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He's going direct one two three four five six seven eight nine ten four mix four One two three four five six seven eight nine ten Eleven twelve thirteen I'd back me down a little bit so I wasn't killing it when I one two three four five six seven eight nine ten eleven twelve thirteen fourteen fifteen sixteen seventeen eighteen nineteen forty Fifty one sixty two No, main left and right is the front of the lip. What's Kirk get weird in? Mains are coming out main left and right mix mix one is Once on stands which one of them set is blocked But that makes no sense because your main is all the way down Any meters either so you got you're coming out though. He's got the mono. Oh, I know what he did Hold on. Let me fix it. I got it. Hey, hey, hey, hey Check check check check. It's not rain Check check check Check check check Check check check Two two two. Hey two one two You should be getting nothing out of that mono right now. Hey, hey, hey, hey Hey, hey, hey, hey, hey Hey, hey There is okay, so what are we hearing then? Which is coming to what main one? Okay Mix one bring you down so I should get nothing good. Okay, two two two two two two one two Hey, two right there two two. Hey, two mix one select one. Hey, hey, hey, hey, hey, hey Hey, hey Two To hey Yeah, too. Hey. Yeah. Hey. Yeah, too. Okay one two. All right Who's our which camera record feed we have is this five and four? Mix four four four. Hey four. Hey one two three four Two one two three four. Hey four. Yeah. All right. What kind of level you getting to your record feed? Hey, hey. Hey. Yeah. Hey Yeah, there's no variable knob on that thing or anything no variable input Where's the peak up to like three-quarters? Hey, hey Hey, I know we're coming on channel meter and we're getting two-thirds on the camera here Which makes me wonder if we don't have a one-legged cable Hey, hey. Hey. Yeah. Hey Hey Yeah. Hey. Yeah, the input's hot. Yeah. Hey. Okay, so Happy in that. So now if I bring up my mix one Hey, hey. Hey. Hey. Hey. Hey. Hey. Hey. Check check check one two two two two I'm bring up the mains on the side. Hey. Hey. Yeah. Hey. That's where we should be working right there to to yeah to Four four four four. Hey four four one two three four Hey one hey two. Hey three. Hey four. Check check check. Hey. Yeah Yeah Take that tinny-ness out in the meantime mix four. Hey two three four Great Yeah, hey. Hey. Yeah Yeah, it's Dean is Dean this going on here. Hey. Hey one two three four Hey wonder Hey. Hey. Hey One one one. There we go. Hey One one one. Hey Hey. Hey. Hey. Hey. Hey. Hey. There we go. Check check. There we go. Check. Hey. All right One two three four got that and Back to our mix four four. Hey four Mix number four. Hey. Yeah One two three four five six seven eight nine ten. Hey. Hey. Hey. Hey. Hey two One two three four. Hey. Yeah One two Yeah, take that off there Two two What do we have for meters now? Hey? Yeah, now we're good. Cool All set One two three four five six seven eight nine ten eleven twelve thirteen seventeen eighteen nineteen twenty one two three four five six seven eight nine ten One two three four five six One two three four five six seven eight nine ten Three four five six seven eight nine ten. Sounds good. Good afternoon everyone. Will we be getting shortly in about ten minutes? We expect a full house. So I ask if any of you who are already seated in one of these Center rows here if you could raise your hand up if there's an empty seat next to you so the people who are coming in Can see where they might sit down that and get a good view. That'd be very helpful If you could just do that for about ten seconds Get a little exercise in Thank you. The easiest I've ever quieted an audience So welcome everybody. I'm Mark Schlissel the 14th president of the University of Michigan I'd like to welcome you all to this conversation with Janet Yellen as part of our amazing policy talks at the Ford School series I'd like to acknowledge several regions who are either here today or expected momentarily Region Kathy white Regent Ron wiser and Regent Andrew Richner I'd like to begin by thanking Dr. Susan Collins for her outstanding leadership of the Gerald R. Ford School of Public Policy as The Joan and Sanford Wildein of public policy for nearly ten years She's led the school to ever higher levels of national and international prominence and impact She's recruited tremendous faculty and the school's research and educational programs Emphasize making a difference in the world through discovery the development of policy solutions and global engagement Thank you Dean Collins I was in a meeting last week with our provost Paul Courant and we were discussing the macro economic value of public research universities I Asserted that while there is a clear economic impact Generated by the dollars we spend on research The larger return on investment must take into account The new knowledge and innovations developed by our faculty and the productivity of the graduates we produce Paul who's also a professor of economics at the Ford School then proclaimed that I had passed my first exam in economics So I now feel very qualified to introduce today's conversation between two outstanding economists doctors Janet Yellen and Susan Collins This event is the latest contribution of the Ford School to its impressive legacy of bringing world-class speakers and critical Intellectual discourse to the Michigan academic community This contribution reflects the highest ideals of the University of Michigan and the alumnus and former US president Who is the namesake of the school as a premier public institution? It's both our honor and our duty to examine the intersections of public policy national prosperity sovereignty and scholarship as President Ford said in 1977 during his final state of the Union address The task of self-government is never finished. The problems are great. The opportunities are greater The University of Michigan's academic strength is further enhanced by the Ford School's connections to the Federal Reserve Many U of M students and graduates have interned or worked at the Fed And three Ford School faculty members have served on or been nominated to prominent board positions Dean Collins is a board member of the Chicago Federal Reserve Bank and previously served on the Detroit branch of the Chicago Fed Two U of M graduates were recent Fed governors Don Cohn and Dan Tarullo Professor Catherine Dominguez was nominated in 2015 to serve on the board of governors And Ned Gramlich the Ford School's founding dean Served on the board of governors where he was known for expanding the role of research in decision making at a Ford school event in 2014 Douglas Elmendorf who was then the director of the congressional budget office And is now dean of harvard's kennedy school of government Said that Ned knew that getting the policy research right was essential for getting the policy right It's now my great pleasure to introduce today's special guest Dr. Janet L. Yellen has served as the chair of the board of governors of the federal reserve system Since february 2014 She is also a professor emerita at the university of california berkeley Dr. Yellen is a member of the council of foreign relations and was elected to the american academy of arts and sciences in 2001 She graduated summa cum laude from brown university with a degree in economics and earned her phd in economics from Yale Two weeks ago. She spoke at the annual conference of the national community reinvestment coalition The conference's title was creating a just economy Chair Yellen said that we must and I quote Recognize and address the barriers faced by low and moderate moderate income students Trying to attain higher levels of education Barriers not typically faced by their more well-off peers First these students often do not have friends or family who have achieved higher educational levels Which matters because students whose parents did not attend college Are much less likely to pursue a college degree themselves Second lower income students often pursue their education while working to support themselves and family members Educational programs that help students balance these competing responsibilities Go a long way to improving completion rates. I could not have said this better myself Please help me welcome chair of the board of governors of the federal reserve system Janet Yellen and the Joan and sanford-wild dean of public policy susan collins First of all, thank you very much president Schlissel for that very kind introduction And now it is such a pleasure and truly an honor chair Yellen to welcome you to the university of michigan We're just simply delighted that you're here with us Now I know that our audience is eager to hear from you. And so I suggest we jump right in and get started Great. And thank you also to president Schlissel for those Conwards of introduction and it's a pleasure susan for me to be here to have a conversation with you. Thank you Well, so we have an audience that includes people from a variety of different backgrounds And so it seemed that perhaps a place to get us started is to talk just a little bit about the fed Certainly everyone who's here has heard about the fed But I think many people really don't know exactly what it is or what it does So what do you think the general public should know about the federal reserve? That's a great question And let me start with values I think it's important for people to understand that the federal reserve Is an organization That is designed to serve the public interest and to do so in a non-partisan way The analysis on which we base our decisions We try to have it be as research based as possible and Our decisions are based on factual evidence and objective analysis Now most people know about monetary policy, which is one of our main tasks and there I would say in a general way we try to set interest rates and financial conditions more broadly to Um result in a or promote a healthy economy And more specifically congress has assigned us Two main goals. We call it our dual mandate first Low and stable inflation or price stability And second maximum employment, which means we want an economy in which as many people as possible Who are seeking work? Find a labor market where they can find find work But beyond that that's I think that's what the public focuses on most But we have a wide array of other responsibilities pertaining to the financial system First we supervise banking organizations and some other Of financial enterprises to make sure that they operate in a safe and sound fashion Second we monitor Potential threats to financial stability We certainly don't want to have another financial crisis and we want to address Threats in the environment that could lead to one Every day we process trillions of dollars worth of payments Quickly and safely for banks and for the federal government And then tying in with president Schlissel's comments about the speech that I gave recently We work with community organizations And banking organizations to promote financial literacy To make sure that credit is available to all who Seek it and to promote community development more broadly So it's quite a long list and I just a long look I am going to come back to some of those topics and I suspect that some of our general Questions from the audience might touch on some of them as well One of the other things about the fed that I think most people are at least somewhat familiar with Is its role during the recent financial crisis and the great recession and the aftermath And and I wonder if you would tell us as you think back having been in leadership positions at the fed since 2004 So you were certainly there throughout that entire period What are the main takeaways for you? How do you think that monetary policy should think of its role differently now as a result of lessons from the crisis? Well to me lessons from the crisis are first and foremost That in the financial system in a well-functioning financial system is essential to the economy It's essential for people to be able to take get jobs for innovation for economic growth And what we found out during the financial crisis is that when the incentives facing Financial organizations are distorted the decisions that are made can greatly harm the economy And the consequence was the most severe financial crisis We have faced since the great depression We had a system in which banking organizations were not monitoring and controlling risk Appropriately they had too much capital and were over leveraged They were highly reliant on short-term Borrowing to fund the loans that they were making and they had too little liquidity And when that liquidity when the short-term funding dried up We found we had a financial system that was highly vulnerable to runs I think we also found that banking supervision and regulation Wasn't doing what it needed to do to address the risks We were too focused on the health of each individual institution And we failed to spot the build-up of systemic risks in the financial system Is a hole that made it vulnerable And so we've tried in the aftermath to greatly improve and maybe we'll Be able to get into some details later on to greatly improve our system of Financial supervision and regulation And to make sure that we have a safer and sounder banking and financial system So that certainly is one of the topics that I'd like to come back to It also sounds as if they're very clear additional Markers or metrics that you look at to assess how healthy the economy is So looking at where the US economy is right now, how healthy is it? Well, so that's a great question And I'm pleased to say that the answer in my view is it is pretty healthy By way of background We suffered as a country through a very deep and very long recession In the aftermath of the financial crisis Unemployment rose to over 10 and it took many many years In order to get it down We worked very hard to try to accomplish that But right now with an unemployment rate that stands at four and a half percent That's even a little bit below what most of my colleagues and I would Take as a marker of where full employment is Inflation which for many years was running below our two percent objective The headline figure most recently hit 2.1 percent But I would say a better forward-looking measure of inflation Is around one and three quarters percent just still a little bit under two percent, but reasonably close So in terms of the goals congress has assigned us, I'd say we're doing pretty well The economy has been growing at a moderate pace Mainly supported by consumer spending But housing is a little bit healthier than it's been Investment spending that had been Quite weak last year Is is showing a little bit greater strength and the global economy which was quite weak now seems to be Operating in a slightly more robust and healthier way So looking forward I think the economy is going to continue to grow at a moderate pace And our job is going to be to try to set monetary policy To sustain what we've achieved to make sure the economy continues to operate around full employment And that inflation stabilizes around two percent So I think we have a healthy economy now, but it's been a long time coming Time to get there. So I'd actually like to ask you a little bit more about a number of the things that you just mentioned And you know, maybe one place to start is that You could summarize what you just said as that the That has basically been successful. It's targets have essentially been achieved and All it has to do now is just maintain them. Is it different to be Roughly at your targets trying to maintain them in terms of policy than trying to achieve targets Do you think about that differently? so It is somewhat different In the aftermath of the financial crisis With unemployment at exceptionally high levels and inflation Running well under our two percent objective We really gave To monetary policy all that we had We did everything that we possibly could to support the economy In december of 2008 We lowered our overnight interest rate target effectively to zero And at that time if you would ask me or any of my colleagues How long the federal funds rate would be sitting at zero I simply could not have imagined That it would be for as long as it turned out to be which was seven full years But even lowering overnight interest rates to zero turned out not to be enough The economy just wasn't recovering rapidly enough So from there We decided we would try to buy longer term assets both treasury Treasuries and mortgage backed securities with the aim of pushing down longer term interest rates Because although overnight rates were zero long term interest rates were Still substantially higher And we also tried to talk the financial markets into the idea That monetary policy would be very accommodative in short term interest rates Would be very low for a very long time longer than they thought And we called this forward guidance and the objective was to lower expectations For the path of short term rates to pull down longer term interest rates And stimulate the economy So we did all of those things and it took a long time But as you say we're near reaching our objectives So now the focus is different And what we're thinking about is that with the economy operating close to our objectives What we want to make sure of is that we sustain the progress that we have achieved And that the appropriate stance of policy now is something closer to let me call it neutral So whereas before we had to For press down on the gas pedal trying to Give the economy all the oomph we possibly could Now allowing the economy to kind of coast and remain on an even keel To give it some gas but Not so much that we're pressing down hard on the accelerator That's a better stance of monetary policy So we've indicated that we think it's appropriate to gradually raise the federal funds rate toward a more neutral Stance if the economy continues to perform in line with our expectations Now our assessment of what a neutral stance of short term interest rates is Actually pretty low and So although interest rates right now are low just a little bit under 1% Our estimate of neutral is Really not that high and so we've indicated that we think a gradual path of increases in short term interest rates Can get us to where we need to be to a neutral stance, but we don't want to wait too long To have that happen because if the economy Ends up overheating and inflation threatens to rise well above our target We don't want to be in a position where we have to raise rates rapidly Which could conceivably cause another recession. So we want to be ahead of the curve and not behind it so one of the things that I think there's been a lot of A kind of interest in is the behavior of inflation and as you've just mentioned You don't want to be behind that curve in terms of what Inflation what direction it's going in has your vantage point changed your view of what the causes of inflation are So I'd say my thinking in recent years about inflation hasn't changed a lot But the actual behavior of inflation has changed a great deal And I'll try to explain why if you compare current situation with The way things were let's say when I started as an assistant professor in the early 70s and Inflation was high and rising and was a huge problem And now most of us don't think of inflation as being a significant problem at all So if you ask me, what are the factors that influence inflation I would point to First the degree of slack in the economy When there's a lot of slack and unemployment is high in product markets Have a great deal of excess capacity Inflation tends to decline waging prices Wiseless quickly and so coming out of a long and deep recession And only now regaining full employment Inflation fell below 2 percent and as I say on a forward-looking basis Although we're close. It's still slightly below 2 percent in my estimation A second important influence on inflation is inflation expectations What people think inflation will be Explains decisions they make in their own wage and price setting behavior And so those inflation expectations matter to inflation And then in recent years, this has been very important in causing gyrations and inflation Movements in energy prices Sometimes food prices and the dollar the dollar began to increase markedly in mid 2014 That pushed down import prices And held inflation down and that last set of factors Should have a temporary but not a long lasting impact on inflation They've been highly important in recent in recent years But I think my basic understanding of the forces driving inflation haven't changed that much But if we go back to the late 60s and mid 70s When the economy began to overheat, then we had a series of supply shocks Inflation moved up and then even when we had a recession and more slack developed in the economy And oil prices stopped rising We were left with what seemed like Indemically, chronically higher inflation And it turned out that what was driving that was inflation expectations In when actual inflation moved up People thought okay inflation's here to stay and inflation expectations moved up And then we found we were caught in a vicious Circle in which people's Expectations of high inflation gave rise to wage and price behavior That ratified that and left us stuck with high inflation Now at the end of the day it was the fed's job to Make sure that inflation came down to low and stable levels And to anchor inflationary expectations So that they wouldn't just keep ratcheting up Moving up and down with actual inflation, but that was a hard lesson for the fed to learn By the mid 80s the fed was highly focused on containing inflation Bringing it down and anchoring inflation expectations And really since the mid 80s the evidence suggests That the population roughly expects inflation in the vicinity of two percent And their actual expectations are not much influenced by deviations and inflation above and below it They expect those to be temporary and they have been temporary And we're focused on making sure that inflation expectations and actual inflation Stay very well anchored And to emphasize our commitment to that in 2012 the FOMC Adopted a statement of its longer-run goals and strategies and we said explicitly 2% is what we regard to be our inflation objective And we added last year that 2% is a so-called symmetric objective that We certainly don't want inflation to linger indefinitely above 2% But equally we don't want it to linger below 2% So 2% is an objective It's not a ceiling. It's where we would like the Inflation rate and intend to make sure it's moving over time all the time And I think we've had good success in achieving that And I was just actually going to ask whether you saw those as symmetric But you've already actually responded to that So why don't we shift gears back to financial stability for a moment because As you talked about earlier certainly one of the huge lessons Focused on the importance of financial stability in the aftermath of that We have had the Dodd-Frank legislation a range of different types of regulations And a protest to supervision A lot of controversy in that realm at the moment in particular about whether We should focus increasingly to more on banks or whether we should still be focused on some of the other Institutions in shadow banking the hedge fund concerns. What are your views about that? So we'll focus both on banks and on Institutions outside the banking system Before the crisis many investment banks were standalone And not part of the banking system One thing that changed with the financial crisis Is that some of the most important so-called shadow banking institutions Namely in the the investment banks are almost all at least all of the larger ones Are now part of banking organizations and they're all subject to supervision by the federal reserve and other Federal banking regulators. So the banking sector in some sense now is larger and incorporates more of what used to be In the dangerous part of the shadow banking system But let me say we've accomplished a great deal. I think to make the financial system and particularly The banking system and particularly the largest and most systemic banking organizations safer and sounder We're forced these institutions to hold much more capital And higher quality capital We'll force them to hold much more liquidity And whereas they used to be highly reliant on volatile short-term funding That's less true now We're also forcing them to better measure monitor and control their risks And a completely new thing that we're doing that I think is greatly enhanced The quality of our supervision is that we conduct annual stress tests Stress testing was Something that was invented in the middle of the financial crisis When people had no idea how Much capital major banking organizations in the united states held And they were afraid that they might not be strong A decision was made by secretary Geithner and chairman Bernanke To subject the largest organizations to a rigorous stress test in which we would insist that they And then we independently Would examine where these institutions would be what their capital would be If there were a highly adverse shock to hit the financial system And we developed the methodology necessary to look at each institution Individually and to evaluate after this very severe shock say with house prices tumbling 40 percent The unemployment rate rising another Eight ten percent highly adverse shock Would these institutions still have enough capital to lend and support the credit needs of the economy? And in this first round It was insisted that if they didn't have that amount of capital They would be forced to go raise it or else the government would inject it into these firms And this was very successful The results were publicized and were credible And I think there's and some of the banks did raise capital And I think it showed up confidence in the banking system and this has become a staple of our supervisory program we conduct these rigorous tests and publish the results every year And we look in detail with the capital planning processes of the large banking organizations to make sure That they retain enough of their earnings to make sure they do have adequate capital Our supervision is also changed in its character and is much Much better and focused on risks in the financial system as a whole and not on let's say each individual Institution or the trees in the forest as opposed to the forest Other changes have also I think made the broader financial system and the shadow banking system safer and sounder the sec adopted reforms to address weaknesses in money market funds A crucial part of the shadow banking system Where we saw runs during the financial crisis Derivatives markets and the arrangements surrounding derivatives have changed in a way that's made That system less risk prone and less Less less a source of systemic risks since the financial crisis And short-term funding markets have Undergone reforms that make them safer. So I think we've accomplished a lot and we have a much safer system But we always have to be aware of risks outside the perimeter of what we regulate and when we regulate One sector there's a natural tendency for activity to migrate outside its boundaries And so we do have to be attentive to Uh, what's happening in the shadow banking system system as well. So, um There are certainly some who would say that maybe though that extensive supervision has gone too far and that all of the regulations are actually Hampering lending and perhaps slowing down growth. What's your view on that set of concerns? Well to start with let me say I think we ought to Tailor supervision so that it's appropriate to the risk of a particular organization and The most systemic institutions really deserve And require the highest degree Of rigor and supervision and regulation We're looking for ways. We've tried to shield Community banks from some of the supervision and regulation and for mid-sized banks We try to tailor supervision. So it's appropriate and what we expect of the Most systemic banks doesn't drift down Community banks do feel overburdened though with regulation and we've looked for ways to respond to that by Lengthening exam cycles where we can Reducing our Demands for reporting of information and we're trying to develop a simplified capital regime But there, you know, there is a lot of focus on regulatory burden I don't think if you look at objective data on lending that it's Possible to make the case that Regulation is simply stifled lending lending is grown in a very healthy way as the economy has recovered And I think what we see is stronger banks that are better capitalized are in a better position to lend So Growth as you know, the u.s. Economy's growth has only been in the two percent range And that's certainly a concern. What's your view of the us's growth prospects and has that changed? recently so a depressing fact about the u.s. Performance is that really Throughout the recovery growth is average two percent And that's been accompanied by an improving labor market or diminishing slack So two percent growth, which isn't a stunning in absolute terms has Generated a lot of jobs The fact we've got a lot of jobs is a good thing We wanted that But the fact that you could create that many jobs in the context of growth that is so low Points to a significant problem and the problem is that productivity growth is very low When it takes a lot of labor to produce not very much extra output What's that what that's pointing to is that output per worker is growing at a very slow pace So it looks like at present the economy's potential to grow with with Labor Just growing at a trend pace When we're not absorbing slack from the labor force from the labor market Is probably a little bit under two percent actually and I think of that as Reflecting two pieces There's first how force how fast is the labor force growing and then second How fast is output per worker or per man hour growing? Well on the labor force labor force growth has been slowing in the united states Partly that's a matter of demographics. We have an aging population The labor force participation ratio in the united states has been declining for a number of years now and Due to an aging ongoing aging of the population. That's something that will continue The pace of immigration is also important and has contributed to labor force growth and will matter as well But we can't look to we're unlikely to be able to look to faster labor force growth to boost the economy's Potential to grow and then second productivity growth has been very disappointing Since around 2011 Output per worker is grown at about a half percent per year Which is an extremely low pace by comparison since 1970 output per worker Grew it two percent per year So very slow in recent years. My guess is that it will pick up But we've also seen periods Like the second half of the 90s where productivity growth was well above two percent Now nobody really knows why productivity growth is so low and that makes it hard to know What the future holds in store and whether it will pick up One factor that seems to be depressing it is many people think that just the underlying pace of technical innovation That shows through the output growth is diminished For reasons that are not easy to understand, but looks like it has diminished second Educational attainment It was rising at a very rapid pace and now it looks like it's leveled off So we're no longer getting very much of a boost from A higher degree of educational attainment And then the third thing I would point to is that Dynamism in the business sector one thing that drives productivity growth Is that firms that are more successful and more productive tend to grow more rapidly At the expense of firms that are less productive and less Successful and that reallocation of labor from less productive to more productive firms Tends to bruise productivity growth over time and there's recent research that suggests that that pace of Reallocation or the underlying dynamism of the u.s economy For reasons that are not well understood looks to have diminished some but It's not a it's not an encouraging, you know prospects, but you know, it's conceivable that public policies that focus on raising productivity growth that boost public or private investment investment in The workforce or innovation could make a difference to that Well, I very soon want to turn things over to questions from the audience, but perhaps I could ask you two other questions, which may not be quick questions, but So one is that you have said a number of times how important you believe the federal reserves independence is and there certainly are concerns that You know some have about that going forward and I wonder if you would share your current views in that regard So I do think that Independence of a central bank To make decisions about monetary policy Free of short-term Political pressures is very important and results in better decision making That's focused on the long-term needs and health of the economy and I think this view is supported by A lot of research that's looked at central banks around the globe And seen that those central banks that are more independent in those countries tend to enjoy Stronger macroeconomic performance Stronger growth lower inflation lower in stable and less volatile macroeconomic conditions So congress wisely in the late 70s Passed the law that said that the one aspect remember we talked about many different things the federal reserve does The one thing where congress said this should be something Where the central bank has independence and congress and its agencies don't engage in Detailed policy reviews in real time of Its decisions that one area is monetary policy The general accounting office, which is congress is essentially auditing agency Conducts audits of In real time and evaluates all the other things we do but tactical decisions about monetary policy We are of course accountable to congress so independence doesn't mean a lack of accountability or a lack of Transparency I go before congress and testify on monetary policy regularly. I have press conferences. We issue statements We have minutes of our meetings We certainly try to explain in detail what we do and why but we make decisions Independently and I think it's very important. The structure of the federal reserve system was designed to promote independence It's complicated, but we have a large committee Monetary policy committee that includes the presidents of reserve banks who as you know, we're chosen by private sector boards it brings a diversity of Opinion and information into our deliberations and I think helps promote our independence But our independence is under some threat. There is a bill called audit the fed that has been put forth in congress for a number of years that would end our independence in making monetary policy decisions and another bill that's past the House of Representatives and Is goes even further in interfering with monetary policy Independence would require us to follow a simple mathematical rule and Setting interest rates and if we deviated from it would call in the GAO to conduct audit. So I always worry about threats to independence and I think I think our macro performance is better and the US is well served by having a non-partisan Group shielded from short-term political pressures making these important decisions Thank you. So my one final question is Being chair of the Fed is a very intense stressful position. What do you do to relax? So you know First of all, I try to come into the office every day having had a good night's sleep So ariana huffington has Written eloquently about the virtues of getting a good night's sleep I don't know how many of you are familiar with her work But I am an ardent believer and have discovered over the years that Unplugging from electronics and getting a decent night's sleep Makes me feel calmer and better able to address during the day what I need to do. So that's a first tenet I have the pleasure of working with a very talented group of staff at the Federal Reserve That I'm able to collaborate with and so I'm not on my own in Trying to craft policy to address the various Issues that we face and I'm in a very collaborative environment where I have Wonderful colleagues that I can brainstorm with and that's very important. I guess outside of work I don't have any stunning stunningly original activities, but I certainly spend as much time as I can with my husband and Friends. I enjoy cooking and we like to eat out But I don't have any remarkable Activities, but I do try to relax as much as I can. Well Ann Arbor has wonderful restaurants just to make sure that you know that So I've seen a number of cards being collected and I know that there are also Questions that have come in through twitter and so at this point I'd like to turn things over to questions from the audience Two of the two of my colleagues Professors of public policy and economics Catherine Dominguez and John Lakey will help facilitate the Q&A session And then we have two Ford school students who'll be reading the questions And so now I'd like to turn things over for them to introduce themselves and to have us get that part started Hello, my name is Laurie Gilbert, and I'm a joint phd student in the public policy school and the department of economics First of all, thank you both so much for the fascinating conversation Our first question is the following You have been a governor a vice chair a president of the san francisco fed and the chair What unique perspectives do each of these positions bring to the table? So the federal reserve has a complicated structure We Consists of a board of governors with seven governors one As one serving as chair and one as vice chair and then 12 regional federal reserve banks Each headed by a president that's selected by a private sector board and as you mentioned I've served in different positions on the board of governors First as a governor in the 90s Then I was vice chair from 2010 to 2014 and his chair So in three different positions and also as president of the federal reserve bank of san francisco from 2004 to 10 So I think in these positions. I've gained an appreciation of All of the different things that the federal reserve does and one's better Able to understand different aspects of the fed's work from different vantage points So my work at the san francisco fed one of the important things I needed That was part of my work was to meet broadly with participants in the economy in the nine state region That the san francisco fed covers. So I met with business leaders with People who worked in nonprofits community development specialists labor leaders Ordinary people working in the labor market and experiencing that members of the financial system And tried to gather from them information that would be useful in forming monetary policy And I think that gave me a chance to understand how Let's call it anecdotal information. It's not exactly systematic, but talking to people who are experiencing the economy in real time does Provide a body of insight that you know Susan and I and our colleagues Those of you who've had phds were trained in a lot of economic theory and that's very helpful I it's hard to do a job like I have without having a good Granting in economic theory But making the connection between economic theory and what's playing out in the real economy is important And I would say that some of the insights of my directors in the years leading up to the financial crisis Um, they said things that made me worry about building financial imbalances now It wasn't sufficient to have Stopped the crisis, but um, it certainly was sufficient to have early on aroused my concern and suspicion about what was going on there Um in in my positions, um at the board We in contrast to the reserve banks The board of governors the governors are responsible for writing regulations and conducting supervision and so, um, I've had a pretty intense involvement in writing the Dodd-Frank rules and Thinking through what reforms we've needed to create a safer and sounder banking system And how we would translate that into supervision and regulation I guess as chair, I've gotten much more perspective on the relationship between congress and the federal reserve and Much more involvement in trying to manage that Thank you chair Yellen and dean Collins for the conversation My name is matt hillard. I'm a first year master's student studying public policy at the forward school Should the fed more actively promote international policy coordination It seems like the current view is that each country should look after itself But that often leaves especially emerging market central banks at a disadvantage Well, that's a very good and important question and um Let let me first say that well I wouldn't go so far as to say that policy is Coordinated Internationally, and I'm not even sure that that would be Possible if we wanted it to occur given our separate separate legal mandates from our own You know our own governments We policy makers at the senior level Do talk to one another on a very regular basis We meet The central bank governors meet six times a year or more than that At meetings of the banks bank for international Settlements finance ministers and central bank governors meet at the g20 the imf Meetings twice a year the g7 meets we exchange notes on what's happening in our economies And we try to explain to one another how we're thinking about implementing policy To try to promote understanding and avoid surprises We all understand that our policies have spillovers that's certainly true for the united states We recognize and have seen that our policies have spillovers in emerging market countries And obviously what happens abroad also greatly affects our economy So even from the perspective of narrow Self-interest it's important for us to be mindful of those spillovers and spill backs of our policies And to take them into account So policy coordination is Difficult and I'm not Sure that it is really as I said, you know possible given our separate legislative mandates, but There is close contact In attempt to promote understanding and in crisis situations When it's necessary to mount defenses Because we're worried for example about an incipient financial crisis That network of contacts Has resulted I think in very close and effective Coordination and cooperation that's been important in recent years Students are often told that inflation is always and everywhere a monetary phenomenon Yet you listed three reasons for inflation none of which were too much money What's the role of money in inflation? So um, I guess I would say That when There is too much demand For a limited supply of goods and services That's a situation that creates inflation And it ties in in the framework that I articulated with economic slack So if I would say for example now just now after all these years of Promoting Faster growth in the economy and trying to diminish unemployment Probably now the labor market is in a normal state but It likely would foster inflationary pressures of demand rows. It is sufficiently rapid pace and On a long run basis such that We pushed against now dwindling labor resources. That's one reason why I believe it's important for us to Normalize or move monetary policy toward a more neutral level but simply In the accommodative monetary policy when it's not occurring in the context of an economy that is close to Full employment that isn't inflationary I remember when So first in the end of 2008 the fed lowered its overnight interest rate to zero Then we started buying up longer-term assets Which swelled the quantity of reserves in the banking system and People who reasoned that money causes inflation But thought that that's in somehow independent of the state of the economy Worried that our purchase of those assets meant that inflation was around the corner Our response was to say look the unemployment rate is very high. It's 10 percent 9 percent 8 percent very high And you know, maybe when the unemployment rate is declined to low levels. That's a legitimate concern But it's not in the context of an economy with this much slack. I think history proved The view that I just explained to be right So money doesn't cause inflation independent of the state of the economy This question comes to us from twitter Has the effect of quantitative easing been underestimated? Well quantitative easing I will interpret as The fed's purchase of large quantities of longer-term treasury And mortgage-backed securities Our objective in purchasing these securities was to drive down longer-term interest rates On treasury and mortgage-backed securities, but that would also filter through to Private securities in the market in general It's frankly, there's a lot of research now, but it's difficult to unambiguously know Just how large the impact was of those purchases I'd say most research I read as Finding that our purchases did succeed in driving down Longer-term interest rates by a meaningful amount and that is a consequence Our policies had the favorable effect of holding inflation up a little bit closer to our target And dropping it from falling quite so much and lowering unemployment and the job growth was stronger There are other countries also, Japan The Bank of England, the ECB are engaged in similar programs So now we have international experience To add to that in the United States And I read all of that experience as saying that these programs are Successful, but does it have a larger impact than we think? I suppose there's some research at the larger end and some on the more skeptical end My assessment would be it had a favorable impact. I don't want to exaggerate exactly how large it was though But I think it was certainly favorable With labor force participation rates relatively low compared to recent history Do we change how we think about what constitutes full employment and how that dictates monetary policy decisions? I'm sorry, did you say labor force participation rates? That's right So The labor force participation rate has been declining for some time in general in the united states And the underlying trend because we have an aging population is for it to fall further But what's been hard to know following a very severe financial crisis with very high unemployment Is how much of the decline what portion of the decline we saw in labor force participation Might reflect Not just voluntary Retirements, but discouragement of people Searching for a long time and then dropping out of the labor force Because they were unable to find jobs So some of the decline in labor force participation might reflect a weak economy And be a kind of hidden unemployment And we saw a declining labor force participation Not only among those who were in the retirement years, but also among prime age working people And so the fed recognized that we were uncertain about just how much Additional slack there might be that was taking the form of depressed labor force participation We've we've monitored that very carefully and we recognize that the unemployment rate itself Might be a misleading indicator of the extent of slack in the labor market Now I think there was something correct about the reasoning that labor force participation Was a form of a hidden slack over essentially the last couple of years The labor force participation rate has been flat And even though the demographic trend should have been pushing it down And that suggests that as the economy is recovered We've seen the unemployment rate fall, but it hasn't fallen nearly as much as you might have expected In part we've created a lot of jobs And yet the unemployment rate hasn't fallen very much And part of the reason is I think we have drawn people in To the labor force and the labor market who had been discouraged So this is something we've watched very closely Um, I think what we've found over the last couple of years is our economy because of that had more room to run Then we were certain it had and it's been a good development to see Labor force participation improved to some extent, especially among primate working people Unfortunately, this is the last question we have time for You mentioned in your conversation the role the fed plays in managing expectations To that point it seems Like more than anyone in the world you have to be careful about what you say How has this affected your life? You you were right And I I I guess I've had a fair amount of experience in training for this job having served as a governor and vice chair and in san francisco and um you know, I It's an important role that I have is to talk about monetary policy and to Communicate as clearly as I can what the committee's strategy Is and what are how we see the economy is unfolding? So, um, it's very important that in managing the problem of, um Not On the one hand, I want to be careful not to say something that will needlessly rural expectations that I don't mean But on the other hand, I do want to talk about monetary policy Because my job is to promote understanding of monetary policy So although that is a difficult path to hue. I try to do it to the best of my ability So before we wrap up, um, I Know that there are so many students here high school students board school students u of m students many of whom are really committed to Making a difference through public service, which is something that you've really dedicated your career for and I just wonder If you have any words of wisdom for the young people interested in that way It's wonderful to see so many young people who you know are dedicated to education and Many of you to public policy You know, I would say for me The core of having a satisfying career first and foremost Was finding something to do that I really love and i'm really interested in I was lucky as an undergraduate to discover economics, which is a field I regard as endlessly fascinating And um, it's pretty true to say that almost every day of my life I get up With a sense of enthusiasm about wanting to work on economic issues And so the first piece of advice for everybody It's obviously not economics. It can be many different fields that may capture your Intellectual interests, but finding something you love You're really interested in want to focus a career around it That's the starting starting point of having a good career I'd say second people say to me well Gee, don't you feel your career was a success because you got to be chairman of the fed And I'd say no, that's not the right way to look at it Because one's career is about everything that you do along the way and precisely where it ends up Even if I hadn't ended up in this role, I would have felt I had a great career I've enjoyed and I think it's important to choose things you do at every stage of your career that You find interesting and engaging and rewarding In public service, I'll say that if the federal reserve I have found and I think this is important Of course, I found it in universities too People to work with that you really admire enjoy you Find you can brainstorm with that you can problem solve with who's You respect to you like spending your time with I think that's an important aspect of any job that makes it Satisfying I've certainly found it in government People devoted to the public interest in using public policy to advance the public interest and finally I'd say I'm being affiliated with an organization that you feel proud of that you think makes a contribution to society and That's certainly true of Being at a university Have no hesitation about feeling good about what universities do And I've certainly felt the same way about the federal reserve that I know we're an organization that really is devoted to the public interest and It enables me to feel good about how I spend my time and What we're what we're engaged in Well, as we wrap up here, let me thank our audience for coming for all of your questions I'm sorry. We didn't have time to get to more of them And then also a very special. Thank you to chair yalan for sharing her perspectives and also for her public service through so many So many decades. Thank you so much