Transcript: NPR's Full Interview With Fed Chairman Jerome Powell

In an interview on Friday with NPR's Steve Inskeep, Federal Reserve Board Chairman Jerome Powell took questions about the current financial crisis, income inequality and about economic recovery.

Steve Inskeep: I want to begin with your Jackson Hole announcement. I was trying to think of some way to summarize in my own words what you were telling me or telling us. And one thing that I came up with is you're saying you're going to worry less about the economy overheating. If inflation gets a little high, if employment gets a little high, you're going to be less quick to stamp on it. Is that a fair summary?

Jerome Powell: Yes, it is. In fact, what we've learned is that unemployment can be even lower than we thought and not result in troubling levels of inflation. So we saw that, for the last couple of years before the pandemic arrived. We had 3.5% unemployment, which was sort of the lowest period of sustained unemployment in 50 years. And we didn't see inflation result. Now, if you go back 50 years, inflation would have reacted very strongly to low levels of unemployment. So we saw that it didn't. I mean, the underlying point here is that the economy's ever-evolving and the Fed has to have a framework for reacting to changes in the economy. And this was, this process that resulted in my Jackson Hole speech, was a way of updating our monetary policy framework, our strategy, to today's economic realities.

[At this point in the interview, there were technical difficulties. The issue was resolved and the interview resumed.]

Where did inflation go? Why is it going away?

So, low and declining inflation has been a phenomenon really around the world for the last few decades. And it comes from a couple of factors. One just is that with globalization, things can be made anywhere, and that means it's difficult to raise wages or prices. So if you raise wage costs or prices, someone will find a cheaper place in the world to make a product or increasingly to deliver a service. And all of that is enabled by advancing technology. That's what has enabled globalization. So those factors are just very important in establishing a mindset where prices and wages don't go up. I mean, both wage and price inflation are a bit of a mental phenomenon. If people believe that prices will be pretty stable, then they will be — because they won't ask for very high wage increases and people who sell things won't be asking for high price increases. So, once that psychology sets in, it tends to perpetuate itself.

I can see why low wages would be seen as a problem. Why is a lack of inflation a potential problem?

So, we all know that high inflation can be a problem. And I'm old enough to remember when it was a serious problem in the 1970s. And [former Federal Reserve]