Andy Kim Questions Jerome Powell About Forecasting Economy Amidst Uncertainty

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At today's Senate Banking Committee hearing, Sen. Andy Kim (D-NJ) questioned Fed Chair Jerome Powell.

Transcript

00:00Thank you, ma'am. Senator Kim. Yeah, thank you, Chairman. Thank you for coming before us today.

00:07You've often said in the past that when it comes to monetary policy that it works with a lag, right?

00:12That this is something that you're having to try to assess the data that's before you. Right.

00:18I'm thinking about this because, you know, we have the Federal Open Market Committee,

00:22FOMC, five-year review, and you're talking about tariffs and the uncertainty of this moment.

00:28So I guess I just wanted to ask you, how do you balance sort of assessing between more of the backwards-looking data

00:35that you're able to, you know, look at more tangibly in that way,

00:38but also addressing sort of forward-looking models to try to understand where things are heading?

00:43You know, that's really the challenge that all forecasters have.

00:47And, you know, really, really monetary policy needs to be forward-looking.

00:52At the same time, we need to be humble about our, you know, how hard it is to forecast.

00:57So particularly at times of high uncertainty, which I would say I would include now,

01:03you really want to look at the real data and take signal from that

01:07and not be too brave about what your forecast might be because it's going to be highly uncertain.

01:13So you're saying that in times of greater uncertainty, in some ways,

01:16that makes you more interested in the backwards-looking data to sort of guide you?

01:22Well, I'd almost flip it around.

01:23Yes, but I'd almost flip it around and say at a time like that,

01:26you don't want to be giving a lot of forward guidance,

01:28and you don't want to be acting as though you have a lot of certainty about the path forward.

01:33It makes sense to move more slowly in most situations where there's more uncertainty.

01:39There are situations where it would not make sense to move slowly,

01:42but in most cases, you'd want to move more slowly.

01:46Yeah, that's interesting.

01:47I mean, you know, I talked to some of my constituents back home.

01:50There's this one conversation I always had, well, I had that has really stuck with me,

01:54where, you know, a woman was telling me that, you know,

01:56there's so much uncertainty right now in the world and certainly in her life

02:00that she says it's hard for her to even breathe sometimes.

02:03She just feels this kind of weight upon her chest.

02:05And I've thought about that a lot because I try to think through what can we do

02:08to try to alleviate that concern, alleviate that anxiety for people.

02:13But you can see it.

02:13I mean, right now, whether it's about what's unfolding in the Middle East

02:17and the fragility of what comes next,

02:20when I look at this reconciliation bill before us in the Senate,

02:23I do worry not just about the deficit, as some of my colleagues have mentioned,

02:26but about the potential of significant job loss that we're seeing,

02:30whether in the health care industry, whether in the energy industries,

02:35and certainly when it comes to tariffs, as you said,

02:38trying to think through what comes next in terms of whether deals are struck

02:42and at what levels, are you taking into account that by sort of an issue-based level

02:48or like are you looking at sort of the global instability in terms of the different crises

02:53that are out there?

02:54Is that factoring into how you're thinking about when we're talking about legislation here?

02:59I know you're not going to go into the policy per se,

03:01but if there's a potential for significant job disruption,

03:04is that something that you're looking into as you're forecasting?

03:09Yes.

03:11You know, we obviously pay great attention to global events

03:15and in an effort to understand what's going on in the economy globally

03:18because that does matter for our economy.

03:21So we pay close attention to all of those things and track them.

03:24Ultimately, though, we're looking at the U.S. economy

03:27and what are the fundamental drivers here

03:29and then making a judgment based on all of that.

03:33And mainly, you know, this is a big economy

03:35and we're geographically separated from most of the other big economies in the world.

03:41So we have a smaller external sector than most of the European,

03:45all the European economies, for example.

03:47So we're really looking at the U.S. and what's happening here.

03:50I wanted to ask you because, you know, in central banks in other countries,

03:54including Bank of England and European Central Bank,

03:57they've begun modeling the potential macroeconomic effects of artificial intelligence.

04:03You know, they're thinking about how they can use AI to be able to do some of the forecasting

04:08to think through what comes next.

04:09I guess I wanted to get a sense of what the Federal Reserve is thinking

04:12in terms of similar work in the AI space.

04:14We have lots of people doing work on AI and more than that,

04:19even monitoring research that's going on everywhere in the world.

04:22And, you know, speaking of uncertainty, it's very clear that it has the potential

04:28to make really dramatic changes in our economy, in our workplace,

04:34in the jobs of workers, in the way companies work, and all of those things.

04:38But honestly, there's a tremendous uncertainty about the timing of that

04:42and what the ultimate consequences will be

04:44and what the medium-term consequences will be.

04:47I was wondering if the Fed is evaluating AI credit models

04:51and how that could potentially deepen disparity in credit access

04:54or violate fair lending standards.

04:56Is that something that you've looked into at this point?

04:58Yes, absolutely.

04:59Is the Fed looking to potentially affirm some industry standards on this?

05:03You know, it's something we've been aware of for a long time.

05:06There's a lot of research that's been done.

05:07Before generative AI came along, it's also just machine learning

05:11and technology generally.

05:14There are implicit biases that can appear.

05:17It's something we're very well aware of, and, you know,

05:19we do work with people to make sure that that doesn't happen.

05:24Okay. Thank you.

05:25I yield back.

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