SYLVIE DOUGLIS, BYLINE: NPR.
(SOUNDBITE OF ARCHIVED RECORDING)
JEROME POWELL: Good afternoon.
DARIAN WOODS, HOST:
Today, Fed Chair Jerome Powell announced the Fed raised interest rates by a quarter of a percentage point.
(SOUNDBITE OF ARCHIVED RECORDING)
POWELL: Bringing the target range to 4.75- to 5%.
ADRIAN MA, HOST:
This decision comes at a critical moment. We've got three massive problems in the economy right now - failing banks, high inflation and people worried about job losses. And in the short run, you can't solve all three of these things. At best, you can pick two.
(SOUNDBITE OF ARCHIVED RECORDING)
POWELL: You know, we're trying to assess something that just is so recent. And as people - you know, it's very difficult. There's so much uncertainty, so...
WOODS: And so in this decisive moment, we thought it would be a good time to give Jerome Powell a report card.
(SOUNDBITE OF SCHOOL BELL RINGING)
WOODS: Will he be valedictorian? Or will he face expulsion? We've brought in two economists with very different views on today's announcement and everything leading up to it.
KOMAL SRI-KUMAR: I basically think the Fed is simply not in control.
JULIA CORONADO: I think that the Fed did about as well as they could have done under the circumstances.
WOODS: This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.
MA: And I'm Adrian Ma. Jerome Powell has led the Federal Reserve for five years now. He's battled a pandemic recession, an inflationary hangover, and now he's got banking turmoil on his hands. So is he making the grade? Our economists have some strong feedback after this break.
To help fill out this report card for Jerome Powell, we called up two heavy-hitting economists.
WOODS: Julia Coronado, welcome to THE INDICATOR.
CORONADO: Thank you. Thank you so much.
WOODS: Julia Coronado is a professor of finance at UT Austin, and she has her own consultancy. She also worked at the Fed, so she knows macroeconomics inside and out as well as what it's actually like to be in these institutions.
MA: And to make sure we're getting some robust feedback, we've also got Komal Sri-Kumar.
WOODS: Hello, Sri.
MA: Sri studies global economic and geopolitical events.
SRI-KUMAR: Hey, Darian. How are you doing?
WOODS: It's good to see you.
MA: And through his consultancy, Sri sells his insights to investors and businesses, and he has been a vocal critic of Jerome Powell for a while now. He argues that Powell should have more closely followed the macroeconomics textbook and been tougher on inflation.
WOODS: We asked our economist graders to go through the three main goals of the Fed. And first up with Julia Coronado was keeping inflation under control.
CORONADO: Yeah, so that's where you'd probably get a C. Maybe you've moved up to a C-plus lately. I mean, I would say that the Fed was certainly behind the curve in understanding the extent and persistence of inflation pressures. On the other hand, they moved very quickly last year to get themselves into a more appropriate position.
WOODS: So passing, I guess, but, you know, fairly middling.
CORONADO: Yeah. So it's like you're definitely passing, but, you know, you've got more room for improvement - considerable room for improvement.
SRI-KUMAR: I give him an F for failure.
WOODS: That's pretty harsh.
SRI-KUMAR: Well, just look at the record. Throughout 2021, the chairman, in his infinite wisdom, thought it was going to be transitory. So inflationwise, he gets an F for price stability.
WOODS: Yeah, if anybody needs a roast, Sri is also available for consultation there.
MA: (Laughter) But another criteria in the Fed is - being graded on today is jobs. One of the Fed's goals is to make sure everyone who wants a job has one. And if you remember, back at the start of the pandemic, unemployment shot up. The rate was nearly 15%. Since then, it has recovered big time. And right now, it's hovering near record lows. And that means top marks from Julia Coronado.
CORONADO: I would give him an A. I would think that this is a great labor market. You know, the mantra of go big, go early was practiced during the pandemic. And it often gets overlooked - if you come out of school into a recession or you experience an extended spell of unemployment during a recession, that scars your earnings throughout your lifetime. So I think the labor market recovery's been impressive and very, very welcome.
WOODS: Even Sri had something positive to say on Jerome Powell's jobs record.
SRI-KUMAR: There I would give him a B-plus. Clearly, the economy has remained very strong, and we came back from COVID very fast. So the question is, do you want the Fed just to be boosting employment for a while before you're not even able to manage the employment at a high pace?
WOODS: Right. So it could be a short-term phenomenon if you run the economy so hot that unemployment's super low. Everyone's got a job. But you don't think that's going to last forever?
SRI-KUMAR: Exactly.
MA: OK. So on jobs, that's an A from Julia and B-plus from Sri. So not bad. Bringing up the curve.
WOODS: Solidly passing.
MA: But there is still a third category, and that is financial stability. One of the Fed's key roles is to make sure that the banking system is working, which doesn't mean that there are never any bank failures, but that there are no big, systemic events that end up freezing up borrowing and lending in the economy.
CORONADO: Well, I think you'd have to give him, you know, a B (laughter).
WOODS: Not stellar.
CORONADO: Passing, room for improvement. It's not outstanding. But, you know, this is an incredibly challenging course.
(LAUGHTER)
CORONADO: It's something they're very much in the middle of right now. There was a sort of theoretical debate about how fast to raise interest rates and, you know, what breaks if you go real fast. And we've seen some of the things that can break recently.
MA: Yeah. One of those things that broke recently - Silicon Valley Bank, the failure of the 16th largest bank in the country. A big problem that SVB had was rising interest rates, which reduced the value of its investments in stuff like government bonds, Treasurys. And now the Fed is in the middle of mopping up that mess.
WOODS: Yeah, I mean, it feels a little bit unfair, almost like grading before the assignment is handed in.
CORONADO: Right. Exactly. We'll see what comes out about bank oversight. You know, there are some questions about how we got to such a fragile state. We don't know that. We don't know that. We need to see a timeline. We need more detail around what was done before we can diagnose whether there's a problem or not.
MA: OK, so that's maybe, like, a B from Julia, a little bit wait and see. Sri-Kumar, on the other hand, is not hesitating to give a grade for financial stability.
SRI-KUMAR: Back to F.
MA: Tough grader.
SRI-KUMAR: Look at the market over the last week, and you see the result.
WOODS: The Fed has responsibilities supervising banks like SVB. And Sri thinks that the Fed was slow to raise the alarm bells over SVB's assets like those Treasurys, which lost value as interest rates rose.
SRI-KUMAR: I think we haven't heard the full story yet. It's a canary in the coal mine, and there may be more of those coming forth. And the question is, is the same team which was responsible for regulation and expansion over the last three years - are they going to be the ones that you depend on to manage the situation in the future?
MA: So stepping back a second and looking at Powell's overall job performance, Sri says he did pretty good on jobs, but that could be at risk now. So overall, Sri still gives him an F.
SRI-KUMAR: I find it difficult to even give a passing grade when every one of my concerns seem to be coming true. I wish I was wrong on some of my assessments.
WOODS: But there's quite a different overall grade from Julia. She gives Powell a B.
CORONADO: You know, I will say, I do appreciate that policymakers, they have to make the call in real time. And it's so easy to go back and say, oh, you should have done this. You should have done that.
WOODS: Oh, it's very easy to be an armchair critic.
CORONADO: It's very easy to be an armchair critic.
MA: Fair point. But, you know, part of the point of this episode is to be armchair critics. So if we are putting Julia and Sri's grades together, Powell gets a C-minus?
WOODS: I mean, I guess it really just depends whether you're sympathetic to the demands of the job, like Julia is, or if you've got a stricter rubric like Sri.
MA: Well, with the Fed's decision on interest rates today, Jerome Powell sat for one of his most difficult exams yet. And we will be closely watching to see what the results are in the coming months.
(SOUNDBITE OF FREDERIC VITANI'S "WILD AND FURIOUS")
MA: This show was produced by Brittany Cronin, with engineering from Katherine Silva. Sierra Juarez checked the facts. Viet Le is our senior producer. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.
(SOUNDBITE OF FREDERIC VITANI'S "WILD AND FURIOUS")
Copyright © 2023 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.