WEBVTT - Surveillance: US Inflation with Barkin 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, financing and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:31.560 the Bloomberg Terminal, and the Bloomberg Business App. I'm pleased 0:00:31.560 --> 0:00:33.879 to say that, which joins by the Richmond Fed Presidents 0:00:33.880 --> 0:00:36.960 on BAKIN alongside the brilliant Bloombeg's Mike McKay. You're happy 0:00:36.960 --> 0:00:41.479 with that introduction, Mike and the brilliant President Mail. It's 0:00:41.479 --> 0:00:43.320 sou'm great to catch up. Thanks for being with us. Yeah, 0:00:43.320 --> 0:00:45.880 thanks for having So we get some Fed speak sixty 0:00:45.880 --> 0:00:48.120 minutes after the inflation report, So let's start that. Your 0:00:48.159 --> 0:00:50.240 response to that CPI print we've got a little bit earlier. 0:00:50.840 --> 0:00:54.720 It's about as expected. Uh, inflation is normalizing, but it's 0:00:54.720 --> 0:00:57.640 coming down slowly, and uh, you know, I just think 0:00:57.680 --> 0:00:59.279 there's gonna be a lot more inertia, a lot more 0:00:59.280 --> 0:01:02.360 persistence to an inflation then maybe we'd all want part 0:01:02.400 --> 0:01:06.040 of that is still COVID factors, access money in people's pockets, 0:01:06.600 --> 0:01:09.640 um uh, supply chain issues in places like cabinets and 0:01:09.680 --> 0:01:12.360 switch here's part of his business factors. There are businesses 0:01:12.360 --> 0:01:14.560 out there is still trying to recover lost margin. But 0:01:14.640 --> 0:01:17.080 I think the biggest thing is that after the experience 0:01:17.080 --> 0:01:20.080 of the last couple of years, UM businesses have now 0:01:20.160 --> 0:01:22.880 understood that pricing is a lover again. And as I 0:01:22.920 --> 0:01:25.399 talked to the folks in my district, I'm hearing people 0:01:25.800 --> 0:01:28.440 still out there pushing chrice and trying to see to 0:01:28.480 --> 0:01:30.640 try to test through the levels of an elasticity really 0:01:30.680 --> 0:01:33.000 are so one thing we've heard from Fed officials, including 0:01:33.000 --> 0:01:36.399 the chamit is that the disinflationary process has started. Is 0:01:36.440 --> 0:01:38.800 that something you agree with? Do you see much evidence 0:01:38.800 --> 0:01:41.520 of that? And where do you find the evidence? Well, 0:01:41.680 --> 0:01:43.200 if you look at the twelve month numbers, you can 0:01:43.200 --> 0:01:46.800 see they peaked several months ago and they're coming down steadily. UM. 0:01:46.959 --> 0:01:50.200 But that's one part of the puzzle, is inflation coming down. 0:01:50.240 --> 0:01:52.120 The other part is actually hitting our target and so 0:01:52.240 --> 0:01:54.160 just it's going to take a while to get to there. 0:01:54.760 --> 0:01:57.120 To the latest data that have come in, not just 0:01:57.200 --> 0:02:00.720 today's CPI but the jobs report, etcetera. Cha change your 0:02:00.800 --> 0:02:03.760 view of how far the Fed will have to go 0:02:04.280 --> 0:02:08.600 beyond perhaps what was in the SEP for December uh, 0:02:08.639 --> 0:02:12.359 And does it change your view of inflation dynamics? Well, 0:02:12.400 --> 0:02:14.320 I try not to get to wound up in any 0:02:14.320 --> 0:02:18.480 particular data read, particularly a January data read, large seasonality factors, 0:02:18.520 --> 0:02:21.680 all that sort of stuff, um um. But I do 0:02:21.800 --> 0:02:24.239 think what we are now in a position to do 0:02:24.480 --> 0:02:27.440 is to react to multiple months of data as they 0:02:27.480 --> 0:02:30.320 come in. We may or may not choose to take 0:02:30.400 --> 0:02:33.480 rates up further if inflation continues to persist, but we'll 0:02:33.480 --> 0:02:35.360 have to see what happens. Well. Based on what you're 0:02:35.400 --> 0:02:38.320 seeing right now in terms of the path of inflation, 0:02:38.840 --> 0:02:43.840 the dot plot said five point one in December. You 0:02:43.880 --> 0:02:46.560 think that's enough. I think we'll see we're going to 0:02:46.639 --> 0:02:48.280 get a pc at the end of the month, another 0:02:48.320 --> 0:02:50.920 CPI before the next meeting, and then I think as 0:02:50.960 --> 0:02:53.040 the meetings go on this year, we'll see what happens 0:02:53.280 --> 0:02:56.919 to inflation. If inflation settles, maybe we don't go quite 0:02:56.919 --> 0:02:59.919 as far. But if inflation persists at levels well above 0:03:00.000 --> 0:03:02.040 our our target, maybe we'll have to do more. Do 0:03:02.080 --> 0:03:05.919 you think that maybe you and the markets are on 0:03:06.000 --> 0:03:08.800 a different timeframe. You're going meeting to meeting, and they're 0:03:08.800 --> 0:03:11.760 looking out towards the end of three saying you should 0:03:11.760 --> 0:03:15.120 be cutting rates by then. I'm not sure I understand markets. 0:03:15.120 --> 0:03:17.880 You guys are much better than that than I am. UM. 0:03:17.919 --> 0:03:21.120 I'm very focused on what's happening in the demanding the economy. 0:03:21.160 --> 0:03:23.880 I'm very focused on what's happening to inflation, and I think, Uh, 0:03:24.000 --> 0:03:26.480 the way to think about my view on on rates 0:03:26.560 --> 0:03:29.119 is we're inflation to persists. We might have to do more. 0:03:29.200 --> 0:03:32.519 If inflation doesn't persist, maybe not. How to financial conditions 0:03:32.680 --> 0:03:34.639 thanked there into that code, into that view? How do 0:03:34.680 --> 0:03:37.800 you think about financial conditions? Well, there's lots of definitions 0:03:37.800 --> 0:03:42.880 of financial UM. I think that as we raise rates, UM, 0:03:43.080 --> 0:03:45.800 the market and all markets, you know, sort of respond 0:03:45.880 --> 0:03:48.160 to how we're doing any thing in the path that 0:03:48.200 --> 0:03:51.680 we forecast. UM. There are people who are out there 0:03:51.680 --> 0:03:53.920 saying financial conditions are back where they were a year ago, 0:03:53.960 --> 0:03:55.360 and I say, I don't know. It looks like rates 0:03:55.360 --> 0:03:57.400 are higher than they are a year ago. Certainly if 0:03:57.400 --> 0:03:59.480 you're trying to get a mortgage, that's what you think. 0:04:00.040 --> 0:04:03.520 And so UM, the financial markets make their forecasts and 0:04:03.640 --> 0:04:08.000 you know, lending conditions, whatever work off of that. UM 0:04:08.240 --> 0:04:12.200 I think you can try to manage it. But I'm 0:04:12.200 --> 0:04:14.800 in the world of trying to define your response function, 0:04:14.840 --> 0:04:16.800 try to live to your response function, and I think 0:04:16.839 --> 0:04:18.440 markets will catch up to what you're doing if we 0:04:18.480 --> 0:04:20.560 can dig a little bit deeper. We've had a decent 0:04:20.680 --> 0:04:23.920 equity market running here today. Credit sprints I think something 0:04:24.000 --> 0:04:26.440 like two dred basis points tighter than the whites of 0:04:26.440 --> 0:04:29.400 of last year. Do you see that as complicating your 0:04:29.440 --> 0:04:33.599 ability to tighten financial conditions and bring inflation back towards target? 0:04:34.080 --> 0:04:35.800 Is it something that's on your mind a lot. I 0:04:35.839 --> 0:04:38.040 think trying to manage markets, at least for me, as 0:04:38.080 --> 0:04:40.600 a full's errand and so I'm in the world of 0:04:40.640 --> 0:04:43.720 trying to manage what we can control. If demand stays hot, 0:04:43.760 --> 0:04:47.640 if inflation comes and elevated, have rates move more. There 0:04:47.640 --> 0:04:49.760 are lots of other scenarios of what happens to the economy, 0:04:49.800 --> 0:04:51.960 and we'll respond to those well. One of the questions 0:04:52.000 --> 0:04:55.239 that people are asking is does it make it harder? 0:04:55.320 --> 0:04:58.640 Does it is the market pushing back against you? And 0:04:58.680 --> 0:05:04.040 do you see inflation shouldn't maybe stickier because of that? Uh. 0:05:04.040 --> 0:05:06.560 And is it a question of you have to raise 0:05:06.680 --> 0:05:10.160 rates higher or leave them in place longer and wait 0:05:10.200 --> 0:05:13.080 for the cumulative weight of tightening to hit. Well, I 0:05:13.080 --> 0:05:15.960 think there's a very good case for leaving rates higher 0:05:16.440 --> 0:05:18.640 for a longer period of time to allow that tightening 0:05:19.240 --> 0:05:20.960 to hit. I do think the lesson of the seventies 0:05:21.000 --> 0:05:23.320 was very clear, which is, don't give up too early. 0:05:23.760 --> 0:05:26.479 And anything I've read, and I've talked to lots of 0:05:26.520 --> 0:05:28.760 other people who seem to have understood that market, they say, 0:05:29.160 --> 0:05:31.600 you know, if you go back to the Arthur Burns years, 0:05:31.640 --> 0:05:36.200 it was raise rates, economy weekends, lower rates, inflation comes 0:05:36.200 --> 0:05:39.599 back stronger, raise rates, economy weakens more. Lower rates. That 0:05:39.640 --> 0:05:41.400 doesn't seem like a path that makes a lot of sense. 0:05:41.520 --> 0:05:43.560 Does history way on you when you refer back to 0:05:43.600 --> 0:05:45.400 the seventies? Do you really feel the weight of that. 0:05:45.680 --> 0:05:47.920 I've done a lot of reading about it, and I think, 0:05:48.400 --> 0:05:50.560 for better for worse, we've got a really good episode 0:05:50.560 --> 0:05:53.880 where our predecessors did the right thing and got inflation 0:05:53.920 --> 0:05:56.560 back under control. And I think that's certainly an aspiration 0:05:56.720 --> 0:05:58.800 for for me and for us. You understand the view 0:05:58.800 --> 0:06:00.840 of market participants that and they hear things like the 0:06:00.920 --> 0:06:04.160 disinflationary process has started. They get the sense that we're 0:06:04.160 --> 0:06:05.960 moving away from that language that we want to learn 0:06:05.960 --> 0:06:07.880 from the lesson of the nineteen seventies, we want to 0:06:07.880 --> 0:06:11.000 be tighter for longer. They see that as new information. 0:06:11.400 --> 0:06:13.279 The first step, and you'll hate this word, the first 0:06:13.279 --> 0:06:16.520 step towards a so called pivot. Why isn't it that, 0:06:17.880 --> 0:06:20.400 Why isn't this a pivot? The first step towards what 0:06:20.680 --> 0:06:24.080 by acknowledging the disinflationary process has started? For some people, 0:06:24.160 --> 0:06:26.560 market participants that speak to us on a daily basis, 0:06:27.000 --> 0:06:29.680 they view that shift in language as a step away 0:06:29.760 --> 0:06:32.880 from the chairman power address we got in Jackson Hall, Wyoming, 0:06:33.000 --> 0:06:35.560 which was eight minutes down the camera, super blunt. That's 0:06:35.560 --> 0:06:37.040 going to be pain It's going to be painful, but 0:06:37.080 --> 0:06:38.880 if we don't do this, it's going to be even 0:06:38.880 --> 0:06:41.919 more painful. Four or five months later, with an ECOD, 0:06:41.920 --> 0:06:45.200 the market rallying between and a bit of deceleration in 0:06:45.240 --> 0:06:49.120 inflation data, it's now the disinflationary process has started, and 0:06:49.120 --> 0:06:51.360 that's the focal point for so many people. Why isn't 0:06:51.400 --> 0:06:54.520 that the first step towards a pivot that says, okay, 0:06:54.600 --> 0:06:57.280 we can back away. Should I just try to keep 0:06:57.279 --> 0:07:00.880 it simple for myself, which is, Um, nobody really knows 0:07:01.360 --> 0:07:04.360 how inflation is gonna play out over the next year, 0:07:04.360 --> 0:07:06.160 over the next two years, and so I think what 0:07:06.200 --> 0:07:08.120 I can do is talk about how I think about it. 0:07:08.160 --> 0:07:10.280 The way I think about it is inflation stays elevated. 0:07:10.440 --> 0:07:14.040 If it persists, we'll have to do more. Well. Your 0:07:14.400 --> 0:07:17.160 struggle with what the markets are thinking, But you're probably 0:07:17.240 --> 0:07:20.080 very good on what companies are thinking, because of course 0:07:20.120 --> 0:07:22.880 that's your background and you talk to CEOs all the time. 0:07:23.080 --> 0:07:26.160 What are companies thinking? You mentioned that some are still 0:07:26.160 --> 0:07:29.480 pushing the envelope on prices, but what's their outlook for 0:07:29.640 --> 0:07:34.080 growth and particularly employment and wages over the next six 0:07:34.240 --> 0:07:36.960 to nine months. So the way the way I put 0:07:37.000 --> 0:07:40.000 it is, everybody's got a recession playbook. It's in the drawer. Um, 0:07:40.040 --> 0:07:43.040 they've taken it out, they've dusted it off, they've updated it. Right, 0:07:43.080 --> 0:07:45.440 they have a very clear sense of if things were 0:07:45.520 --> 0:07:48.520 to turn south, what they do. For the most part, 0:07:48.520 --> 0:07:50.680 they haven't turned the pages of the playbook. And the 0:07:50.680 --> 0:07:52.800 reason they haven't turned the pages is that their business 0:07:52.840 --> 0:07:55.760 actually remains pretty sound. Now that's not true if you're 0:07:55.760 --> 0:07:59.160 in mortgage lending. That's not true obviously recently in the 0:07:59.200 --> 0:08:01.960 tech but in most of the businesses I talked to, 0:08:02.400 --> 0:08:04.480 it's still not the point where they pull that. And 0:08:04.560 --> 0:08:06.920 part of it is they've really fought hard for eighteen 0:08:06.920 --> 0:08:09.560 months to get workers, and they're really reluctant to shed 0:08:09.600 --> 0:08:12.760 workers if it turns out that they didn't need to. 0:08:13.200 --> 0:08:15.000 And so I think there's still a reluctance. And when 0:08:15.000 --> 0:08:17.440 you see things like the recent jobs report or some 0:08:17.560 --> 0:08:21.120 of the consumer spending data we've seen for January, you 0:08:21.120 --> 0:08:23.640 start to see that in the businesses actual demands that 0:08:23.720 --> 0:08:25.880 and they're just saying, we're not there yet. But of 0:08:25.920 --> 0:08:27.800 course we all know it. The world could turn and 0:08:27.800 --> 0:08:30.240 they could get there. I just don't think they're there yet. Well, 0:08:30.280 --> 0:08:33.000 that brings up an important question about your reaction function. 0:08:33.440 --> 0:08:37.880 When you're predicting that unemployment is going to rise significantly 0:08:37.920 --> 0:08:41.520 because you're trying to clamp down on demand and it 0:08:41.559 --> 0:08:46.200 doesn't happen, how do you incorporate that into your thinking 0:08:46.240 --> 0:08:50.880 about where you are. Well, I think we've taken rates 0:08:50.880 --> 0:08:53.280 to where we've taken and we've signaled, or at least 0:08:53.320 --> 0:08:58.200 i've signaled that if inflation persists, I'll continue to respond appropriately. UM, 0:08:58.240 --> 0:09:01.760 you do know that they're long and variable lags with rates, 0:09:01.760 --> 0:09:04.240 and so you're watching the demand side, not because the 0:09:04.240 --> 0:09:06.719 objective is to manage demand, but because the objective is 0:09:06.760 --> 0:09:09.280 to manage inflation, and so you're looking for signals that 0:09:09.320 --> 0:09:12.640 inflation comes down. You're looking for signals that demand is weakening, 0:09:12.679 --> 0:09:16.520 softening in places where that would be relevant to inflation 0:09:16.559 --> 0:09:19.640 coming down, and you play it out. Can you explain 0:09:19.679 --> 0:09:22.480 longer variable leans to us? Because some people have come 0:09:22.480 --> 0:09:24.319 on in the last twelve months and they've said to Mike, 0:09:24.360 --> 0:09:27.200 that sets myself to Lesa, it's on on Bloomberg TV 0:09:27.280 --> 0:09:29.360 and radio, and said, they're not that long at till 0:09:29.400 --> 0:09:31.640 they're pretty sure financial conditions will price it all in 0:09:31.720 --> 0:09:35.120 immediately they're tightened and you'll feel it pretty quickly. Are 0:09:35.160 --> 0:09:37.480 they that long? Are they that variable? You didn't like 0:09:37.559 --> 0:09:40.880 financial conditions a second ago, and so we'll work on that. UM. 0:09:41.840 --> 0:09:44.439 I do think we've seen in a number of sectors, 0:09:44.440 --> 0:09:47.400 particularly interest sensitive sectors, particularly sectors with the strength of 0:09:47.400 --> 0:09:50.439 the dollar matters, you've seen demand moved very very quickly 0:09:50.480 --> 0:09:54.079 and well before we started increasing rates. Mortgage rates increased 0:09:54.080 --> 0:09:56.400 and that of course meant the lag in that sector 0:09:56.520 --> 0:09:59.200 was less than the world we used to hide what 0:09:59.320 --> 0:10:01.160 we're doing. On the other hand, if you go in 0:10:01.240 --> 0:10:03.320 lots of other places, think health care for a second, 0:10:03.400 --> 0:10:05.520 a big part of the economy, it's not at all 0:10:05.559 --> 0:10:08.319 clear that the rate stuff we've done or doing is 0:10:08.360 --> 0:10:10.920 having that much impact on demand there. I think that's 0:10:10.920 --> 0:10:13.440 where it takes more time, and the studies I've seen 0:10:13.520 --> 0:10:16.480 suggests that there's a period of time to go from 0:10:17.200 --> 0:10:20.120 raising rates to the impact on demand. But I think 0:10:20.160 --> 0:10:22.559 the real issue here is from impact on demand in 0:10:22.640 --> 0:10:25.400 cract on inflation, and that's really when you talk about 0:10:25.440 --> 0:10:27.320 the long and variables to inflation. And then I get 0:10:27.360 --> 0:10:29.680 back to where I started, and I would just say, 0:10:29.880 --> 0:10:32.880 you know, there's the sales department, the finance department. The 0:10:32.920 --> 0:10:35.640 finance department loves raising prices because you know, it's the 0:10:35.640 --> 0:10:38.080 fastest way to move the bottom line. The sales department 0:10:38.120 --> 0:10:40.480 historically has been very nervous about doing it, either because 0:10:40.520 --> 0:10:43.960 of incentives or market share or whatever. After the experience 0:10:43.960 --> 0:10:45.920 of the last couple of years, the finance department has 0:10:45.960 --> 0:10:47.880 a lot more sway in that conversation than they used to. 0:10:48.240 --> 0:10:49.840 So how would you characterize the balance of risk at 0:10:49.840 --> 0:10:51.320 the moment with all of that in mind, that it's 0:10:51.320 --> 0:10:54.679 tremendously difficult. It's confront as a policymaker. Chapman Pal said 0:10:54.840 --> 0:10:57.280 repeatedly a few times last year that the risk of 0:10:57.320 --> 0:10:59.240 doing two little outweight the risk of doing so much. 0:10:59.559 --> 0:11:01.960 Is that still the case? It is for me? I mean, 0:11:02.000 --> 0:11:05.079 we're still in a three point four percent unemployment economy 0:11:05.120 --> 0:11:07.439 with inflation depending on which measure you want to look at, 0:11:07.920 --> 0:11:10.880 well over our target five six six on a twelve 0:11:10.880 --> 0:11:14.000 month basis. Um, feels to me like the risk is 0:11:14.000 --> 0:11:16.000 on the inflation side at this point rather than the 0:11:16.040 --> 0:11:19.800 economy side. We are talking with Richmond Fed President Tom 0:11:19.840 --> 0:11:23.160 Barkatt at Bloomberg Television and Radio. Thank you to all 0:11:23.200 --> 0:11:26.280 of our viewers and listeners around the world. Uh, what 0:11:26.559 --> 0:11:29.920 is your view in terms of the growth outlook at 0:11:30.000 --> 0:11:32.320 this point? It seems like we went through a phase 0:11:32.679 --> 0:11:36.760 of recessions inevitable then we're gonna have a soft landing. 0:11:37.120 --> 0:11:39.880 You have people saying no landing. Where do you come 0:11:39.880 --> 0:11:43.760 down on all of them? Um? You know, I keep 0:11:43.760 --> 0:11:47.920 trying to look at past recessions or past economic down 0:11:47.960 --> 0:11:50.680 you know, tightening cycles and ask the question of which 0:11:50.679 --> 0:11:53.559 this is most like. And of course the ones that 0:11:53.600 --> 0:11:55.839 are most recent in our memory are all recessions. Were 0:11:55.880 --> 0:11:58.680 something winged in from left field, whether that be nine 0:11:58.720 --> 0:12:02.840 eleven or the financial crisis or the pandemic UM. And 0:12:02.880 --> 0:12:05.120 so I think we may be looking at it economy 0:12:05.200 --> 0:12:06.800 more like the one that I remember back in the 0:12:06.880 --> 0:12:10.080 early nineties, where there was a tightening cycle UM and 0:12:10.559 --> 0:12:12.720 different sectors got hit one at a time. It seemed 0:12:12.760 --> 0:12:15.120 like much more of a rolling situation. And so the 0:12:15.160 --> 0:12:20.120 overall numbers perhaps aren't going to be as UH. Again, 0:12:20.120 --> 0:12:22.400 I'm assuming nothing comes in from left field, but aren't 0:12:22.400 --> 0:12:24.640 going to be as bad as the ones we remember 0:12:24.679 --> 0:12:27.160 them from two years ago or fifteen years ago. But 0:12:27.240 --> 0:12:29.920 we'll see. Well, when you sit down on March two 0:12:30.000 --> 0:12:34.200 with your new UH projections for the economy, are you 0:12:34.240 --> 0:12:37.000 marking up growth? Are you marking down growth? What do 0:12:37.040 --> 0:12:39.080 you think is going to have I've got a month before. 0:12:39.120 --> 0:12:41.480 I hate to make those projections, and I'm teasing, but 0:12:41.480 --> 0:12:43.079 I'm quite serious about it. We we have a real 0:12:43.320 --> 0:12:46.440 serious process. We run multiple models on this, We've taken 0:12:46.440 --> 0:12:48.600 all the more most recent data. We will get another 0:12:48.679 --> 0:12:51.840 jobs report, one perhaps with less seasonality impact, We'll get 0:12:51.880 --> 0:12:54.400 another PC and a CPI, and so I wouldn't want 0:12:54.400 --> 0:12:57.200 to front run our team and our models on that. 0:12:57.240 --> 0:12:59.520 For just in terms of risks around the few already 0:12:59.520 --> 0:13:03.160 projective from December, upside risk for growth, for inflation, for 0:13:03.280 --> 0:13:06.160 the terminal rate. How are you thinking about things currently? Well, 0:13:06.160 --> 0:13:08.240 the biggest surprise has been the jobs market. I mean 0:13:08.280 --> 0:13:10.240 the jobs report we got a couple of weeks ago 0:13:10.360 --> 0:13:14.240 was quite significant and much stronger than what I had anticipated. 0:13:14.240 --> 0:13:15.560 And so the question of my mind is going to be, 0:13:15.559 --> 0:13:17.880 are we gonna get another one like that in February 0:13:17.920 --> 0:13:21.000 or we're gonna get something in February that revises, corrects, 0:13:21.160 --> 0:13:23.840 moves it down. So I think that's that's really the 0:13:23.920 --> 0:13:26.280 key thing I'm looking at. In terms of growth. It's 0:13:26.320 --> 0:13:29.079 been surprising for all of us to see unemployment come lower. 0:13:29.120 --> 0:13:31.480 There was a take, I think last year, even I 0:13:31.640 --> 0:13:33.920 talk about it all the time, this is the Fed's job. 0:13:34.200 --> 0:13:36.480 They need to get unemployment up to get inflation down. 0:13:36.800 --> 0:13:38.959 And it sounded ugly, it was brutal. It's difficult to 0:13:38.960 --> 0:13:41.640 communicate as a policymaker. Do you still see it that way? 0:13:41.880 --> 0:13:44.160 Do you need to get an employment up to get 0:13:44.200 --> 0:13:46.840 inflation down. I see, we need to get inflation down 0:13:46.840 --> 0:13:50.040 to get inflation down. And what I mean by that is, um. 0:13:50.080 --> 0:13:52.120 You know, our tools work on demand, they work on 0:13:52.160 --> 0:13:54.600 lots of various things, but the key to this whole 0:13:54.600 --> 0:13:57.640 thing is getting inflation down. I don't start with unemployment. 0:13:57.640 --> 0:14:00.520 I start with inflation. And we'll see what happens on 0:14:00.520 --> 0:14:03.280 the employment market. We're still at three point four percent unemployment. 0:14:03.600 --> 0:14:06.400 That's a historically low number. You're talking nineteen sixty nine 0:14:06.440 --> 0:14:10.560 and before that, nineteen fifty one, and so um. You know, 0:14:10.600 --> 0:14:12.400 there's been a lot of talk about the jobs market 0:14:12.480 --> 0:14:16.640 so far quite strong. We'll see what happens. Are people 0:14:16.840 --> 0:14:19.520 in the companies in the Richmond district telling you that 0:14:19.560 --> 0:14:24.720 they are still having trouble finding people or as that eased, Um, 0:14:24.760 --> 0:14:27.120 it's not as desperate as it was a year ago 0:14:27.280 --> 0:14:29.160 or a year and a third ago. But it's still 0:14:29.240 --> 0:14:33.440 very tight um on the professionals, though I think that 0:14:33.680 --> 0:14:36.600 has kind of loosened. Some of the layoff announcements recently 0:14:36.600 --> 0:14:38.280 have sort of hit home. People trying to hire tech 0:14:38.280 --> 0:14:41.160 workers are having an easier time doing it. UM for 0:14:41.200 --> 0:14:45.440 the frontline service workers, still very tight UM, but people 0:14:45.440 --> 0:14:47.840 are getting by, whether it's lower service levels or not 0:14:47.880 --> 0:14:50.640 cleaning the hotel room every day. The place it's still 0:14:50.680 --> 0:14:54.880 screaming tight is skilled trades, construction, nurses, truck drivers. We 0:14:55.000 --> 0:14:57.440 just don't have as many as we need. Demand in 0:14:57.440 --> 0:15:01.320 a lot of those places remains elevated, and folks are 0:15:01.320 --> 0:15:03.880 really struggling to find those those folks. That's really where 0:15:03.880 --> 0:15:06.080 it's the titus. Let me actually about the balance sheet. 0:15:06.280 --> 0:15:08.880 It's been running in the background, it's been paint drying, 0:15:09.000 --> 0:15:12.920 but there have been concerns expressed in the short term 0:15:12.920 --> 0:15:15.640 money markets, and we're still seeing a lot of money 0:15:15.680 --> 0:15:19.200 put back into the REPO facility. Is it working the 0:15:19.240 --> 0:15:21.880 way you want it to? Are you getting the results 0:15:22.280 --> 0:15:24.600 that you want or is this also a case where 0:15:24.840 --> 0:15:27.600 the markets are not reflecting necessarily what you're trying to 0:15:27.600 --> 0:15:32.240 accomplish with QT. I think UH we did a bunch 0:15:32.240 --> 0:15:34.320 of actions we thought important at the time in terms 0:15:34.320 --> 0:15:37.840 of UH simulus and you know, supporting the markets back in. 0:15:38.920 --> 0:15:41.680 We're now trying to unwind that. I think our primary 0:15:41.800 --> 0:15:44.480 tool is the rate tool, it's not the balance sheet tool. 0:15:44.520 --> 0:15:48.600 The objective is to unwind the balance sheet UH expansion 0:15:48.600 --> 0:15:49.880 that we did and do it in a way that 0:15:50.440 --> 0:15:53.680 doesn't change any focus on our primary tool, which is 0:15:53.680 --> 0:15:55.880 the rate tool. You guys still seem to be focused 0:15:55.920 --> 0:15:57.800 on the rate tool, so I think, so far, so good. 0:15:57.920 --> 0:15:59.880 We're focused on the balance sheet too. So let's not 0:16:00.120 --> 0:16:01.960 that I'm sure you please that faith. We see it 0:16:01.920 --> 0:16:04.360 as plaint trying, but it's not. It wasn't just an 0:16:04.400 --> 0:16:07.400 objective to get the balance sheet up. You were looking 0:16:07.440 --> 0:16:10.600 for a consequence from doing that. You said the objective 0:16:10.720 --> 0:16:13.600 was to get the balance sheet down. You're not expecting 0:16:13.640 --> 0:16:17.080 to be a consequence there. I mean, first of all, 0:16:17.120 --> 0:16:20.000 the analysis of the impact of balance sheet movements is 0:16:20.120 --> 0:16:25.600 unbelievably difficult, arcane, opaque, and tortured, and so I've really 0:16:25.600 --> 0:16:28.280 struggled as i've kind of come into this to come 0:16:28.320 --> 0:16:30.760 to ground to it. Where I've landed is it's got 0:16:30.760 --> 0:16:32.880 to be symmetric. If you believe that a ain't the 0:16:32.880 --> 0:16:35.000 balance sheet does something, then you got to believe that 0:16:35.080 --> 0:16:37.120 drinking the ballot sheet does something else. So I've got 0:16:37.160 --> 0:16:39.680 no question about that. I do believe that on both 0:16:39.720 --> 0:16:42.760 the expansion side and the reduction side, it's a lot 0:16:42.840 --> 0:16:46.200 smaller than some of the estimates you'll see, um and 0:16:46.360 --> 0:16:49.160 you know people talk about the uh, the impact of 0:16:49.160 --> 0:16:51.680 buying more bonds, there's also a signaling effect when you're 0:16:51.720 --> 0:16:55.080 buying UM. I think the signal effect may actually outweigh 0:16:55.160 --> 0:16:58.120 the impact of buying the bonds um signal effect in 0:16:58.200 --> 0:16:59.920 terms of when you would finally raise rates or whatever. 0:17:00.040 --> 0:17:02.280 When you're shrinking the balance sheet, there's a shrinkage effect, 0:17:02.560 --> 0:17:05.200 and then there's a signaling effect. The shrinking effect, of course, 0:17:05.520 --> 0:17:08.360 I would say, is parallel to the expansion. And then 0:17:08.359 --> 0:17:10.359 the question is what is the signaling. The signaling tends 0:17:10.400 --> 0:17:13.719 to be around liquidity. That's the conversation that gets raised. 0:17:14.320 --> 0:17:16.879 I just would come back and say, UM, compared today's 0:17:16.880 --> 0:17:20.080 balance sheet to or nineteen's balance sheet, it's still so 0:17:20.160 --> 0:17:23.359 much larger that I have trouble seeing that liquid is 0:17:23.359 --> 0:17:26.080 actually being driven by what we're doing right now. Back 0:17:26.119 --> 0:17:29.760 at home, What worries the people of the Richmond district. 0:17:29.760 --> 0:17:32.720 I mean, we have the idea of a possibility of recession. 0:17:33.000 --> 0:17:35.560 We've got what's going on with energy prices because we 0:17:35.600 --> 0:17:38.399 don't know what's happening in Ukraine. There's this whole idea 0:17:38.480 --> 0:17:41.360 of the debt limit leading to a default. How much 0:17:41.359 --> 0:17:46.200 are people in your area focused on those things. Uh. 0:17:46.280 --> 0:17:48.600 The what I hear over and over and over again 0:17:48.720 --> 0:17:51.880 is that people hate inflation. Um, And that's what they're 0:17:51.880 --> 0:17:54.800 focused on. I mean, people hate inflation because it seems unfair. 0:17:54.840 --> 0:17:57.120 I mean you you you get a raise and then 0:17:57.160 --> 0:17:59.560 you spend the money you just got at the gas pump. 0:17:59.560 --> 0:18:03.960 It feels whichrarely taken away, creates uncertainty, um, and it's 0:18:04.000 --> 0:18:07.520 it's just exhausting. Uh. You know, it's exhausting to shop 0:18:07.520 --> 0:18:10.240 around for better prices, is exhausting to defend your prices 0:18:10.280 --> 0:18:12.920 to a to a customer. And so people are really 0:18:12.920 --> 0:18:15.399 excited about the pro the prospect that we might get 0:18:15.440 --> 0:18:17.840 inflation under control. But you don't have to look much 0:18:17.840 --> 0:18:19.959 beyond the sentiment and disease to see what people think 0:18:20.000 --> 0:18:23.000 about inflation. And that still is the overwhelming conversation we're having. 0:18:23.320 --> 0:18:25.840 I have to ask you this, Uh, it appears that 0:18:25.880 --> 0:18:27.679 at the Federal Reserve, you're going to be in the 0:18:27.680 --> 0:18:31.320 market for a new vice chairman, uh laale Braider. What 0:18:31.440 --> 0:18:34.440 does she bring to the FED and to the Open 0:18:34.520 --> 0:18:38.560 Market Committee? How would you characterize her tenure? Well, I 0:18:38.560 --> 0:18:41.880 don't know what will or won't happen, and from the administration. 0:18:42.400 --> 0:18:45.440 But Lales an asset. I mean, she's very smart, she's 0:18:45.520 --> 0:18:48.280 very capable, and she's an asset to us, and if 0:18:48.320 --> 0:18:50.320 she does something else, I'm sure she'll be an asset there. 0:18:50.720 --> 0:18:54.240 She's been seen as one of the doves on the board. 0:18:54.480 --> 0:18:57.600 Is there such a thing and was she? We have 0:18:57.680 --> 0:19:01.040 nineteen really really capable people in the committee, and I 0:19:01.080 --> 0:19:03.240 listened to every one of them, um, because they're every 0:19:03.240 --> 0:19:05.560 one of them brings a unique view and as we've 0:19:05.640 --> 0:19:08.719 learned in the UM you know, last few years, people's 0:19:08.760 --> 0:19:11.080 views changes the data comes in and so you know, 0:19:11.119 --> 0:19:13.959 I've got colleagues that you might think are doves who 0:19:14.080 --> 0:19:15.600 might go to the other I mean, I think so. 0:19:15.640 --> 0:19:19.560 It's I think people take the job very seriously and 0:19:19.600 --> 0:19:23.159 they're very genuinely interested in landing the plane on whatever 0:19:23.400 --> 0:19:25.679 is actually the situation in the moment, as opposed to 0:19:25.720 --> 0:19:29.280 i'll call it a pre existing leaning. There's really any descent? 0:19:29.880 --> 0:19:36.120 Why is that? Um? You mean descents or descent singular? 0:19:36.160 --> 0:19:38.960