A conversation with Roger Ferguson, hosted by Justin Wolfers

I'd like to thank the Center for the Education of Women, and their director, Gloria Thomas, for co-sponsoring our event this afternoon. I'd also like to welcome the university's Chief Financial Officer, Kevin Hegerty, and Laurita Thomas, the Associate Vice President for Human Resources at the University of Michigan. Today's even is part of the Ford School's annual City Foundation Lecture series, which enables us to bring some of the world's most prominent policy leaders and thinkers to campus. So it really is a pleasure to welcome all of you here today to hear one of the most distinguished macroeconomists, Dr. Roger Ferguson, who is President and Chief Financial Officer of TIAA-CREF. While you'll be hearing more about TIAA-CREF shortly, let me just simply say that it is one of the nation's largest financial institutions. It works to help people provide - to help provide financial security for more than five million customers in academia, medicine, a variety of different nonprofit sectors. And it manages assets that are worth nearly $900 billion. In fact, the University of Michigan was the first institution to formally provide resources and money in to TIAA-CREF, and so there's a very special relationship there. Which is something that we're proud of. And TIAA-CREF has been the retirement provider for the university since 1919. It's also been named by Black Enterprise Magazine as one of the 40 best companies for diversity. Again you'll be hearing more about the institution shortly. Well I first met Roger Ferguson when he was a Ph. D. student at Harvard and he was an undergraduate. He was known by many - certainly me included - as a really thoughtful, levelheaded, valuable resource. That is a reputation that really truly continues to this day. As some of you may know, on September 11th, 2001, Roger was Vice-Chair of the Board of Governors of the Federal Reserve, and in fact he was the only Fed governor in Washington, D.C. on that fateful day. And it was his decisive, levelheaded actions in the aftermath of the attacks that really helped to keep the U.S. financial system and avoided what could have been a financial disaster. Roger continued his public service as a member of President Obama's council on jobs and competitiveness, and as a member of the panel of economic advisors for the Congressional Budget Office. And he recently co-chaired the National Academy of Science's committee on the long-run macroeconomic effects of the aging U.S. population. Again, one of the topics that we'll spend some time on this afternoon. Roger has really shaped policy from the private and nonprofit sectors as well. As head of financial services for Swiss Re. On the boards of several nonprofits, and of course, since 2008, in his current role of CEO of a Fortune 100 provider of retirement services. This is Roger's second visit as a policy talks lecturer, and third recently to the university. He's being very generous with his time. We very much appreciate the time that he will be spending with our faculty and students, as well as participating today. He shares the stage with another renowned macroeconomist. The University of Michigan's own Professor of Economics and Public Policy, Justin Wolfers. Justin was named by the IMF as one of the 25 economists under 45 shaping the way we think about the global economy. As the - by the New York Times as one of the "Top 13 Young Economists to Watch". His ideas in use can regularly be seen in print media, and if you are following him on Twitter, you have probably like me enjoyed his unique humor and insight. He is known for making economics accessible and interesting. And so we're particularly delighted to have him join the conversation today. He has recently returned to teaching at the Ford School after two years in Washington at the Brookings Institution and the Peterson Institute for International Economics. We're delighted to have him here as well. So before we launch into today's conversation, I'd like to remind our audience that if you have a question for either of our speakers, please write it on one of the cards that you should have received when you came in to the auditorium today. Volunteers will collect your cards and Ford School Professor Betsy Stevenson, along with two of our students, Drake Baglietto and Travis Harold, will facilitate the question and answer session, which we look forward to as well. If you're watching online, please Tweet your questions. Use the hashtag "#policytalks". So it is my pleasure to turn the floor over to Robert Ferguson and Justin Wolfers. Welcome.

>> Thank you.

[ Applause ]

>> So Roger, welcome. Welcome to my home. I just learned the scariest thing, by the way. My boss follows me on Twitter.

[ Laughter ]

I don't know what that means. Let's start at the beginning. What is this organization you run, TIAA-CREF.

>> Well thanks Justin, it's a pleasure to be here. So I think you heard a bit from Susan, TIAA-CREF is a Fortune 100 company. A couple things you know, first it's not publicly traded, so you can't buy or sell our stock. And secondly, it is a not-for-profit organization. So it's in that sense different from any other big, national institutions. As Susan said, we have been in existence since 1918, and our purpose is to provide for financial well-being. For folks in the not-for-profit sector, as you heard. Primarily we do that by focusing on retirement. So we allow people to save for retirement from the day they join the faculty or staff, or administration, of a place like University of Michigan, on to the very end. But we also provide a range of other services for individuals and institutions. Banking, life insurance, trusts, services, endowment management, etcetera. We do manage almost $900 billion. It moves up and down with the market to some degree. We are pretty well known for the broad diversity of what we do. So equities, for sure. Fixed income products are all tied, structured products, but not as well known, we're the number one or number two manager of real estate in the world, with about $90 billion of real estate. We're in one or two in terms of ag land, and timber. And we're very large in infrastructure. So an older company, started in 1918, well established, very safe, very secure. Importantly quite diversified. Final point I'd make is quite successful. So we have won - we've run the Lipper Award for the best large fund family for three years in a row, which looks at multi-year performance.

>> And as my colleagues have reminded me, you've also got most of our money.

>> Yes.

>> Are you taking good care of it?

>> You're - as Susan said - our oldest client in terms of remittance, one of our largest, and yes, we take very good care of your money.

>> And if you could make it even larger that would be better.

>> Well I work at that almost every day when I'm not on a campus talking to people. And even as I'm sitting here, I'm thinking, "What can I do to make Justin's retirement bigger?"

[ Laughter ]

>> That's the perfect segue. So what are some of the big retirement mistakes that you see people making?

>> I think the biggest one could be described as not thinking about it. And in fact, it's often said that people spend more time planning a vacation than they plan their retirement. So the big headline is not thinking about it. What does that mean that people do that are a series of mistakes underneath that headline? First, people don't save enough. As a society, the Senate has estimated that we probably are short retirement savings well over $6 trillion - a huge amount of money. So what's going on there? First, many people don't participate in a retirement plan when they have one. About half of Americans haven't done that. Secondly they say they don't save enough. The third thing that people do that's a mistake is they crack into their retirement nest eggs for a variety of things that are important to have, but not necessarily things that are more important than retirement. Such as buying a home, or buying a boat, or things of that sort. So that's called leakage, technically. And then the final mistake that people often make is they get very excited about the size of their nest egg, how much they've saved, without actually thinking about how's that actually going to play out as retirement income? Because many folks are going to live in some version of retirement for 15, 20, maybe 30 years. And they - the mistake they make is not recognizing how long they're going to be in retirement.

>> So there's a lot of people making a lot of mistakes. What can we do to help them not make those mistakes?

>> Well look, I think we can leverage what you and I and many folks in this room probably know of as some of the incentives slash approaches built in around behavioral economics, for example. So one idea is to automatically enroll people in a savings plan and force them to opt out. Thereby you take advantage of all the inertia that exists for all of us. The second may well be to do something that's called automatic escalation. So as people earn more, have them save more, and have that again be automatic. And then folks opt out. A third thing that we do that's really very important is give people a chance in their retirement plan to save not just to accumulate assets, but also to think about the payout phase. And what I mean by that, to put it less English, if you will, and more technical - have an annuity option as part of the plan options. So here, University of Michigan, you can all save as in the TIAA program. And that gives you a chance to save what we call annuity units that earn payments while you're saving, and then automatically or relatively easily allow you to roll over into retirement income. So this is again a little bit of behavioral economics. On that last point, I'd say in America overall, about two to three percent of families or households annuitize within our system. By the time it's over, people have taken - 70 percent of our participants or more, 75 have taken an annuity option as one of their options. And so, you know, it's a bit of behavioral economics that gets people to do the right thing at the very end.

>> So assume I'm a freshman here. What do you - what is an annuity? Can you explain that?

>> So an annuity is a financial product that basically allows you to use my company, let's say, to guarantee an income for you for life. The way we do that is by pooling the lives of many millions of people, which therefore it's an insurance product, and then everybody gets paid out of that pool over time. What happens in the way this works is, for sure, in a very, very large pool of people, we'll have some folks who have the misfortune of having relatively short lives. We'll have some folks who have the good fortune of having relatively long lives. And through actuarial science, you can basically pool all of those risks, mortality, longevity, to create guaranteed income for life. Ultimately, what this allows you to do is instead of taking all the longevity risk on yourself, instead of saying, "Gee, I may live to be 100 or 110," you pool that risk with a bunch of other folks. And that's the business that we're in. I hope that's clear enough.

>> That seems super, Roger, but don't you have sort of the opposite problem of healthcare? Like with healthcare, sick people want to buy it and healthy people don't. That makes it expensive. In this, it sounds like people who are going to live a long time want to buy it. Others won't. That's going to make it expensive.

>> That's exactly right. So it's a little different from healthcare in the sense that you may not really know what your outcome is likely to be. You may have a good - you go with a prior, right? You have a strong hypothesis. So my parents unfortunately didn't live for a very long life, so I might think, gee, maybe I'm in for a shorter lifespan. You know, there are folks here whose parents may be in their 90s or 100s and you think, "Well gee, I'm in for a longer lifespan." We've got that, but you pool all those folks together, and you still end up having quite a distribution. But there's no doubt that there's a possibility of a selection bias. Against us. But the reality is that actually hasn't occurred, and we've been doing this for 97 years. So there are really sharp economists like you who are out there trying to do selection bias against us. To date, that hasn't worked very well. So we'd invite you - we hope that you annuitize with us, and if you win the lottery and live for 140 years, my job is to be there - or my company's job is to be there to pay you for 140 years.

>> Okay, so it's a problem in theory but not in practice.

>> It's a problem in theory and has not yet been a problem in practice.

>> Okay, so you've talked a little about like using behavioral economics to get people to save more. My University of Chicago educated friends say this is the heavy hand of the State telling people what to do. You say you force people to make an active choice. So who's forcing who to do what in this?

>> Well let's first start with the fact that we are not the state. So we are purely a private organization. You can think of us as being like a mutual. So in fact, who's forcing whom is at the end of the day a little bit of peer pressure. So good retirements, let's say, on the University of Michigan campus, I've always thought of as being a pure, public good, right? So all of the faculty and staff benefit from having everybody have secure retirements. Otherwise what you'd find is there'd be faculty who were working, working, working, and then retiring on campus, potentially in poverty. Or staff. Or administrators. So at the end of the day, it's like any other pure public good, I think. We all look around and say, effectively, we're in this together. So if you have a great retirement but someone else in the Ford School has a lousy retirement, at the end of the day, that negative outcome could come back and haunt, let's say Susan. As the Dean, having to worry about balancing these various outcomes. So what we've done is effectively take that burden off of the schools, and we have allowed this public good process to work, if you will. By using some of these techniques. So I look at this as a really clever - I'd almost say brilliant, since I didn't create it. I could say brilliant. Solution to a public good problem that we have in society that has now worked for almost 100 years.

>> Do you think there are other nudges out there that can sort of push people to actually start thinking more about retirement?

>> Oh, sure. I think there are a number nudges. So for younger folks, one of the things we're doing is putting retirement in the context of a lot of life choices that you have to make. And so, you have graduate students. There are some here. If you lead a conversation with the average 24-year-old about retirement, you know, eyes glaze over pretty quickly. If you talk about the various journeys, or the paths along the journey, and this is one of them. And so you start to think about that. You also talk about it quite differently. So I think you may know Jeff Brown, a retirement economist at Illinois. He's on our board. He's talked about framing. So if you talk about this as retirement income, that gets people excited. If you talk about it as a retirement salary, that's a positive thing. If you talk about it more as an investment, that tends not to lure people. So you think about framing. The third thing that one can do - and this works for both institutions and individuals - is do just a little bit of comparison. So folks like you, healthy males at some young age, are tending to save X. Right? So you set a little bit of a target. So one of the things that we've described is, gee, it helps if you are - between you and your employer, are saving let's say ten, 15, 12 percent of your salary for retirement. That number may seem high or may seem low, but at least it starts to give people something to target. Because people often ask, "If I wanted to save, gee, how much can I save?" So a little bit of framing, some targeting, some setting some models to create a little bit of incentive. All those things seem to work.

>> Yeah, I remember as an assistant professor, I was asked to sign up for these things many years ago. This was out at Stanford. The woman say, "Well, how much do you want to save?" And I said, "How much should I?" Her answer was, "I'm not allowed to tell you."

>> Right. And this a very interesting challenge. So we haven't talked much about it, but there's a number of things that the government could do that would make this a little easier. And in fact, some of the policies and procedures that have been put in place by the government have I think worked against really good retirement savings. Some are working in favor, but one of the things I do spend some time doing is trying to work with the Labor Department and others on how they can create an environment that's more friendly towards retirement savings.

>> Right. So I feel kind of reassured talking to you that you're looking out for my best interests, and that all these nudges are going to help make me wake up and make the right choice. But that's a freedom you have as a nonprofit. So the broader retirement savings world presumably is far less kind, gentle, and a little more interested in their own bottom lines.

>> There's no doubt. For sure. Now, what you're seeing in the for-profit segment is many of these same tools and techniques are being used. I think the big difference, and one that I think is a challenge for all of us, is the kind of annuities that exist in the for-profit world tend to be - have more bells and whistles, if I can use that phrase. They tend to be relatively expensive. So one of the challenges that we have, we at TIAA-CREF have a very good, user-friendly annuity that has withstood the test of time. Backed by some of the best actuaries in the world. And we do this all in the interest of our participants, but we're coming up constantly against all the noise in the system that says annuitization is a bad thing. Annuitization is a bad thing. So one of the challenges that we do have is exactly that. Taking a product that can either be toxic or not and educating people to why ours might be different. The other thing that differentiates us, we offer a mutual fund for example. Our fees tend often - in fact almost always - to be in the lower quartile. Often lower decile. Obviously, as an economist and many of you in the room know that the fees that are associated with your mutual fund may be one of the biggest determinants of outcome. So you really want to look for something that is, like us, very, very low fee. There's a risk there. That you know, things are masquerading, if you will, based on good return without discussing the fee. That becomes a part of the challenge as well.

>> Yeah, one of - as you've shown that one of the great perils of being an economist is that people stop you in the street, and they're like, "What should I do with my money," as if you have some idea. They've been watching, you know, Fast Money on TV. Some friend of theirs just won a stock-picking competition, and they say, "What should I do with my money?" The answer for 100% of economists low-cost, diversified index funds. Then you're the most boring guy in the room.

[ Laughter ]

You get ignored.

>> Yeah. It's an institutional challenge, right? If you ask us, we definitely say low cost. We say broadly diversified. We certainly also offer a range of both indexed and active, because there are folks who want that as well. It does become less exciting than the, "No, no, no, tell me which stock to pick." The answer you can always give as an economist when someone says - the first thing you say is "save, save, save." Then you go into, you know, the other components. Then, if you're really savvy, you'd say - if you see someone on campus, you'd say TIAA-CREF.

[ Laughter ]

And then you walk on, and you're the most brilliant person in the room. That's been my experience anyway.

>> You are one of the groups that does low-cost, well diversified - so actually you said something interesting. You said you offer both index funds and also active managements. So for the audience, active management is, you know, you've got a guy in an expensive suit, with computers in front of him, and he's sort of saying we should buy a little bit of this, a little bit of that. And so on. Do you have any of your retirement money in active funds?

>> I have mine across both index and active. And by the way, it's not guys. In our company I think about a third of our portfolio managers are women. And so why do I do both? One, as a trained economist, I fully understand the notion of indexing etcetera. The reality is, we have seen - particularly in areas that are a little more opaque. So emerging markets. Small cap. That active management based on fundamental research, you know, can be very, very helpful over the cycle. And so I've been thinking through this real challenge slash dilemma around index funds versus active. The other thing that one has to recognize is that index funds do reasonably well in less volatile markets. They tend to be relatively smooth. When you get to lots of volatility, and I'd like to see more science around this, it may well be that active also has a role to play. So even with my economics background and understanding where you're coming from think that it's important to have both of these options and capabilities. You watch them very closely. Now, the other thing that I do is we do - we encourage people to do what's called rebalancing. Which is one a year, you figure out what your risk portfolio is, or profile is, and some things will have done really well. Be them index or active. And then you take some of that money off the table and put it into things that haven't done so well. Because there is also a general tendency in both, but certainly in active, that you know, styles are in and out of favor. So one of the reasons to do this, to do this rebalancing, is you recognize that there are these big cycles in markets. And either the index or the active could be caught on the wrong side of the cycle. Which is why you also want to do what's called rebalancing.

>> Okay. So more broadly, so we talked mostly about retirement, but just generally. The state of financial literacy - what do you see out there?

>> The state of financial literacy is abysmal. And it's abysmal - how can one describe a general lack of knowledge? The problem is most parents are not very comfortable in this space, and I think that's actually a generational shift that has occurred. And then therefore their kids aren't very comfortable with this space. Obviously if adults in general aren't comfortable, teachers often aren't comfortable with this space as well. Not economics faculty, but others. So I think there's this general lack of financial awareness that permeates society. And I'm not going to give my little quiz now, but there's a little quiz that we've given, and about 30 percent of America has a financial literacy that is truly tested at financially illiterate. The challenge that I think we have is, how do you break into a society of general illiteracy? So you need to educate some group that can then educate other groups, etcetera. So what we're trying to do is move away from relying so much on a small cadre of people, to try to use, again, some organification kind of technologies and techniques to encourage people to take a better interest. And then using videos and things of that sort, hopefully that will be a path towards greater literacy. The only other thing that we're doing is we are supporting 15 graduate schools. Each one of whom is doing a slight different experiment with their pool of graduate students. These are not business schools; these are graduate schools of arts and sciences. To see if we can find one or two techniques that tend to work with Millennials and see if we can popularize that. So hopefully by this time next year we'll have some answers out of that, and we can start to make that more general.

>> So the view is if you can even get philosophers to make sensible decisions, you've really succeeded.

>> Among other groups. Not to pick on them. If we can get economists to make sensible decisions you will have succeeded.

[ Laughter ]

>> So you touched on this a little before. This big issue of long-term savings. Are we saving enough?

>> As a society, no. Certainly individuals are not, and then one can go to the broader question of society overall. But if I could take this to a more macro level, I think broadly speaking - and you may disagree with this - one of the big challenges in America as a society overall is we are more prone to consumption as opposed to savings. Therefore, because of that, I think we're probably investing too little in some fundamental things. Both infrastructure - it's been talked about - but also education. So I think individually at a micro level, many of us, probably most of us should be saving more. I think at a macro level as a society, we should attempt to rebalance a bit more towards saving and investment as opposed to consumption. The reason I think that's really important on the macro level, but tied to this retirement issue, is the big mystery we're dealing with around why productivity is so low.

>> Yes.

>> As a person thinks about retirement, all of you young folks out there, I want to support my retirement by supporting Social Security, for example. It really is important to me that you become much more productive, and that we deal with this productivity challenge.

[ Laughter ]

So putting my big hat or putting my small hat, I want more savings. Because I want more investment. Because I think that's going to help drive more productivity. Which I think will make everyone's retirement better, but also makes society better. So did that cover a broad enough arc?

>> Micro, macro.

>> And made it very personal. Also important.

>> Yeah, that's what we're looking for. And so this also gets to this broader issue. Population is aging, you know, the first of the Baby Boomers now are starting to retire. That's a big demographic bulge coming through. How's that going to shape the economy, our needs, over the next few decades?

>> This is one of the areas that's really rife with a lot of debate. So all of us will agree that there are going to be 70 to 80 million Baby Boomers into a retirement age over the next several years. As Susan I think mentioned in the intro, one of the things I did was coach this National Academy of Science's activity on the macroeconomic impact of an aging population. I would say the profession is struggling with whether or not having an aging population means that you have to have a population or a society that becomes less productive over time. There's actually no consensus around this. So there are a couple of things I think we conclude can come off the table. There's one view that says, gee, as populations age, what we're going to find is older people are tending to disinvest, and they're tending to sell their homes. So equity prices and real estate prices are likely to be depressed. I don't think there's really much theory that supports that. Certainly the reality to date doesn't suggest that equity prices or housing prices are being depressed as we move into all of this aging Baby Boomers retire. There are a lot of reasons why that, I think, is not likely to be the case. The economists are really struggling with whether or not older populations tend to be less productive in an economic sense. You look to Japan, for example. You look to Germany, which is a relatively old population. Aging more quickly than we are. It's clear that my Japanese economist friends believe that their demographics are clearly weighing on the potential in that economy. I don't see that necessarily in Germany, for example. And so I think the jury's out. I think it has very much to do with capital liberation and things of that sort that may drive that. So then we go to the final thing which we know will be the case, which is social programs that are geared towards supporting the aging are clearly going to be under great stress. Social Security, Medicare, Medicaid are all going to be under great stress because of this aging population. A few factoids: when Social Security was started, the ratio of retirees to working people - I think if I get this right - was one to 15 or something like that. We now are down, over the next five or ten years, we'll go to one retiree for every two folks working. That clearly will have big implications for the economic viability of these programs. So while we're not sure about asset prices, we're not sure about productivity, we are certain that social programs that are geared towards aging are clearly going to be under greater stress. Just because the numbers are starting revolve in that direction.

>> So let me change pace. It's not often I get to talk to a former Vice-Chair of the Fed. Particularly a former Vice-Chair during an extraordinarily interesting period, which was the years leading up to, but not including, the global financial crisis. So you got out while the getting was good?

[ Laughter ]

So by one view, economic growth in the United States while you were in control. By another, very common view that I hear, what you were doing was creating the sets of imbalances that caused the U.S. economy, the global economy, to go kaput. What's your answer to that view?

>> Like most economists, I fortunately have two hands, and so I will give you both sides of that story. First, we should be really cautious. The Fed is incredibly powerful for sure, but in no sense does the setting of monetary policy drive as many outcomes as many people would like to think. So let's be modest about the role of the U.S. Central Bank. So what do we know? We know that a large number of imbalances were building up. And led to this crisis. I think there's certainly quite a bit of debate - and Ben Bernanke and others have been part of this - on the question of what was driving these imbalances. Back to one of the earlier points I made, the fact that the U.S. was and continues to be such a consumption-driven country while China in particular was more of a savings country. So we had those sorts of international imbalances. That many people think fed back into the U.S. financial system by keeping long-term interest rates in particular lower than they would have been otherwise. And so even at the time, even when I was on the Fed, Greenspan was talking about the conundrum. Bernanke was talking about the savings glut. I in a far less recognized set of speeches was talking about an absence of investment, which is just the flip side of the savings glut. And so all of us are trying to understand this really big imbalance that was building up that probably had very little to do with monetary policy and had a lot to do with trade and with the nature of the Earth's economy. So here I'd say - there were imbalances building up. I'm not sure monetary policy was driving the trade imbalances between the U.S. and the rest of the world. The second set of imbalances that clearly were building up were in the housing market. And here I'd say, yeah, the Fed deserves some demerit for two things. One is I think the main theory of housing for a long, long time until the crisis was that housing markets in the U.S. don't all go kaput at the same time. So you would've heard Greenspan talking about "bubblets" for example. Because the history of the U.S. had been, in New England there was a housing crisis, a housing correction, that slowed down the northeast states for a little while but didn't have a big national impact. Florida is very well known, and the Sun Belt, for big real estate booms and busts. Same thing was true of the Southwest. Same thing was true in Texas. Same thing was true in California. So I think a place where a lot of economists including those at the Fed missed a fundamental change was this notion of regional housing markets. All being on exactly on the same cycle, which is actually one of the things that appears to have happened. Ironically - not ironically. If you actually dig into the facts of where the 2007, 2008 housing boom and bust occurred, it actually still was a relatively small number of markets. But it happens to have been that all of those cycles were exactly overlapping. So I think that's a place where people go, "Alright. The Fed had a model of the way markets evolve, particularly housing markets, that proved in hindsight to clearly have been wrong." Then the third thing that people often say is, well gee, coming out of the 2000, 2001, 2002 cycle, where the tech bubble burst, the Fed was too slow in raising rates. I think here you know, the debate still rages. Right? Because in fact, we started moving rates up and moving them quite aggressively at the short end of the yield curve. But the yield curve itself was surprisingly flat, which led to the conundrum around all these other things. Which fed back or was a result of that first set of imbalances. So if I think about it, the housing market and the housing boom and bust being a series of cycles that were working exactly in the same way at the same time, the Fed missed it. Bigger imbalances - I'm not sure monetary policy could have touched those one way or the other. And then did we hold interest rates too low for too long? Debate's still out, but the reality is rates were rising pretty aggressively. But the yield curve was surprisingly flat, which then fed into some of these other things. So you know, I'll leave it to you to decide am I giving the Fed a B, a B-plus, or you know - you can decide. I think there are clearly mistakes that the Fed made, and I think there are some points where the debate's still out. And I think there's some point where clearly the Central Bank couldn't have touched and had no impact on these imbalances. What about - the charge you didn't respond to there is the charge of complacency. So banking supervision - I remember through this period, if you could get a really job at the Fed, you'd work on monetary policy. And if they didn't really want to hire you, they'd stick you in a back room to do banking supervision.

>> Oh, now here you've gone one step too far, young man.

[ Laughter ]

No, I think that's - here I actually do think - unfair to a degree. So let me try to be clear about why I gave you that sort of nuanced answer. In fact, for better or for worse, some of our smartest brains at the Fed were working on a problem that was visible to all. Which was that the capital regime, what we call Basel I - and this is going to get sort of technical, but I'm not going to go too far into technicalities. So the capital regime that was existing at the time called Basel I, all of us thought, was not appropriately risk-sensitive. That it didn't really reflect the risk built up in bank balance sheets. Now, so, positive check for saying, "Look, here's a problem." Here's where I think things didn't come together very well, and I was personally involved in this. The process of negotiating the new capital standard called Basel II. Which was meant to drive more risk-sensitivity into banking, did not ultimately end up in a successful place and time. Now, in part, people say because indeed so many smart folks were working on it, it became much more complicated, much more convoluted. So just the opposite of your problem was some of the best brains in the Fed were working on this highly risk-sensitive scheme of capital called Basel II. There were a number of other problems with it, frankly. One is it had to be consistent across countries, so we got involved in a very long protracted period of financial regulatory diplomacy, where the U.S. had their point of view, and then get the British and the French and the Germans. That, you know, was quite protracted. And then finally, elements of Basel II had to be adjusted to deal with different banking components here in the U.S. Small banks, medium-sized banks and large banks. So I've given you a longish answer to say, I don't think the Fed was complacent. I think we were aimed at the right thing. And here, the third point you could say, you know, your fault, lots of faults - we didn't get to the right answer quickly enough. So I think complacency is not fair, but on the other hand, no doubt that at least I think - not everyone agrees with this - had we gotten to a much more risk-sensitive capital standard more quickly, perhaps you could've at least not necessarily change your trajectory of history. That's a strong statement. But force banks to be much more prudent about some of the actions they took. And you know, since that time, the international community has created this thing called Basel III. It looks exactly like Basel II in many ways, except this has thrown many more parameters into the equation. So is it better or worse? I don't know, but the reaction to the crisis was in fact to go back to where we were. But to sort of modernize it in some ways. The final point I'd make, and then just to be quite clear. A fair amount of what was going on that led to the crisis was outside of the so-called banking system. I think everyone sort of recognizes that no one was really managing mortgage brokers and others who were securitizing this stuff and throwing it into the system. So the other challenge I think we all had was all the bank regulators were looking at the banks. We actually don't have a regulatory structure for the non-bank financial sector. And so that was a very large gap that I think has now been filled.

>> Okay, so now, last question. I just want to totally change directions. There's been a lot of student activism over the past year here at Michigan around race. And you are - I think by any measure - the leading African-American economist of your generation. But ours is also a field that has really failed to be diverse.

>> Right.

>> So I just wanted to issue the invitation to sort of reflect on your experiences and tell us a little about how the field can do better.

>> That's interesting. One, you took me aback with the thought that I may be the leading African-American economist of my generation.

>> I'm pretty confident it's right.

>> It may be right.

[ Laughter ]

No, I just never thought of myself in that vein. That's - wow. Now partially, to be very honest, because there's so - the real point is there's so few African-American economists. No, there are. There are very few African-American economists. I'm 63 or 64, and my generation of graduate school students - very few, frankly. I think the challenge - and I'm not as close as I should be. Now obviously, now there are folks - one in particular is this one - the Bates prize or the John Clark Bates Medal. So there are lots of other folks, but I think the real challenge in the profession is, it is simply not diverse enough. And be that race, be that gender. Fortunately, we have gotten really good economists from the Pacific reason. From Papua New Guinea, for example. I think that's been an element of diversity. So to be very serious about this, I think we have to understand - is there something about the profession that is off-putting to lots of people? And I think there are two or three things. One is I don't think this has changed very much. In my day, I'd describe the profession as sort of very intellectually aggressive, if I can say that. Now, you know, I had a bunch of folks who are my tenure who are just waiting for me or someone else to make a mistake. It had nothing to do with race; it was just the nature of what a seminar is like. That's not necessarily a very appealing environment to lots of folks.

>> Right.

>> So why did I stick it out? For me, it was ultimately - I was just very, very lucky. My parents and my education led me to believe that the things that were happening to me were not necessarily around race. And if I wasn't good enough, it was up to me to be better. You didn't ask about me personally, but one of the things that we all have to think about when we get into these tough, tough situations is it's not necessarily about you personally. People are just mean to each other intellectually for the fun of doing that. You have to either get into that game or not. So that's one thing. I think the second thing, frankly, and it's true even now. The range of interesting problems in economics - some of them have moved in and out of areas having to do with race and other things that people might be naturally attuned to. And so what was very interesting about the Bates prize, if I understand it, is it went to a young - to Roland Fryer at Harvard. Whose work as I look at it has a lot to do with race and different racial outcomes. So it's an unusual place for the profession to be recognizing that. I don't think people even in the profession thought that was an interesting set of topics to talk about. After the '60s. So when I was coming along, it was all about monetary policy. You know, tough macro issues. Things that maybe if you wanted to think about the community in which you grew up, there wasn't really space in academia to even make those legitimate questions. So one of the great things about what just happened is that whole set of questions has now become sort of quite legitimate again. So that might be helpful. So you've got the style of the profession being intellectually tough, and maybe that's not for everybody. You've got the question of whether or not the questions that one might want to explore being legitimate or not, and it looks like the pendulum has swung back to being legitimate. So those are a couple things. The third, frankly, goes back to one of the big challenges. Math is - economics is a very mathematically driven profession. It doesn't have to be, as you well understand. The concepts are pretty intuitive. But you start to see, you know, black kids and women, girls, fall out of math at a pretty young age. So if you have a profession where the language is something that is - folks are not encouraged to pursue starting at a young age, by the time you get to graduate school, if you haven't been thinking in calculus terms and ready to work in calculus terms, it's pretty hard to get there. Starting and thinking about calculus terms starts back in fourth grade or fifth grade. Because you have to, on my judgment, take calculus in high school in order to really make this work in college. And you know, if you're being dissuaded from that for a variety of reasons, then it becomes very, very difficult. So three different kinds of answers. Not sure they are necessarily - I know they're not complete, but those are at least my thoughts on this dilemma that we have of having this great profession that's incredibly important but not very diverse in lots of ways. We do have to overcome it, I think.

>> Thanks for sharing that. We're going to move to questions from the audience. If we haven't bored you all to death.

[ Applause ]

>> There are some questions?

>> Yes, yes, yes. Good afternoon, everyone. I'd like to thank you both for the awesome insight and your time. I'm Travis Harold. I'm a first-year MPP student here at the Ford School. My interest is economic policy, so it was great to listen to that advice and suggestions that you both gave. Thank you. So the first question is for Mr. Ferguson here. "Roger, you have been at the heart of monetary policy for many years. Following the post-2008 financial reforms, are we as a country better prepared for another financial crisis?"

>> So again, allow me to use both hands and say yes and no, right? So what's worked, what has gotten better - two or three things. There's no doubt that policy-makers, regulators, legislators, have put much more weight - forced banks in particular to put much more weight on risk and risk management. It's something we've always done, so we welcome everybody else getting into a place where risk and risk management are really valued. That's obviously got to be a very strong signal that will help us, for sure. Secondly, though it's not perfect, I do think the communication among regulators has gotten a lot better through the FSOC. It's far from perfect, but that's a nice step forward. Having said that, I believe markets are prone to these moments of overshooting. Manias and panics, all that sort of thing. So I think it would be really unwise for us to say, ah, the era of financial crises is behind us. Simply not true. We're not going through a financial crisis right now, but we're going through a period of pretty great volatility in markets. I think it's impossible to say that we aren't at some point, not any time soon I hope, going to have some other big financial crisis. So I think we just have to be eyes open that markets are prone to these big swings. Sometimes as we've talked about with housing, the cycles overlap, and you end up getting bad situations. So we'll do the best we can, but I don't think we're ever going to be at a place where we just aren't going to have that challenge again.

>> Alright, my name is Drake Baglietto. I'm a second-year BA student at the Ford School. And as somebody who my focus here is actually in political economy, it's been a great opportunity to be part of this conversation. The question I have is for Mr. Ferguson. Do you have an opinion on how a potential Fed hike in October or December might impact the market in light of the recent anticipation of reaction to the Fed's decision to not hike.

>> Right, so this is, you know, the multi-million - I was going to say $64,000 question, but this is a $64 billion question, who knows. I actually think that when they actually - when they move to doing what I think is inevitable, it'll be a big relief to the markets. It will answer one of the questions that is hanging over market and market commentary. And I expect that it will probably not be as consequential as many people fear. Two reasons for that last statement. One is, my suspicion is that what they're going to say around that initial hike is going to be relatively soothing and reassuring. The markets are in good shape, the global economy looks like it's in reasonably good shape, the U.S. continues to make progress, and I think they're going to say something else that'll be very important. Which is - it's not necessarily one and done, but one and we'll watch. As opposed to getting on to a quick elevator of 25 basis points every meeting. So the context I think is going to be relatively benign. And secondly, truth be told, moving from effectively zero to something approximately 25 basis points is hardly a tightening. The headlines will be blaring this as a tightening, but this will still be phenomenally accommodative of monetary policy. The third thing people have to really understand, in my day on the Fed, I feel now I'm like an ancient guy. Well in my day - but not too many years ago. A few years ago, people feared getting to the zero bound. This was a place you didn't want to be. So intellectually, embracing the zero bound seems to me as though you're signaling a huge amount of anxiety. We're still in a crisis mode. And I think the truth of the matter is the economy has progressed. We're moving towards - towards full employment. So I think the signal that we are releasing ourselves from the zero bound ought to be perceived as relatively positive. Assuming the first two conditions hold.

>> Okay. So this question is actually for my great professor here, Mr. Justin Wolfers. Yeah I have to see his - I have to see his bright face tomorrow.

>> At long last. Give him a tough one.

>> I know right?

[ Laughter ]

What advice do you have, not as a CEO, in terms of, you know, what to give your children regarding retirement.

>> What advice do I have to give my kids?

>> Yes.

>> My kids have two economists as parents. They're going to be okay.

[ Laughter ]

Pay attention at dinner.

>> Can I reinforce this? Because I think it is pay attention at dinner, right? I know you. I don't know your partner very well, but if I think back around financial literacy, you know, you guys must have great conversations at home. My wife was a commissioner of the SEC, and our kids finally said, "You know, we've got to go to get a degree in economics to understand what the heck you guys are talking about." So I'm very much in this, if you've got two economists, pay attention. It will educate you or terrify you, one or the other. So I can only imagine in your house it's a combination of education and terrifying. Your two kids are young though.

>> Yeah. Oliver, he's two. It's really hard to get the PowerPoint remote back from him at dinner.

[ Laughter ]

And he's looking, going, "What's the marginal benefit or the marginal cost of going to bed at this particular moment?"

[ Laughter ]

Were you there?

>> There may be another more serious question from the audience.

>> Another question is for Roger. So how effective has the President's Council on Jobs and Effectiveness - rather, Jobs and Competitiveness been?

>> I would say at best moderate. Right? So if I wanted to say, "Boy, what a great job we did," I'd say look at how the unemployment rate has fallen surprisingly quickly to something that looks like full employment. The truth of the matter is, I think the policy ideas that we had were moderately interesting. Some of them were put in place. But I think what's really going on here, back to a point that Justin made, is monetary policy really has worked. And I give more credit, frankly, to monetary policy than fiscal policy in getting us to a place where the economy is clearly on a path towards healing. Not to say fiscal policy hasn't played a role, but I think - Justin may have a point of view on this - if you look back over the course of financial - of both policies since the crisis, I think it's actually more likely that monetary policy was a lot more stimulative. And in fact, fiscal policy moved from stimulative to being somewhat contractionary. I think many people think relatively early in this recovery. I don't know if you would agree or disagree in that.

>> I agree wholeheartedly.

>> Alrighty.

>> So, how should students approach retirement while paying back student loans? How do you keep the balance? Better to pay loans faster or you know, gain savings? Which?

>> Okay. So my view is the answer is yes. So what does that mean? What it means is, for those of you who have loans, obviously the first thing to do is continue to service that debt and pay it off. I was talking to Susan before this, and I think also, as a society, we have to understand the realities of where the student loan situation is. It probably doesn't affect most of the folks in this room as much as it does others. In this room, I'd say you're probably going to be in a position where you can continue to service your debt. The vast majority of you, if you do that, will be out of debt relatively quickly compared to other people. Then it's really time to turn towards saving, investing, and planning to the future. So plan to do both. Sequence them properly and recognize in some ways, unless Susan or Justin tells me otherwise, that I suspect the vast majority of the graduates from the Ford School or from the University of Michigan are not the ones who are the heavily indebted ones that we have to worry about. You guys are all going to get great jobs, service your debt, and then go on to start saving at an early age for your retirement.

>> Alright. This question actually comes to us from Twitter and it says, "So now, 14 years later, are there any decisions you made in the days and months after 9/11 that you could change if you would go back?"

>> Interesting. No one has ever asked the 9/11 question that way. I'd say something that sounds not very thoughtful, but I guess, given that things worked out reasonably well, and in fact better than I could've imagined at ten o'clock on 9/11 of 2001, I'm not sure I'd change anything, right? I mean, it looks to me in hindsight, 14 years later, that we did most of the right things. That's - I guess that's really what I think about that. If you think about what we did, the biggest concern that we had, or that I had slash we had at that time was actions of liquidity leading to a crisis of confidence. And so for those who know anything about this, we flooded the system with all sorts of liquidity: currency from Manhattan, $47 billion of check float that we honored. Multiples of that for inter-bank float of one sort or another. And I think all of those things you know worked quite well. I think what we did internationally, perhaps we could have done a bit more, but I think that worked out. So when I look back on 9/11, you know, it worked as well as anyone could have expected given the shock to the system. I think the one thing that maybe one might have thought about was would it have been possible to get markets open more quickly? I don't think we had the technical capability of doing that, much more quickly. So I'd say, by and large, looking back on 9/11, I think we did most things right. It wasn't because it was all planned or anything, but I think a number of good decisions were made. I wouldn't change any of them.

>> Roger, let's explore that a little more. It's a fascinating moment, right? So 9/11 happens, and Roger, you were Vice-Chair at the time.

>> I was Vice-Chair at the time.

>> Right. You were Vice-Chair at the time, and every other Federal Reserve governor was travelling. Therefore no one could get hold of them.

>> Right.

>> I know what it's like to be an economist. You go to school, you solve problem sets, you learn how to invert a matrix. All this sort of stuff.

>> How exciting!

>> Right. But none of that prepares you for that moment. So there's some point at which this is about leadership. Where did that come from? How did you learn it? What did that moment involve?

>> So let me talk about leadership in that context. Let me start with the more technical and then go to the bigger. So, the Fed does a huge number of things. The thing that people are most excited about is monetary policy, and the 25 basis points, and all of that. In no way will I denigrate or downplay that as being incredibly important. The other things the Fed does though are at some point equally important. Particularly during a crisis moment. So we talked about one of them, which is banking supervision and regulation. That came into play on 9/11. The other thing the Fed does that most folks don't know, and fortunately don't need to know, is the Fed is a chief operator the payment system for the United States. That's everything from clearing checks, if you still write checks. Some of the older people in the room probably do. Doing that overnight, clearing checks, to making sure that when JPMorgan Chase owes, you know, $200 million to CitiGroup, to close some big transaction, or $2 billion to close a transaction, that money moves seamlessly overnight through what's called a large-value payment system. You don't need to know that lingo. So, I was - I think I'm - I don't know. I can't say that's true, but during my tenure, not only was I a voting member of the FOMC, obviously, but I was also responsible for supervision and regulation - I was responsible for the oversight of the reserve banks, and I was the chair of the payment system policy committee. Which got me deep into the bowels of how the system works.

>> You were the financial plumber.

>> I was the financial plumber, or at least oversaw what the plumbers were doing. So one of the elements of leadership that I always talk about is you have to have some technical skill. On the day of 9/11, it turned out that monetary policy wasn't the pivotal thing. It became so on the 17th. It was more about the financial plumbing and the way banks operate. So someone had to understand that we were flying checks around at night, and what happens if we didn't. Someone had to understand what it meant to charge or not charge a daylight or an overnight overdraft fee to a bank. So the technical things. That's some of the stuff I had to invest my time in. The other thing I had done, which people will chuckle about, but I was responsible for getting the Fed and more broadly the U.S. and to some the global banking system ready for the big thing that didn't happen, which was Y2K. That got me spending a lot of time thinking about the systems that underlay the financial plumbing. And we put into place around 9/11 a number of redundancy systems in the Fed that came to the fore two years later on 9/11. So part of leadership is technical knowledge, which fortunately I had, because I had spent a fair amount of my time in the plumbing side of the system. Some of the leadership is about being clear on where you're going and what you want people to do. And so I decided that I was not going to evacuate the building. I couldn't lock the door, so anyone was free to leave, but I was going to stay. And fortunately for me and for the country, thousands of people decided to stay with me. I get a little choked up around that.

>> I've heard Fed staffers stay that they decided to stay, but were told to stay away from the walls.

>> That is true actually. We moved things into the core of the building, because we didn't know what was going to happen. So the second part of leadership is sort of saying here's what we're going to do and being quite clear about the direction. The third is to show some bravery, frankly. I describe it as fortitude. But people don't want to follow a leader who seems to get shaken at the moment of crisis. And here was a moment of crisis. So I thought it was pretty important to be quite clear about my own fortitude and to encourage in others to do the same. So we had quite a discussion around issuing this simple statement: "The Fed is open and operating. We are prepared to provide liquidity." Everybody was sort of comfortable with the second half. I had quite a conversation with a lot of reserve bank presidents about whether or not the system was going to be open and operating. And at some point, it became sort of more hierarchical and made that decision. The final point is you really have to be sort of empathetic. So this issue about, look, make yourselves as safe as you can. Get away from the windows. We relocated folks to the core of the building. And so, what I'm trying to say is leadership has elements of expertise, some sense of vision, direction, clarity of purpose. A certain amount of fortitude, and a certain amount of empathy. All those things sort of came to play around 9/11. And then there was an awful lot of - I guess the word now is Blink. It was sort of making quick decisions. Without information, which the Fed is not very comfortable doing. And so recognize that I just have to decide and there are a bunch of the staff folks saying, "Well if you do this, what about this..." At some point you have to decide. So that was another element of leadership there. So anyway, this conversation went to a very different place. But that's the 9/11 answer.

>> So another questions we received is, "How is TIAA - how are they reaching out to younger generations?" And then also, "How is TIAA competing with for-profit companies such as Fidelity?"

>> Okay. So we're working hard on both of those things. First, for the younger generations, you have to be mindful that I can't reach out - we can't reach out to a Millennial and say, "Let's talk about retirement." Because the other issues come into play. So we are trying to put what we do into a broader context of financial security. More importantly, we've done a lot of surveys of Millennials, and the language is not so much around saving for the purposes of saving, but it seems much more around freedom of choice. Ability to make movements when you want to, etcetera. So we're trying to learn the right set of language. Trying to frame the issues appropriately. We also are working very hard to have Millennials talking to each other. So if you go on to our website, we have a bunch of videos of Millennials talking about their particular problems. In no sense are we aggressively marketing the company. Because what we've heard from Millennials is, "We don't want to be sold. We're prepared to buy once we're convinced, but we don't want to be sold." So those are some of the things that we're doing. We're well aware that we have to do a lot more of it, because all of us aging Baby Boomers are going to leave about $30 trillion to Millennials. So we have to get people really prepared for that. How are we competing? We're competing by emphasizing our strengths and values, and what makes us different. So our not-for-profit heritage. The fact that we are not publicly traded. We're more like a mutual. And the fact that we clearly put our participants interests first. Ninety-plus percent of the people who have worked with us check the box that we clearly put individuals' interests first. Frankly, the final thing we're doing is we're recognizing that there's a lot of regulatory changes that our competitors are opposed to. And we look at those as being potentially net positives. So you probably haven't noticed this. Maybe you have at the Ford School. There's this new regulation around fiduciary responsibility that's being promulgated or recommended, proposed is the right phrase, by the Department of Labor. A lot of the industry is strongly opposed to it. We look at that and say there are a lot of good things about it. There are places to be fixed. So we are working with regulators to try to actually create a regulatory environment that we think is better for everybody, and it'll be better for us.

>> Roger, can you explain that issue a little more? It's a really fascinating one.

>> Fiduciary? Alright, so the issue is when it comes to selling financial products. Does the advisor that is in the process of - I'll use the word selling those products have an obligation to put the consumer's interest first? To be a fiduciary or not. And the line of fiduciary versus non-fiduciary is really sort of unclear. So an example is when one of our worthy competitors goes to somebody who's one of our participants and says, "It's time for you to roll over that money from where you've been saving it into this IRA." Do they have to tell you the expenses of an IRA may be higher? All the products in the IRA may be proprietary to that company. And that their compensation may depend on getting you to roll over your money out of a low-cost, low-fee retirement plan into a more high-cost IRA. So that's an example of what a fiduciary has to disclose versus not. And so the law now, the challenge now, is when is someone selling a product have to stand in the role of a fiduciary, putting your interest first, making the right sets of disclosures, or when don't they? That is where the debate is being drawn. One of the elements in this proposed RAG will in fact force this issue around rollovers to be governed by this fiduciary standard. And may well slow down financial services firms whose business has been to get people to roll into IRAs. And if you notice it, this is a little more nuanced, but if you notice what's going on in TV advertising now around IRAs, you'll hear a lot of language such as, "This might be the right thing to you. Decide whether or not this is in your interest." So already the advertising around this aggressive rollover industry is starting to reflect the fact that we have to put - everyone has to put the fiduciary interest of the consumer ahead. Is that roughly sensible?

>> Yeah, like if my father-in-law walks into his financial advisor's office, he's not necessarily going to get good advice for him?

>> They're level, so he will have to get advice that is described - products that are suitable for him. So if your father-in-law is 95 years old, or 85 years old, or 75 years old, he's probably not - the law will not allow an advisor to say, "Buy this high-flying penny stock that could either do incredibly well or collapse." So there is a suitability standard that already exists. The question is, do you have to put his interest first? In a fiduciary standard. And therefore disclose him all of the fees and other things, and how do you have to disclose that? And how far do you have to go in educating him about those things? That's where the line is moving back and forth. So you cannot have mis-selling. You cannot have people selling things that are not suitable. But the question is, to what degree do you have to disclose all the bells and whistles, and to what degree can you encourage or not once all that has been disclosed. So it gets a little fuzzy. For sure. But the main goal is to frankly raise the hurdle so that as an industry, we never do this, but others do. We make sure that people aren't rolling out of one set of products into another set of products that are arguably suitable, but may not be as good for that individual. Does that make sense?

>> Yeah. Okay. Do you have any more out there?

>> It's actually not out there. It's up here. So.

>> Alright, so this reads that it seems that the Fed has been eager to raise rates in the past few weeks, despite indicators like

[ Inaudible ]

Is the Fed being too heavily influenced by banks and the market?

>> Oh, no, I don't think the Fed is being too heavily influenced by banks and markets. I think what's going on is they have two objectives. I'm going to - students will get these words, if you've had Justin's class. Others. So the Fed's challenge, they have two objectives and one tool, if I can say that. They're supposed to create low and stable inflation. And they define that as inflation of around two percent - and they're supposed to create maximum sustainable employment. Or full employment. That is not overheated, so it's not inflationary. So what's going on is they're - and, by the way, they start at a place where they've embraced this sort of emergency, low level of interest rates. So what the Fed is struggling with is, okay, the unemployment rate has come down some. It looks like it's pretty much full employment, around 5.1 percent. They thought, by their forecast, that was going to happen 18 months from now. So they already have achieved that goal. But inflation continues to be very, very subdued. The dollar is rallying, increasing in value, which has likely put downward pressure on inflation. So they aren't so sure of their inflation forecast. Is inflation likely to get close to two percent at a reasonable time frame? And therefore it's important to raise rates now? Or not. So the reason that the Fed has been in this push-me, pull-you, stop-start mode - it's having a little bit of difficulty communicating clearly. Is that the data are somewhat internally contradictory. And so there's no clarity of what to do. In that moment, when you have a committee, by now I think it's ten voting members. The ability to get everyone consensed - which is not a word, but reaching consensus - is very, very tough. So I don't think the Fed's being pushed by banks or anyone else. I think they are struggling with data that are somewhat inconsistent. Starting at a really unusual place historically, and trying mightily to reach a consensus. And frankly, because they're relatively transparent, sort of doing that in the public way. So you get one person making one speech and another person making another. That, I think, has proven to be a bit of the source of the challenge. They're not sure what to do and they're not quite sure what to say. That's a pretty tough place for a regulatory body or a policy-making body to be. In a democracy.

>> Okay. Alright, so this is the last question that we have time for. The question comes from Twitter. Since 2014 in the first quarter, the Fed funds rate has edged up within the target range. Is this the Fed slowly tightening before a - before a rate hike?

>> So, the answer is no. I think what this is, is markets reflecting just the point I was making. Which everyone knows the Fed wants to increase rates. And so money market participants or market participants, the way Justin's class would expect them to do, are anticipating. They're reading the data and they're saying, "Ah, unemployment rate keeps coming down. Fed's likely to tighten. I want to move before then." So people in markets are unwilling to lend money at rates that they think are not going to be sustainable, which is why rates are sort of gradually rising. I don't think it's the Fed doing anything per se. Except interacting with markets and trying to keep the rate at the target. But it's a very hard thing to do when it's obvious that rates are going to rise. Because no one wants to be on the wrong side of the new and inevitable move in monetary policy. So - okay?

>> What about the idea that their job is to set interest rates. It must be hard to keep not doing it every week, right?

[ Laughter ]

>> You Australians are so witty! I've never thought about it that way. To be more serious, the question under the question. It is very hard to keep rates at any level that seems in the minds of market participants to be inconsistent with the real data. And that's a little bit of why these rates are rising. And this would be true at any - at any rate, but particularly true at a historically low rate. So yes, to some degree, it is really hard to - to use the limited number of tools that they have to do something the market is saying is not sustainable. If they were to come out and say, "We do not intend to raise rates for the next long period of time," then it becomes a lot easier to keep rates down. This is one of the things that Ben Bernanke used so well. And we did, in my period, but he did it a lot better. Using the ability to set expectations in order to really anchor rates. Right now, what they've done is they've allowed market expectations to become a little unhinged, and therefore it's harder for them to actually set rates. Does that make sense?

>> Yeah. You've been incredibly generous sharing a bunch of insights, so I was just going share one with you. So it turns out, interest rates now have been zero for six years and nine months. I know that because I have a daughter. She's now this tall. She's six years old, and the Fed cut interest rates to zero exactly nine months before that, so.

[ Laughter ]

>> So what - do you want to tell us more, Justin?

>> This is why we call it a stimulative monetary policy.

>> Thank you very much!

[ Laughter ]

>> But seriously Roger, you've covered an enormous amount of space here, and we're all incredibly grateful to you for sharing that with us. So thank you very much.

>> Thank you very much, Justin.

[ Applause ]

>> Roger Ferguson and Justin Wolfers. Thank you so much. That was a terrific - that was a terrific conversation. We all learned a lot and we all enjoyed it. I would also like to thank all of you on behalf of the Ford School and CEW for joining us, and for a great set of questions as well. I invite you to stay and continue the conversation just outside the Hussey room, which is on the second floor. There are staff who will help direct you in the right place, so we can continue the conversation over some refreshment. Thanks again for joining us. Please join me in a final round of thanks to our guests. This was great.

[ Applause ]