Federal Reserve Chair Jerome Powell on China Evergrande, AI, Silicon Valley Bank and cybersecurity

This week on 60 Minutes, Scott Pelley spoke with the chairman of the Federal Reserve, Jerome Powell, and discussed the state of the U.S. economy after 40-year record high inflation led the Fed to raise interest rates 11 times and cool the economy down.

For the past 11 months, inflation has steadily declined, and employment is near a 50-year high. Despite those trends, Powell announced last week that the Federal Reserve would leave the federal interest rate unchanged, at 5.25 – 5.50%, for now. But Powell told 60 Minutes that he expects a rate cut this year.

“Our confidence is rising,” he told 60 Minutes correspondent Scott Pelley in the Federal Reserve Board Room. “Almost all of the 19 participants who sit around this table believe that it will be appropriate, in the most likely case, for us to cut the federal funds rate this year.”

Chair Powell also discussed the Federal Reserve’s research into the impact of artificial intelligence on the economy, new regulations to prevent failures like Silicon Valley Bank, and the collapse of China Evergrande, the deeply indebted Chinese real estate firm.

Cybersecurity

Scott Pelley asked Powell about the threat of cyberattacks on the American banking system. Powell said good defense needs constant attention and funding to keep up with the latest threats, and the Fed has a role to play helping banks meet that goal.

“The attackers are always improving their game, and the defenders have to be improving their game all the time,” he explained. “You’ve got to keep investing, and staying caught up, or getting ahead. That’ll never stop.”

Silicon Valley Bank failure

In March of 2023, Silicon Valley Bank abruptly shuttered its doors after customers withdrew billions of dollars in a matter of hours. It was a classic bank run, but with added fuel from social media and mobile banking.

Powell said the Fed needed to do a better job supervising banks and is working on regulation proposals they hope will prevent another SVB scenario from happening again.

“We’ve spent a lot of time working on ways to…adapt regulation to a modern context in which a bank run can happen so much faster than it could have even 20 years ago,” the chairman explained.

China Evergrande and China’s economy

This month, a Hong Kong court ordered that China Evergrande, once the most dominant real estate firm operating in China, be liquidated after it failed to restructure $300 billion in debt to banks and bondholders. $25.4 billion of that debt was owed to foreign creditors. Many other real estate developers in China are also deeply in debt.

“China’s economy’s meeting some challenges now, obviously,” Powell told Pelley. “It’s still too much associated with real estate investment and things like that.”

Powell said that while the U.S. is purchasing manufactured goods from China, it is not financially intertwined enough with the Chinese economy to feel big shocks at present.

“As long as what happens in China doesn’t lead to significant disruptions…we may feel them a bit, but they shouldn’t be that large,” he said.

War and the global economy

Pelley asked Powell what he sees as the greatest threat to the global economy. He said “geopolitical risks,” like the wars in Ukraine and the Middle East, are the greatest risk to stability.

Chair Powell said the U.S. isn’t strongly feeling the effects of the war in Ukraine or the diversions of shipping in the Red Sea caused by Houthi missiles fired from Yemen, at least for now. Those conflicts could worsen and impact the U.S. economy.

“The question will be, ‘Do those risks blossom into something that is actually a major economic problem?’ That hasn’t happened yet,” he said.

“It could be the price of oil. It could just the 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.”

Immigration and the job market

Powell said that when millions of Americans left the work force during the pandemic, there was a desperate shortage of workers in the U.S. economy. He said the Fed expected many of them to return to the workforce in 2022, but that didn’t happen.

But in 2023, he said, an increase in immigration to pre-pandemic levels, along with an increase in prime-age workers, led to a significant increase in labor supply. Powell told Pelley those were significant factors in helping the labor market stabilize.

Powell emphasized that the Fed doesn’t set or comment on immigration policy, but was still keen to point out the positive role immigration played in this case.

“The U.S. economy has benefited from immigration,” Powell said. “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.”

Artificial intelligence research

In December, 60 Minutes cameras followed Powell to Spelman College in Atlanta, Georgia, where he talked to students and answered their questions about the work the Federal Reserve does. He also held a tech roundtable with minority entrepreneurs.

There, Pelley asked Powell about what kind of research the Fed has been doing into artificial intelligence to understand its impact on the U.S. economy.

“The question, in the near term, is, ‘Will artificial intelligence…be employment enabling and employment enhancing, making workers more productive and hence paid better, or will it replace workers? Or will it do some of each?'” he explained.

The chairman said the Fed also wants to better understand how artificial intelligence is going to affect the economy in the long-term.

“What will be the effects on productivity, on employment, on the distribution of wealth and income. Those are the things we’re thinking about.”

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Federal Reserve Chair Jerome Powell on China Evergrande, AI, Silicon Valley Bank and cybersecurity

Cybersecurity

Silicon Valley Bank failure

China Evergrande and China’s economy

War and the global economy

Immigration and the job market

Artificial intelligence research

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