Powell attends an event of the International Finance Division of The Federal Reserve (FED): commemorating Fischer, reiterating the importance of global economic research, and not discussing policy outlook.

As the market closely follows the Fed's Interest Rate policy direction, Powell did not express any views on the current U.S. economic situation or future Interest Rate outlook in this speech.

Written by: Zhao Yuhe

Source: Wall Street Insights

Federal Reserve Chairman Jerome Powell spoke on Monday at the 75th anniversary event of the Federal Reserve's International Finance Division (IF), reviewing the department's historical contributions to global economic research and praising its role in addressing financial crises and pandemics. However, with the market highly focused on the direction of the Fed's Intrerest Rate policy, Powell did not express any views on the current state of the U.S. economy or future Intrerest Rate prospects during this speech.

In his speech, Powell expressed condolences for the passing of former Federal Reserve Vice Chairman Stanley Fischer, calling him a "giant in the field of international economics." He also praised the analytical support provided by the International Finance Division in various policy formulations, including global capital flows, international risk transmission models, and dollar liquidity arrangements during crises.

He pointed out that the IF team played a key role during the Latin American debt crisis, the 2008 financial crisis, and the COVID-19 pandemic, helping the Federal Reserve make judgments on monetary policy and financial stability by developing complex models and uncertainty indices.

The chairpersons and governors of the Federal Reserve have greatly benefited from the work of this team.

However, in the context of the current complex economic situation and the Federal Reserve's policy path being closely followed, the market initially expected Powell to release new policy signals on this occasion. However, the entire speech mainly focused on reviewing history and expressing gratitude, without addressing the inflation situation, employment market, or Intrerest Rate trends, nor did it mention the policy considerations of the June Federal Open Market Committee (FOMC) meeting.

Currently, the Federal Reserve is in a "wait-and-see period," waiting for more inflation and growth data to decide whether to cut interest rates in the second half of the year. Some analysts say that Powell's "silence" this time may be to avoid influencing market expectations ahead of the release of key data.

This speech is also one of the few public appearances by Powell in recent weeks, with the next policy statement expected to be released at the press conference following the June interest rate meeting.

The following is the full text of Powell's speech:

First, I would like to express my condolences to the family and friends of former Vice Chairman Stanley Fischer. Stan was our colleague at the Federal Reserve and a giant in the field of international economics. He not only achieved the highest professional accomplishments personally but was also a trusted and very generous mentor and teacher, nurturing generation after generation of the most important economic thinkers, including several global central bank governors, presidential advisors, and countless economists. We will miss him greatly.

I also want to congratulate the Division of International Finance (IF) on its 75th anniversary. Over the past 75 years, you have made outstanding contributions serving the Federal Reserve Board and the American people. Today, many current employees are here to celebrate, and several former employees of IF have also come, including former Directors Ted Truman, Karen Johnson, Nathan Sheets, and Steve Kamin. This division has also nurtured many well-known former employees, including the current Chair of the Federal Reserve and Secretary of the Treasury Janet Yellen; professor, author, chess master, and our keynote speaker today Ken Rogoff; and humanitarian and economist Albert Hirschman, who is famous for proposing the Herfindahl–Hirschman Index and has recently become one of the characters in the Netflix series "Transatlantic," just to name a few.

During my tenure at the Federal Reserve, the IF division provided us with invaluable insights into global economic activity, international trade and capital flows, as well as dynamics in overseas financial markets. This team also played a critical role during multiple global financial stress events. Your research and analysis have been a crucial foundation for our monetary policy formulation. I would like to thank all those who have served in this division over the past 75 years. Today, I will briefly introduce how this division was established and review some of its significant achievements over the years, after which we will move into the scheduled speeches and discussions for today.

New Era of Global Economy

The IF Division was established on July 1, 1950, but it was originally conceived a few years earlier. After World War II, the United States became a global economic superpower. The Bretton Woods Accord put the United States and the Fed at the heart of the global economy. At that time, our mission was to serve the American people, as it is now. But it was clear at the time that the Fed would have to understand the world better if it was to achieve its twin goals of employment and price stability.

In 1948, a memorandum proposing the establishment of this department stated: "In recent years, international economic and financial issues have become increasingly significant, complex, and important, and our economic relations with other countries will undoubtedly continue to bring many first-class important issues." — This is one of the very few economic forecasts that has been completely validated by time!

75 years have passed, and the Federal Reserve still must understand the policies of other countries' governments and central banks and their impact on the U.S. economy and financial markets. Exchange rate policy is now the responsibility of the Treasury Department. However, after the collapse of the Bretton Woods system in the 1970s, the way monetary policy is formulated has changed drastically, and policymakers must understand the impact of greater volatility in the dollar on American families and businesses.

Since 1950, understanding global trade and capital flows has become increasingly important, a fact that has been even more evident during the pandemic. The IF department is responsible for producing data on international capital flows and has been studying the impact of these flows and international trade on the U.S. and global economies for decades. To predict the direction of changes in employment and inflation, we must understand this complex and tightly interconnected global network.

Another important shift in the 1970s was the increasing use of macroeconomic modelling, which also profoundly influenced the work of the IF Division. Under the leadership of former Director Ralph Bryant, the IF Division developed the first multinational model. The team has always been at the forefront, and many of the economists in this room have advanced the complexity of the model over the years, allowing us to better analyze the international risks and issues of the day. These models are useful in understanding how international shocks are transmitted, how risks and uncertainties are assessed through different scenarios, and how to analyze the impact of various types of shocks on the U.S. and global economies. These findings are used in research reports, presentations to the Board of Governors, and risk and uncertainty assessments received by Federal Open Market Committee (FOMC) members prior to each meeting.

Preparedness for Crisis

The IF Division has also played an important role in responding to global economic turmoil. A prime example is the Latin American debt crisis of the 1980s. At that time, the Division was tasked with analysing the global macroeconomic impact of the crisis. The work of the IF team, the International Monetary Fund, and others has facilitated the establishment of the Emergency Financing Facility, helping to avoid more serious financial consequences. As global capital flows intensify, new financial stress events continue to emerge around the world, including crises in Mexico, Asia, Russia, and elsewhere. International capital flows and spillovers have since become a regular part of the IF Division's analysis and monitoring work.

The professional capabilities accumulated through addressing these global challenges played a significant role during the financial crisis and the outbreak of the COVID-19 pandemic. Both events required rapid, extensive, and even unprecedented response measures to ensure that American families and businesses could still access credit support. The Federal Reserve was looked to by the United States and the world to step up in such moments. During the global financial crisis in 2008, the global dollar financing market faced pressure, and the IF collaborated with multiple central banks to promote the establishment of currency swap arrangements to help restore stability in the dollar market. During the pandemic, the IF led the establishment of the FIMA Repo Facility, further expanding the supply of dollar liquidity.

These periods of significant financial pressure and high uncertainty have prompted IF Corp to develop new tools and analytical products to address the ongoing events. For example, the IF team has developed new methods to assess the economic impact of various types of uncertainty, including new indices that track geopolitical factors, inflation, trade policies, and overall economic uncertainty. We are still in a period of high uncertainty, and these tools are crucial for understanding the specific impacts brought about by uncertainty shocks.

Conclusion

Finally, I want to say that for 75 years, nine Federal Reserve Chairpersons and countless Board members have greatly benefited from the opinions and analyses of the IF department—not just in times of crisis. In our daily international affairs, the IF team also ensures we are well-prepared by providing detailed materials in advance, and often traveling together. You are one of the most popular and valuable members among the accompanying staff. Our ability to maintain good relationships with international counterparts is also thanks to your efforts.

Thanks to Beth Anne and all the colleagues who participated in preparing for today's event. Once again, thanks to all current and former IF staff, your work has given our central bank both a global perspective and adaptability, enabling us to better fulfill our dual mission of serving the American people.