WEBVTT - Fed Governor Adriana Kugler Talks Monetary Policy Outlook

0:00:02.520 --> 0:00:09.559
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. We're coming here to Iceland, Draikivik,

0:00:09.600 --> 0:00:13.080
<v Speaker 1>where we're delighted to be joined by Governor Adrianna Kugler.

0:00:13.320 --> 0:00:15.640
<v Speaker 1>Governor Kugler, thank you for joining us. So there's been

0:00:15.640 --> 0:00:18.560
<v Speaker 1>a lot of talk about central bank independence. Jay Powell

0:00:19.200 --> 0:00:22.320
<v Speaker 1>under attack many times by Donald Trump saying, look that

0:00:22.600 --> 0:00:24.840
<v Speaker 1>actually the Fed did not cut How do you think

0:00:24.880 --> 0:00:27.040
<v Speaker 1>and how would you explain to the markets and maybe

0:00:27.040 --> 0:00:29.920
<v Speaker 1>the president of why we're currently in a witnessy mode

0:00:29.920 --> 0:00:30.320
<v Speaker 1>for the Fed.

0:00:31.360 --> 0:00:34.640
<v Speaker 2>Thank you, friend seein for having me here, and so

0:00:34.800 --> 0:00:37.400
<v Speaker 2>let me tell you a little bit. Obviously, we held

0:00:37.520 --> 0:00:41.560
<v Speaker 2>a steady at four point three percent, and I supported

0:00:41.600 --> 0:00:44.680
<v Speaker 2>that because the way I think about it is that

0:00:44.800 --> 0:00:50.240
<v Speaker 2>our policy rate is currently moderately restrictive, and I think

0:00:50.320 --> 0:00:52.680
<v Speaker 2>it makes sense to keep it that way, and it

0:00:52.720 --> 0:00:54.720
<v Speaker 2>makes to keep sense to keep it that way for

0:00:54.760 --> 0:00:58.160
<v Speaker 2>a number of reasons. First of all, we have been

0:00:58.280 --> 0:01:01.480
<v Speaker 2>seeing the progress on this inflation is low down a

0:01:01.520 --> 0:01:06.720
<v Speaker 2>little bit. We have also seen an increase in inflation expectations,

0:01:06.840 --> 0:01:10.839
<v Speaker 2>and we want to keep long run inflation expectations very

0:01:10.880 --> 0:01:15.119
<v Speaker 2>well anchored. So that's the second reason. Third, we see

0:01:15.319 --> 0:01:19.880
<v Speaker 2>some risks upside rates to inflation from the tarts that

0:01:19.959 --> 0:01:22.920
<v Speaker 2>are currently in place, and given that, it makes sense

0:01:22.959 --> 0:01:26.880
<v Speaker 2>to make sure we keep again the federal funds rate

0:01:27.000 --> 0:01:31.039
<v Speaker 2>moderately restricted. On the real side of the economy, on

0:01:31.040 --> 0:01:35.360
<v Speaker 2>the other hand, things have remained resilient. The employment rate

0:01:36.360 --> 0:01:40.160
<v Speaker 2>is still high, and the unemployment rate is still currently

0:01:40.200 --> 0:01:44.840
<v Speaker 2>at historically low rates. And by the same token, private

0:01:44.840 --> 0:01:49.600
<v Speaker 2>activity is judged by PDFP, the private domestic final purchases

0:01:51.240 --> 0:01:55.200
<v Speaker 2>numbers shows us that private activity grew at three percent.

0:01:55.840 --> 0:02:00.240
<v Speaker 2>We saw some conflicting evidence between imports and inventory is

0:02:00.280 --> 0:02:05.200
<v Speaker 2>but overall we see health is still in the real economy.

0:02:05.720 --> 0:02:09.280
<v Speaker 2>So that gives us time to make sure that we

0:02:09.360 --> 0:02:13.320
<v Speaker 2>continue to make progress on inflation and we keep our

0:02:13.639 --> 0:02:16.760
<v Speaker 2>inflation expectations very well anchoraged.

0:02:17.440 --> 0:02:20.960
<v Speaker 1>How problematic or the uncertainty actually of the tariffs. To

0:02:21.040 --> 0:02:24.440
<v Speaker 1>look at scenarios for GDP inflation and rates. So do

0:02:24.480 --> 0:02:27.239
<v Speaker 1>you look at scenarios or do you look at baseline projections?

0:02:27.600 --> 0:02:30.600
<v Speaker 2>Yeah, thank you for asking that we look at a

0:02:30.919 --> 0:02:35.440
<v Speaker 2>broad range of scenarios, in fact, because it is particularly

0:02:35.520 --> 0:02:38.960
<v Speaker 2>important during this time period of a lot of uncertainty.

0:02:39.080 --> 0:02:41.120
<v Speaker 2>Uncertainty is the world of the day, Is you know,

0:02:41.880 --> 0:02:44.400
<v Speaker 2>and so the way we see it is that we

0:02:44.440 --> 0:02:46.280
<v Speaker 2>don't know which way this is going to go. We

0:02:46.360 --> 0:02:49.400
<v Speaker 2>started at two point six percent effective tariferate at the

0:02:49.440 --> 0:02:52.480
<v Speaker 2>beginning of the year. It depends who you are, but

0:02:52.560 --> 0:02:57.200
<v Speaker 2>it's somewhere between twenty and twenty seven percent according to

0:02:57.320 --> 0:03:01.160
<v Speaker 2>many analysis and we do our own analysis but also

0:03:01.200 --> 0:03:05.359
<v Speaker 2>look at private sector analysis on this issue. So it's

0:03:05.360 --> 0:03:08.760
<v Speaker 2>still very high. It may still change. It could come

0:03:08.840 --> 0:03:13.120
<v Speaker 2>down because there could be negotiations or exemptions. It could

0:03:13.120 --> 0:03:16.840
<v Speaker 2>go up some if additional tips get put into place.

0:03:17.200 --> 0:03:20.480
<v Speaker 2>So we're not sure even about the magnitude of the tips.

0:03:20.919 --> 0:03:23.720
<v Speaker 2>We don't know which products are going to be affected

0:03:23.760 --> 0:03:28.760
<v Speaker 2>by the tips. At this point. We have a baseline case,

0:03:28.760 --> 0:03:31.280
<v Speaker 2>as you said, as to the ones that already have

0:03:31.360 --> 0:03:33.880
<v Speaker 2>been implemented, but we don't know if that's going to

0:03:34.080 --> 0:03:36.920
<v Speaker 2>change in the next week, in the next months, in

0:03:37.000 --> 0:03:40.240
<v Speaker 2>the in the next year. So we're keeping close attention

0:03:40.440 --> 0:03:44.880
<v Speaker 2>to many different scenarios and paying attention as to how

0:03:44.960 --> 0:03:49.200
<v Speaker 2>that may affect the economy. So obviously that that is

0:03:49.240 --> 0:03:51.880
<v Speaker 2>the question of the day, how will it affect economy? Right?

0:03:52.760 --> 0:03:55.280
<v Speaker 1>First of all, what's your takeaway from from you know,

0:03:55.320 --> 0:03:58.240
<v Speaker 1>first quarter GDP, and how you see you as consumers

0:03:58.320 --> 0:03:59.120
<v Speaker 1>behaving right now.

0:03:59.720 --> 0:04:02.680
<v Speaker 2>Yeah, as I said, on the real side of the economy,

0:04:03.760 --> 0:04:06.560
<v Speaker 2>what we've got is GDP for the first quarter, so

0:04:06.600 --> 0:04:10.880
<v Speaker 2>it's backward looking, and that backward looking number is showing

0:04:10.960 --> 0:04:14.400
<v Speaker 2>us exactly when one would have expected, which is a

0:04:14.440 --> 0:04:18.240
<v Speaker 2>lot of from loading, so from loading of imports ahead

0:04:18.279 --> 0:04:21.960
<v Speaker 2>of the targets, people trying to buy, both producers and

0:04:22.080 --> 0:04:26.240
<v Speaker 2>consumers trying to get those products before the times get

0:04:26.279 --> 0:04:30.200
<v Speaker 2>put into place. That showed been a huge increase in

0:04:30.440 --> 0:04:35.400
<v Speaker 2>imports and some increase in inventories, but not as much.

0:04:35.800 --> 0:04:39.320
<v Speaker 2>So overall, the GDP numbers showed some witness to point

0:04:39.360 --> 0:04:43.520
<v Speaker 2>three percent minus point three percent. But if you look

0:04:43.560 --> 0:04:46.599
<v Speaker 2>at the private side, on the other hand, you see

0:04:47.080 --> 0:04:51.360
<v Speaker 2>a very resilient economy with three percent growth in PDFB

0:04:51.680 --> 0:04:56.159
<v Speaker 2>the private domestic final purchases part of the economy, which

0:04:56.160 --> 0:05:02.040
<v Speaker 2>shows a resilient consumer and a resilient investors. Well, now

0:05:03.080 --> 0:05:08.720
<v Speaker 2>if you look at some of the more real time data,

0:05:08.000 --> 0:05:11.360
<v Speaker 2>the picture could look a little different. We did see

0:05:12.040 --> 0:05:16.440
<v Speaker 2>high retail sales, but if you ask the consumer what

0:05:16.680 --> 0:05:21.560
<v Speaker 2>they think they're going to do ahead, there's a falling

0:05:21.640 --> 0:05:25.240
<v Speaker 2>consumer confidence and people are thinking, well, maybe you won't

0:05:25.279 --> 0:05:29.160
<v Speaker 2>hold back. Investors are thinking, well, investment may come down

0:05:29.360 --> 0:05:33.200
<v Speaker 2>because we don't know what is coming ahead, and they're

0:05:33.240 --> 0:05:34.800
<v Speaker 2>concerned about TIFFs.

0:05:34.760 --> 0:05:37.559
<v Speaker 1>And there's a lot of talk. Of course, unemployment will rise.

0:05:37.880 --> 0:05:40.839
<v Speaker 1>You could also see terraffs actually putting inflation up. So

0:05:41.000 --> 0:05:42.880
<v Speaker 1>at some point, if it happens in the third quarter

0:05:43.000 --> 0:05:45.760
<v Speaker 1>or the fourth quarter, if you have this employment going up,

0:05:45.760 --> 0:05:48.440
<v Speaker 1>but also inflation being pushed by terriffs, does a higher

0:05:48.520 --> 0:05:51.960
<v Speaker 1>unemployment bring this inflation? Does it somehow make the job

0:05:51.960 --> 0:05:53.200
<v Speaker 1>a little bit easier for the Fed?

0:05:54.080 --> 0:05:58.760
<v Speaker 2>So there are two effects, right, one upside race to

0:05:59.160 --> 0:06:05.120
<v Speaker 2>inflation and upside riads to unemployment or the slow down

0:06:05.160 --> 0:06:08.800
<v Speaker 2>in economic activity. You're right, I think. The way I

0:06:08.839 --> 0:06:12.760
<v Speaker 2>think about it is we're already seen, especially from surveys

0:06:12.760 --> 0:06:18.240
<v Speaker 2>of manufacturers, some indications about tarists putting upward pressure and

0:06:18.360 --> 0:06:22.799
<v Speaker 2>prices in particular and the cause of materials. Those calls

0:06:22.839 --> 0:06:26.400
<v Speaker 2>already been passed on to the consumer. That's already shown

0:06:26.520 --> 0:06:29.840
<v Speaker 2>up in those surveys, whether it's sm surveys, the surveys

0:06:29.839 --> 0:06:34.520
<v Speaker 2>that are done by the regional FEDS. So that's definitely

0:06:34.520 --> 0:06:37.240
<v Speaker 2>showing up in the data, and its showed up in

0:06:37.360 --> 0:06:42.160
<v Speaker 2>goods prices and goods inflation going up as well. That's

0:06:42.240 --> 0:06:45.560
<v Speaker 2>happening now down the road. You're right, there could be

0:06:45.600 --> 0:06:49.480
<v Speaker 2>a slow down, and that's slow down partly because of uncertainty,

0:06:49.880 --> 0:06:54.359
<v Speaker 2>but also because real disposable income is going to fall.

0:06:54.400 --> 0:06:58.359
<v Speaker 2>Also because the real value of financial assets may fall,

0:06:58.440 --> 0:07:01.800
<v Speaker 2>and that will decrease wealth, and so those two effects

0:07:01.800 --> 0:07:05.640
<v Speaker 2>are going to push down aggregate demands. In addition to that,

0:07:05.839 --> 0:07:08.760
<v Speaker 2>I would point out that there could be reallocation of

0:07:08.800 --> 0:07:12.360
<v Speaker 2>economic activity and a reduction in productivity, and that could

0:07:12.400 --> 0:07:17.880
<v Speaker 2>come up. For example, new businesses or existing businesses start

0:07:17.920 --> 0:07:21.000
<v Speaker 2>producing things that used to be produced by those abroad

0:07:21.640 --> 0:07:25.560
<v Speaker 2>and then you're having lower productivity. That could put some

0:07:25.800 --> 0:07:30.720
<v Speaker 2>potentially some downward pressure on prices coming up from the

0:07:30.760 --> 0:07:35.240
<v Speaker 2>other side, but it's not clear whether they'll exactly counteract

0:07:35.320 --> 0:07:38.000
<v Speaker 2>each other. I would say one has to be cautious

0:07:38.440 --> 0:07:41.120
<v Speaker 2>to think that that in itself is going to do

0:07:41.360 --> 0:07:43.400
<v Speaker 2>the trick of getting prices back now.

0:07:44.160 --> 0:07:46.320
<v Speaker 1>Governor Jemakogle, thank you so much for joining us.