, a lot of goods. So that was, all of those things were big. I think also, you know, there’s certainly a role for fiscal policy, which supported people. Those are all for monetary policy, which supported the economy. There are many, many things. And I would say the same thing on the other side. Now that inflation’s coming down, that too, is a story where there are many factors at work in having inflation come down.

PELLEY: There was a stupendous amount of government spending. To support the economy.

POWELL: Well, there was.  You know, we had a situation where the CARES Act was passed unanimously by the House and Senate. I wonder if, when the last time that happened or the next time will be. Extraordinarily unusual. And it was because the pandemic really was so unique and the range of possible outcomes was broad, and not in a good way.

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We didn’t know how quickly there would be vaccines, for example. It could’ve been years. We didn’t know how lethal the pandemic would be. So, people were very concerned about the economy.

Congress really stepped up, and we really stepped up, and you know, inflation came in March of 2021. And so that, that’s really what happened. But it was a lot of different factors, some of which are just attributable to the shutting and reopening of the economy.

PELLEY: Was the Fed too slow to recognize inflation in 2021?

POWELL: So in hindsight, it would’ve been better to have tightened policy earlier. I’m happy to say that. Really, it was this. We saw what we thought was that this inflation, which seemed to be mostly limited to the goods sector and to the supply chain story. We thought that the economy was so dynamic that it would fix itself fairly quickly. And we thought that inflation would go away fairly quickly without an intervention by us.

That it would be transitory. And that was very widely held. Not unanimously, very widely held view of economists around the world. And that the data were kind of friendly to that assessment, to that hypothesis, right up to the point when they weren’t.

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And so in the fourth quarter of ‘21, it became clear that inflation was not transitory in the sense that I mentioned. And we pivoted and started tightening. And as I said, it’s essential that we did that. It was critical that we did that. And that’s part of the story why inflation’s going down now.

PELLEY: Critical that you did that.

POWELL: It was critical that we do that, yes. We had to do that. And we did, and I’m glad we did. I don’t think we’d be where we are. Again, we’re not the only reason that inflation’s coming down. But part of the story is that we stepped up and raised rates.

And so it is — tight monetary policy is now working with the healing, really, on the supply side. The unwinding of those distortions from the pandemic that you know, that helped give rise to inflation in the first place.

PELLEY: Those sharp and repeated increases in interest rates were absolutely mandatory in your view?

POWELL: In my view, they were, yes.

PELLEY: Despite the pain they caused?

POWELL: Well, interesting, you know, we were being honest, and I was being honest in saying that we thought there would be pain. And we thought that the pain would likely come, as it has in so many past cycles, in the form of higher unemployment. That hasn’t happened.

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It really hasn’t happened. The economy has continued to grow strongly. Job creation has been high. Unemployment is still, you know, bouncing around near 50-year lows. The labor market is very, very strong still. So really the kind of pain that I was worried about and so many others were, we haven’t had that. And that’s a really good thing. And, you know, we want that to continue.

PELLEY: A really good thing and a really curious thing. Most any economist would’ve told you that you’d have to have a recession to bring the rates down. And that didn’t happen. And I wonder why?

POWELL: Yeah, it’s historically unusual. And I think we’ll be able to say much more definitively when we’re looking back years from now what, why it is. But I’ll tell you why I think it is. And that is that it was these pandemic-related distortions, both of demand and supply.

So with demand, we had people spending money so much on goods and not so much on services. And supply, if you look at the cars — cars are a great example. You need lots and lots of semiconductors to build cars these days. I have to admit I wasn’t actually that aware of that.

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But there was a semiconductor shortage because so many people were buying goods that, that involve a lot of semiconductors. So, while demand for cars was spiking because people didn’t want to ride public transportation, for example, and they’re moving to the suburbs, while that’s happening you can’t get semiconductors, you can’t make cars.

So, there’s a shortage. So, what happened is inflation just spiked. But as the semiconductor supply came back, prices, the inflation has moderated a great deal. So really, these unique features of the pandemic did reverse in a way that brought inflation down.

PELLEY: So, this is not evidence that the American economy has changed in some fundamental and enduring way.

POWELL: As a result of the pandemic? I don’t think we know that. I think a couple things. One is just work from home. That is a change. We do see that that looks like it’ll be a persistent thing. And the jury is out on how frequent that will be or how prevalent that will be.

But that’s a new thing, I think, that’s different. And there will be other things that come out of the pandemic. We’re much better now at communicating from home and from other places. Remote communication just suddenly was available and including with video. Suddenly we were making all of our calls on video. It was a new thing.

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PELLEY: I have spoken to many young couples recently who have said they can’t imagine how they could afford a mortgage today. What do you say to them?

POWELL: Well, Congress has given us the job of providing maximum employment and price stability. And that means when inflation comes, when high inflation really threatens to become persistent, we use our tools to bring down inflation. It’s very important for that young couple — and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.

And we will. We will do so. But what that means is that interest-sensitive spending like mortgages and buying, you know, durable goods and things like that, that’s going to be expensive for a while. That’s going to slow the economy down. But this is all part of getting back to a place of price stability when interest rates can be low again on a sustainable basis.

PELLEY: You’re asking the American people for patience?

POWELL: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we’re coming through that time and starting to feel a little bit better about things. Mortgages rates have come down in anticipation, come down a bit in anticipation of lower rates.

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But, you know, we do what we’re charged to do when we need to do it. And that was to try to slow the economy down a bit. And the interest to get inflation down in the interest-sensitive areas, particularly housing are, you know, a good example of the kinds of things that do slow down when rates go up.

PELLEY: Well, the housing market is falling. Hiring is also slowing at this moment. And I wonder if these are yellow flashing lights for a recession?

POWELL: So, we’re watching really carefully. And I would say there’s always a possibility of a recession at any given time. But I wouldn’t say that that possibility of a recession isn’t all elevated right now, and I’ll tell you why.

We just finished a year in which the economy grew 3.1%. That’s a really healthy growth rate. The fourth quarter growth rate was actually a little better than that. So, growth is fine. You’re right — the net hiring by businesses and nonprofits, the number is coming down.

But it’s coming down from very, very high, unsustainably high levels. It’s been gradually coming down. It’s still at a very, very healthy level. I think 165,000 new jobs per month over the last quarter. That’s a good number for an economy our size.

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So, the labor market’s still very healthy. We’re highly attentive to any evidence of the labor market weakening. And, you know, on balance you’d have to say that what we’re seeing, what we would have hoped to see, which is a labor market coming back into better balance from being overheated a couple of years ago to more normal data. So, the level of quits, the level of job openings, the level of new job creation, wage increases, all of those things are gradually coming back to what was typical of a really healthy economy before the pandemic.

PELLEY: How do you assess the national debt?

POWELL: We mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job when actually they have oversight over us. So, the national debt doesn’t play a big role in our thinking. Doesn’t play any role, actually, in our thinking. When Congress does deficit spending, that can be stimulative, that goes into our models. But we don’t — it’s not our role at all to be a judge of fiscal policy in any way.

PELLEY: But is the national debt a danger to the economy in your review? You are this country’s central banker.

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POWELL: So, it, I would say this. In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government’s on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don’t think that’s at all controversial. And I think we know that we have to get back on a sustainable fiscal path. And I think you’re starting to hear now from people in the elected branches who can make that happen. It’s time that we got back to that focus.

I think the pandemic was a very special event, and it caused the government to really spend to ward off what looked like very severe downside risks. It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.

PELLEY: I have the sense this worries you very much.

POWELL: Over the long run, of course it does. You know, we’re effectively — we’re borrowing from future generations. And every generation really should pay for the things that it, that it needs. It can cause the federal government to buy the things that it needs for it, but it really should pay for those things and not hand the bills to our children and grandchildren.

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I think this is, again, not controversial. But it’s difficult from a political standpoint. It’s not our business, really. But I do think it’s pretty widely understood that it’s time for us to get back to putting a priority on fiscal sustainability. And sooner’s better than later.

PELLEY: Urgent?

POWELL: You could say that it was urgent, yes.

PELLEY: The value of commercial office buildings all across the country is dropping as people work from home. Those buildings support the balance sheets of banks all across the country. What is the likelihood of another real estate-led banking crisis?

POWELL: I don’t think that’s likely. So, what’s happening is, as you point out, we have work-from-home, and you have weakness in office real estate, and also retail, downtown retail. You have some of that. And there will be losses in that.

We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. There’s some smaller and regional banks that have concentrated exposures in these areas that are challenged.

And, you know, we’re working with them. This is something we’ve been aware of for, you know, a long time, and we’re working with them to make sure that they have the resources and a plan to work their way through the expected losses. There will be expected losses.

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It feels like a problem we’ll be working on for years. It’s a sizable problem. I don’t think — it doesn’t appear to have the makings of the kind of crisis things that we’ve seen sometimes in the past, for example, with the global financial crisis.

PELLEY: You believe it’s a manageable problem?

POWELL: I think it appears to be

PELLEY: We’re not gonna see bank failures across the country as we did in 2008?

POWELL: I don’t think there’s much risk of a repeat of 2008. I also think, you know, we need to be careful about making proclamations about the — particularly about the future. Things have surprised us a lot. But no, on this, on this, I do think it’s a manageable problem. I think we’re doing a lot to manage it.

There will be certainly — there will be some banks that have to be closed or merged out of, out of existence because of this. That’ll be smaller banks, I suspect, for the most part. You know, these are losses. It’s a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.

PELLEY: One of China’s largest real estate developers just went bust, and I wonder how you see the Chinese economy.

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POWELL: Chinese economy’s meeting some challenges now, obviously. And growth has slowed. They’ve got away — gotten away from a market-led, led growth model. It’s more about the state-owned enterprises now. And it’s still too much associated with real estate investment and things like that. And you’re seeing — you’re seeing issues around commercial real estate there.

So, the question is, “How much does that matter for the United States?” You know, we have — our economic relations with China are important, but they mostly consist of our, you know, buying Chinese manufactured product. So, our financial system is not deeply intertwined with theirs.

Our economic, you know, our production systems are not deeply intertwined with theirs. So, as long as what happens in China doesn’t lead to significant disruptions in the economy or the financial system, then the implications for the United States — we may feel them a bit, but they shouldn’t be that large.

PELLEY: How great is the threat of a cyberattack on the American banking system?

POWELL:  So, American banks, and the government, and all of the people who support the banking system are very focused on cyberattacks. It’s kind of a different risk, you know? The traditional risks are more — you make bad loans, or depositors decide to take their money out of the bank, and things like that.

This is very different. And, you know, a lot of attention and a lot of spending and work goes into protection of financial institutions, not just banks, but financial market utilities, all kinds of financial companies — to try to assure that this doesn’t happen. You have to fight that battle every day. It’s never going to be over. And so I just think we’re really committed to doing, to doing exactly that.

PELLEY: Is the Fed doing enough to help these banks?

POWELL: I think we have a role. We do have a role. We’re not the biggest role but we do have a role with the banks that we supervise and regulate to assure that they have good cyber defenses in place. So, yes, we play a role. Lots of parts of the government play a role in this. And the banks themselves invest enormous amounts of money in, in cyber protection.

PELLEY: And your level of confidence is what?

POWELL: It’s day by day. I mean, this is the kind of risk that — we’re well aware of it, of course. And it tends to evolve. And, you know, the attackers are always improving their game, and the defenders have to be improving their game all the time.

And you’ve got to keep investing and staying caught up or getting ahead. That’ll never stop. So, there’ll never be a moment when you can take a breath and think, “Yeah, we’ve got this.” It’s just gonna be a race to keep up and protect these institutions. And so, that’s what we’re doing. That’s what we’ve been doing for a number of years now. And we’ll keep doing it.

PELLEY: Big picture, what would you say is the greatest threat to the world economy today?

POWELL: I think in the near term, I would point to the geopolitical risks. So, the global economy is broadly healing from the pandemic now. All over the world, you’re seeing inflation come down. And — but the thing that people are focused on is just the enormous  — there’s a war going on in Ukraine. There’s a war going on in the Middle East. And there’s trouble, potential trouble in Asia.

And so, all of those things represent risks. Right now, the effects on the United States are less. I think Europe feels the war in Ukraine much more directly than we do and will feel the, you know, the diversions of shipping around the Cape — around Cape Horn. That’s going to affect Europe much more than it’s going to affect us.

But I think those things in the near term. But overall, you know, people have been writing up, increasing their estimates of global growth lately. This year has started to look like a better year, but, again, those are, those are some of the risks in the near term.

PELLEY: You’re more optimistic than pessimistic?

POWELL: On the global economy? Broadly, yes, subject to those risks. The question will be, “Do those risks blossom into something that is actually a major economic problem?” That hasn’t happened yet. It could be the price of oil. It could just be the spreading conflict and the blow that that would strike to public confidence. But we don’t see that yet. It’s a risk. It’s a real risk and one we’re aware of.

PELLEY: What would you say is the single most important factor for the future of American prosperity?

POWELL: Single most important factor? Well, with your permission, I’ll name two things. One is I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy. More so than other countries. And this is the big reason why our economy has come through so well.

Really, the credit for all of this is the United States economy, the households and businesses that have come through this. So, what did people do when the pandemic hit? They started businesses in record numbers. That’s the kind of thing that over time, has led to greater productivity, which is the thing that leads to higher living standards. So, I think we need to remember that this is such a great thing that we have and celebrate that.

The other thing I’ll point to, for the United States, is, you know — in this role, I do spend a fair amount of time in international forums, basically with other central bank heads and also with other economic officials. And there’s a real desire for American leadership.

Really, since World War II, the United States has been the indispensable nation supporting and defending democracy, security arrangements, economic arrangements. We’ve been the leading voice on that. And it is clear that the world wants that. And I would want the United States to know, people in the United States to know, that this has benefited our country enormously. It benefits our economy so much to have this role. And I just — I hope that continues.

PELLEY: To engage with the world?

POWELL: To be engaged. Our engagement with the world is enormously beneficial to our country. And it’s, you know, being the supporter and defender of democracy, the leader of the democracies — and around security arrangements and economic arrangements, we’ve been a critical voice. And I just — I hope that would continue for the benefit of the people that we serve.

PELLEY: You are in your second term as chair. And I wonder what you might like your legacy to be.

POWELL: I would just say — I’m very focused on doing the job every day until I’m no longer doing the job. That’s all you can really do. So many things are outside your control. So, I think I want to — when I look back on this, I want to be able to say that I gave it my absolute best and that I did made the right decisions for the right reasons.

Some things aren’t going to work out. Some things are. But, ultimately, if you made the right decisions for the right reasons in real time and you gave it your absolute best, that’s what will enable me to feel, to look back and feel like I did the best I could.

PELLEY: I would argue that most people did not expect a soft landing to be possible. And yet, you appear to have pulled it off.

POWELL: Well, we haven’t yet, I would say. I’m not prepared to say that yet. We have work left to do on this. But yes, it is a historically unusual result. And I think a lot of factors have gone into that. But, you know, I’m not counting those.

PELLEY: A follow-up, Mr. Chairman, to our banking line of question. You seem confident in the banks, and yet the Silicon Valley Bank, second largest failure in U.S. history. Did the Fed miss that?

POWELL: So, yes, we did. And I would say it this way. You know, that happened, and we forthrightly saw that we needed to do better. So, we’ve spent a lot of time working on ways to make supervision more effective and also to adapt regulation to a more, to a modern context in which a bank run can happen so much faster than it could have even 20 years ago. So, we have — we accepted that right away. And, yes.

PELLEY: A bank run happening faster than it could have 20 years ago because of the communications that are available today?

POWELL: Yes.

PELLEY: It catches fire.

POWELL: Yes, with social media, and also the bank had a very high proportion of uninsured depositors who actually thought they had a reason to run. So, it was a very unusual — it was a set of characteristics which was shared by a pretty small number of banks, a very small number of banks.

It wasn’t the whole system. It was just those — but I think we look back on it and say, “Supervision should have been more effective, and also we need to, we need to find regulations which are in force all the time.” They need to be better at assuring that banks have appropriate liquidity and appropriate liquidity considering what their funding sources are. In this case, uninsured deposits were over 90% of all their deposits.

PELLEY: Have you made changes since then? And if so, what are they?

POWELL: We have. So, we’re making changes steadily in supervision to make it more effective. And we’re actually working on proposals now on the regulatory side. You know, we want to get this right. We want to learn the right lessons and get it right.

And so, we’re working on those proposals on the regulatory side. And I think we’ll be coming out with things this year for consideration, you know? When we do a rule, we send it out for comment. And then we read those comments, and we try to try to come to a good place.

PELLEY: This next follow-up question, Mr. Chairman, is about the stabilization of the labor market that we were talking about earlier. What are the important factors that caused the labor market to stabilize?

POWELL: One was just the return of workers. As I mentioned, several million people were just gone from the labor force for whatever reason. Many of them didn’t want to go back to their old jobs because of COVID or because they just didn’t want to be. They had moved on with their lives.

So, there was a desperate shortage of workers. And what happened is we expected people to come right back into the workforce in 2022. They mostly didn’t. And then we thought, “Well, maybe that’s not gonna happen.”

And then, it happened in 2023. We had a combination of rising labor force participation in prime-age workers, and we also had with that, we had a resumption of immigration. So, there was really no immigration net in or very little during the pandemic.

But in 2023, we saw immigration move back up to the levels that would have been normal before the pandemic. And those two things together made a real difference in labor supply. So, it’s really a supply story. That’s the main thing I would point to.

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that’s largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed’s job. The immigration policy of the United States is really important and really much under discussion right now, and that’s none of our business. We don’t set immigration policy. We don’t comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that’s what’s been happening.

PELLEY: When will it be that we look back and fully understand what happened to the economy over these last few years?

POWELL: So, we’re clearly making progress in getting through this now. You know, I would say that for the first time, inflation’s coming down. The labor market’s normalizing. Growth is returning. The composition of demand is returning to what it was.

So, we’re getting there. But I think the last, the last bits of normalization are probably gonna take a couple of years. And this isn’t big stuff. Just continuing normalization of the labor market and of the economy. Probably take a couple more years.

And then, we’ll be looking back, and I think I’ve been reluctant to try to draw the big lessons until, ‘cause they would have changed, you know? What we thought we were learning two years ago, we would look back and say completely different now.

Two years ago, we hadn’t seen — three years ago, we hadn’t seen inflation come up. The last time we were together was April of ‘21, I think, and that was just before the big inflation surge arrived. So, I think we need to let that run, and I think we’ll learn those lessons better starting in a couple of years.

PELLEY: You seem to be saying that bright days are ahead.

POWELL: Well, I would say it this way. The economy’s strong. The labor market’s strong. Inflation’s coming down. There’s no reason why that can’t continue. We’re gonna try to use our tools to give the economy — to continue to improve as inflation comes down. We’ll give it every chance to do that. That’s our plan. We don’t have a perfect crystal ball about the future, and things could happen. But I do think the economy is in a good place, and there’s every reason to think it can get better.

PELLEY: Thank you again, Mr. Chairman.

POWELL: Thank you.

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