1 00:00:02,600 --> 00:00:06,960 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,119 --> 00:00:11,399 Speaker 2: ALBERTA. Muslim is a newly minted president of Saint Louis 3 00:00:11,440 --> 00:00:15,440 Speaker 2: fed Wall Street experience with Tutor investments out of the LC. 4 00:00:16,000 --> 00:00:20,480 Speaker 2: The PhD from Pennsylvania are Michael McKee in conversation with 5 00:00:20,600 --> 00:00:21,560 Speaker 2: Alberto Busslim. 6 00:00:22,560 --> 00:00:25,720 Speaker 3: So we're within reach of the dual of the dual 7 00:00:25,800 --> 00:00:30,320 Speaker 3: mandate goals UH and Monterrey policies well positioned. It's moderately 8 00:00:30,360 --> 00:00:35,360 Speaker 3: restrictive and appropriately so because inflation is running above our 9 00:00:35,400 --> 00:00:38,600 Speaker 3: target and therefore interest rates are above the neutral rate. 10 00:00:39,240 --> 00:00:44,080 Speaker 3: So that's the backdrop. Also, policy could be you know, 11 00:00:44,159 --> 00:00:48,400 Speaker 3: the the h could be accelerated, could be slowed, or 12 00:00:48,400 --> 00:00:51,800 Speaker 3: could be paused. So there's some optionality depending on how 13 00:00:52,760 --> 00:00:57,720 Speaker 3: the environment and the outlook evolve. So that's that's the 14 00:00:57,760 --> 00:01:01,639 Speaker 3: backdrop for the semi where I can speak about myself. 15 00:01:02,200 --> 00:01:05,600 Speaker 3: I'm keeping all my options open. There's more data coming 16 00:01:06,160 --> 00:01:13,040 Speaker 3: we have, you know, CPI, pp I, unemployment, Retail sales PMI. 17 00:01:13,160 --> 00:01:15,000 Speaker 3: There's a lot of data coming between now and the 18 00:01:15,040 --> 00:01:17,920 Speaker 3: December meeting. So I'm going to wait till I see 19 00:01:17,920 --> 00:01:21,440 Speaker 3: that data, until i can be assured in which way 20 00:01:21,480 --> 00:01:25,720 Speaker 3: I'm leaning. So I think I'm keeping you know, optionality 21 00:01:25,720 --> 00:01:28,280 Speaker 3: for December in my in my assessment, but I do 22 00:01:28,319 --> 00:01:30,480 Speaker 3: think in the in the broader arc of what we're 23 00:01:30,480 --> 00:01:33,200 Speaker 3: trying to do, the broader arc is we want to 24 00:01:33,240 --> 00:01:36,800 Speaker 3: continue to bring inflation down towards two percent while supporting 25 00:01:36,800 --> 00:01:41,200 Speaker 3: the labor market. And in that broader arc, you know, 26 00:01:41,319 --> 00:01:43,520 Speaker 3: it doesn't have to be a linear process where you're 27 00:01:44,120 --> 00:01:46,840 Speaker 3: going in that direction. No matter what you know, the 28 00:01:46,880 --> 00:01:52,000 Speaker 3: economy needs to tell us how fast to go or 29 00:01:52,000 --> 00:01:54,120 Speaker 3: how slow to go. And right now I see an 30 00:01:54,160 --> 00:01:58,800 Speaker 3: economy that is growing above potential, Labor markets have full employment, 31 00:01:59,320 --> 00:02:04,720 Speaker 3: inflation is above target. My assessment of risks around the 32 00:02:04,800 --> 00:02:08,760 Speaker 3: dual mandate have as I said that the risk that 33 00:02:09,040 --> 00:02:13,480 Speaker 3: inflation may have stalled, may be stalling, not the central scenario, 34 00:02:13,480 --> 00:02:17,400 Speaker 3: but there's a risk of that have increased since September. 35 00:02:18,040 --> 00:02:22,000 Speaker 3: And you know, all those things, plus uncertainty about where 36 00:02:22,040 --> 00:02:25,600 Speaker 3: the final destination is the neutral rate, and uncertainty about 37 00:02:25,600 --> 00:02:28,920 Speaker 3: productivity trends, all those things suggest to me that the 38 00:02:28,960 --> 00:02:33,680 Speaker 3: time may be coming to consider the possibility of slowing 39 00:02:33,720 --> 00:02:35,200 Speaker 3: down or possibly pausing. 40 00:02:35,520 --> 00:02:38,000 Speaker 1: What is it that you want if the economy is 41 00:02:38,040 --> 00:02:40,080 Speaker 1: speaking to you, what is it that you want the 42 00:02:40,120 --> 00:02:42,799 Speaker 1: economy to say, that will help you make a decision. 43 00:02:43,080 --> 00:02:47,880 Speaker 1: If we have data come in as forecast on Wall Street, 44 00:02:48,520 --> 00:02:53,360 Speaker 1: as anticipated by you're fed forecasts, are we at the 45 00:02:53,480 --> 00:02:57,680 Speaker 1: kind of place in the economy where you would be 46 00:02:57,760 --> 00:02:59,000 Speaker 1: comfortable pausing. 47 00:03:01,600 --> 00:03:04,800 Speaker 3: I think what I would like to see going forward 48 00:03:05,000 --> 00:03:10,040 Speaker 3: is with rates above their neutral level, because inflation is 49 00:03:10,400 --> 00:03:13,880 Speaker 3: above two percent. I would like that to continue to 50 00:03:14,480 --> 00:03:18,079 Speaker 3: exert downward pressure on inflation. And as that is happening 51 00:03:18,639 --> 00:03:21,400 Speaker 3: or expected to happen, that then interest rates can come 52 00:03:21,440 --> 00:03:23,400 Speaker 3: down to neutral. So that's what I would like to see. 53 00:03:24,240 --> 00:03:25,640 Speaker 3: Of course, we need to look at the other side 54 00:03:25,639 --> 00:03:28,760 Speaker 3: of the dual mandate, which is the labor market, and 55 00:03:28,800 --> 00:03:31,720 Speaker 3: the labor market looks looks pretty healthy. As I said 56 00:03:31,760 --> 00:03:35,040 Speaker 3: of my remarks, I am watching the gross flows, so 57 00:03:35,360 --> 00:03:40,400 Speaker 3: the unemployment rate is rather low, consistent with full employment. 58 00:03:40,520 --> 00:03:42,480 Speaker 3: But if you look underneath that, the gross flows and 59 00:03:42,520 --> 00:03:45,880 Speaker 3: the labor market have slowed materially, and it's important to 60 00:03:45,960 --> 00:03:47,480 Speaker 3: keep an eye on that to make sure that that's 61 00:03:47,520 --> 00:03:52,520 Speaker 3: not a sign of a potentially this or the adjustment 62 00:03:52,640 --> 00:03:55,840 Speaker 3: labor market. I think the chances of that at present 63 00:03:55,920 --> 00:04:02,480 Speaker 3: are low. As I said, businesses are healthy there is 64 00:04:02,920 --> 00:04:06,520 Speaker 3: a little reason for layoffs to begin to happen. But 65 00:04:06,520 --> 00:04:08,120 Speaker 3: I'm attentive to that side of the mandate. 66 00:04:08,160 --> 00:04:11,440 Speaker 1: Also, what are the CEOs in your district telling you 67 00:04:11,760 --> 00:04:13,920 Speaker 1: about their employment plans? What are you hearing? 68 00:04:15,600 --> 00:04:20,360 Speaker 3: So they say that the labor market has normalized relative 69 00:04:20,400 --> 00:04:23,240 Speaker 3: two year or two years ago when they had meaningful 70 00:04:23,320 --> 00:04:27,080 Speaker 3: labor market labor shortages where hiring people was difficult, where 71 00:04:27,120 --> 00:04:33,520 Speaker 3: they had to pay up for new hires. That has normalized, 72 00:04:33,560 --> 00:04:39,000 Speaker 3: so the labor market is more normal. Some CEOs, particularly 73 00:04:39,360 --> 00:04:41,320 Speaker 3: CEOs that have to employ a lot of skilled labor, 74 00:04:41,320 --> 00:04:45,200 Speaker 3: are still reporting shortages of skilled labor and still having 75 00:04:45,240 --> 00:04:50,760 Speaker 3: to pay up to replace folks. They are reporting, for example, 76 00:04:50,800 --> 00:04:54,440 Speaker 3: that turnover in the labor market that they observe has 77 00:04:54,760 --> 00:04:57,960 Speaker 3: come down, consistent with the aggregate data that I that 78 00:04:58,000 --> 00:05:02,880 Speaker 3: I talked about minute ago. There are more job applicants 79 00:05:02,920 --> 00:05:07,480 Speaker 3: per vacancy, so the labor market has eased and it's 80 00:05:07,520 --> 00:05:14,520 Speaker 3: getting easier to fill positions. They report wage gains in 81 00:05:14,560 --> 00:05:17,640 Speaker 3: the three and a half to four percent range, which 82 00:05:17,680 --> 00:05:25,240 Speaker 3: is consistent with the aggurate data. And that's yeah, that's it. 83 00:05:25,240 --> 00:05:28,960 Speaker 1: It sounds like you're describing something that would fall into 84 00:05:29,000 --> 00:05:31,280 Speaker 1: the category of soft lending or goldilocks. 85 00:05:32,400 --> 00:05:34,600 Speaker 3: You know, I try to stay away from labels like 86 00:05:34,680 --> 00:05:37,120 Speaker 3: goldilocks or soft landing. You know, I just I think 87 00:05:37,120 --> 00:05:38,719 Speaker 3: of very clinically and I think, you know, we have 88 00:05:38,760 --> 00:05:41,279 Speaker 3: a dual mandate and we have to hit that dual mandate. 89 00:05:41,440 --> 00:05:44,120 Speaker 3: I don't try to put labels around it. I know 90 00:05:44,800 --> 00:05:46,680 Speaker 3: folks in the press love to put labels on it, 91 00:05:46,960 --> 00:05:50,800 Speaker 3: and that's fine. You know, I think the as I 92 00:05:50,800 --> 00:05:54,640 Speaker 3: said when I began the remarks, you know, the achieving 93 00:05:54,640 --> 00:05:57,760 Speaker 3: the dual mandate is within sight. You know, if you 94 00:05:57,800 --> 00:06:02,040 Speaker 3: look at headline PC inflation is three above target, which 95 00:06:02,080 --> 00:06:04,239 Speaker 3: is within the margin of error, within the standard deviation. 96 00:06:04,839 --> 00:06:06,720 Speaker 3: If you look at the labor market, you know, the 97 00:06:06,800 --> 00:06:09,440 Speaker 3: unployment rate is at four point one percent. That's below 98 00:06:10,160 --> 00:06:16,080 Speaker 3: a level a natural rate. So we're getting rather close. 99 00:06:16,960 --> 00:06:20,320 Speaker 3: But the job isn't done, and you know, we're very committed. 100 00:06:20,839 --> 00:06:23,320 Speaker 3: I am committed. My colleagues are very committed to finishing 101 00:06:23,320 --> 00:06:23,720 Speaker 3: that job. 102 00:06:24,480 --> 00:06:26,400 Speaker 1: I take it from the way you've set this up 103 00:06:26,400 --> 00:06:31,240 Speaker 1: that you think policy is restrictive now is it significantly so? 104 00:06:31,240 --> 00:06:35,279 Speaker 3: So context before we began to using cycle in September, 105 00:06:35,839 --> 00:06:40,080 Speaker 3: I think one could one could say policy was either 106 00:06:40,160 --> 00:06:43,960 Speaker 3: restrictive or perhaps very restrictive. A way to think of 107 00:06:44,000 --> 00:06:47,839 Speaker 3: it is the policy or rate was above by some 108 00:06:48,000 --> 00:06:51,800 Speaker 3: margin what policy rules will suggest to you that it 109 00:06:51,839 --> 00:06:53,840 Speaker 3: should be. And you can see it in the economy 110 00:06:53,920 --> 00:06:56,120 Speaker 3: when you look at the housing market, when you look 111 00:06:56,160 --> 00:07:00,200 Speaker 3: at low modern income households which are under financial pressure. 112 00:07:00,520 --> 00:07:04,960 Speaker 3: You can see it in small businesses that are levered, 113 00:07:06,000 --> 00:07:09,480 Speaker 3: also having financial and financing pressure. So you can see 114 00:07:09,480 --> 00:07:13,080 Speaker 3: it in different parts of the economy where the restrictiveness 115 00:07:12,760 --> 00:07:22,000 Speaker 3: wasn't is binding. We've begun a process of recalibration and 116 00:07:22,760 --> 00:07:26,320 Speaker 3: we've brought down the interest rate by seventy five basis points. 117 00:07:26,840 --> 00:07:29,000 Speaker 3: In my assessment, I think, as I said of my remarks, 118 00:07:29,080 --> 00:07:33,080 Speaker 3: we're getting closer to a policy rate consistent with those 119 00:07:33,120 --> 00:07:37,600 Speaker 3: policy rules. So that policy rule doesn't mean you're at neutral. 120 00:07:37,680 --> 00:07:42,400 Speaker 3: It means you are at neutral plus a premium for 121 00:07:42,440 --> 00:07:45,920 Speaker 3: the fact that inflation is still above target. So I 122 00:07:45,960 --> 00:07:49,160 Speaker 3: think policy is still restrictive. I think it's moderately restrictive. 123 00:07:50,160 --> 00:07:56,040 Speaker 3: I tend to look at very broadly at things, and 124 00:07:56,200 --> 00:08:00,720 Speaker 3: you know, if you look at businesses or households that 125 00:08:00,760 --> 00:08:05,000 Speaker 3: have access to capital markets, financing, or have savings and 126 00:08:05,080 --> 00:08:09,960 Speaker 3: wealth in capital markets, that part is rather accommodative, you know, 127 00:08:10,040 --> 00:08:16,480 Speaker 3: rather supportive. Capital markets are rather supportive, so financial conditions 128 00:08:16,480 --> 00:08:20,280 Speaker 3: are accommodative there. If you look at businesses or households 129 00:08:20,280 --> 00:08:22,360 Speaker 3: that don't have access to capital marks, that need to 130 00:08:22,360 --> 00:08:29,040 Speaker 3: finance themselves in banks and don't have wealth effects, So 131 00:08:29,280 --> 00:08:31,160 Speaker 3: not on the fans cancide, but on the investment side, 132 00:08:31,200 --> 00:08:35,280 Speaker 3: cannot avail themselves of wealth effects, you know, those folks. 133 00:08:35,320 --> 00:08:41,319 Speaker 3: For those folks, businesses or households, Manterrey policy is rather restrictive. 134 00:08:41,760 --> 00:08:45,120 Speaker 3: So on balance, I think it is still restrictive. You know, 135 00:08:45,120 --> 00:08:48,200 Speaker 3: given the Materrey policy that you think is optimal, what 136 00:08:48,280 --> 00:08:51,199 Speaker 3: is the outcome for the economy. You know, there are 137 00:08:51,640 --> 00:08:54,560 Speaker 3: several Well, how do we do that? Let me go 138 00:08:54,600 --> 00:08:57,440 Speaker 3: through process. How we do this is we take a 139 00:08:57,440 --> 00:09:00,640 Speaker 3: lot of input from an array of models. We take 140 00:09:00,679 --> 00:09:04,280 Speaker 3: a lot of input from talking to businesses and households 141 00:09:04,640 --> 00:09:08,000 Speaker 3: all over the country. We talk to professional forecasters and 142 00:09:08,120 --> 00:09:11,679 Speaker 3: understand you know, their perspectives. So we take a lot 143 00:09:11,720 --> 00:09:15,880 Speaker 3: of input into this and there's always uncertainty, and how 144 00:09:15,920 --> 00:09:19,120 Speaker 3: we manage that uncertainty is, you know, we have the 145 00:09:19,440 --> 00:09:22,160 Speaker 3: baseline scenario and there's balance of risks around them, and 146 00:09:22,200 --> 00:09:24,480 Speaker 3: we write those down and we submit them, and some 147 00:09:24,559 --> 00:09:28,640 Speaker 3: Wall Street analysts have gathered all that balance of risk 148 00:09:28,720 --> 00:09:31,640 Speaker 3: data that we submit, that all the reserve banks submit, 149 00:09:31,720 --> 00:09:34,360 Speaker 3: and they're you know, making statements about the reaction function 150 00:09:34,400 --> 00:09:38,440 Speaker 3: of the FED based on that balance of risks. So, 151 00:09:38,440 --> 00:09:42,960 Speaker 3: so going to your question, there are several several policies 152 00:09:42,960 --> 00:09:45,600 Speaker 3: that have been proposed during the campaign and look like 153 00:09:45,600 --> 00:09:49,400 Speaker 3: they're going to be implemented over the course of this 154 00:09:49,520 --> 00:09:52,440 Speaker 3: year and next year and perhaps the years to come. 155 00:09:53,640 --> 00:09:56,760 Speaker 3: I think we cannot wait until all that uncertainty is 156 00:09:56,800 --> 00:10:00,880 Speaker 3: resolved to continue our SUPM forecast. So we have to 157 00:10:00,920 --> 00:10:03,840 Speaker 3: continue to do our job and continue to do the 158 00:10:03,920 --> 00:10:06,640 Speaker 3: s A P forecasting, which is and input into our 159 00:10:06,679 --> 00:10:12,000 Speaker 3: decision making every quarter. And as we progress over time, 160 00:10:12,480 --> 00:10:16,760 Speaker 3: that resolution of uncertainty about you know, which policies, what 161 00:10:16,840 --> 00:10:20,240 Speaker 3: are their contours, what is the timing of the policies, 162 00:10:20,280 --> 00:10:24,520 Speaker 3: the sequencing, what is the net effect on demand, on supply, 163 00:10:24,679 --> 00:10:29,480 Speaker 3: on prices, on quantities you know will be revealed. Now 164 00:10:29,520 --> 00:10:33,600 Speaker 3: we can't. I think I think it would be not 165 00:10:33,679 --> 00:10:36,280 Speaker 3: good service to the people that we serve if we 166 00:10:36,960 --> 00:10:40,679 Speaker 3: abstained from engaging in s a p forecasts between now 167 00:10:40,840 --> 00:10:43,959 Speaker 3: and the time that that resolution of that full uncertainty 168 00:10:44,040 --> 00:10:48,160 Speaker 3: is is is achieved, which could take a year or two. 169 00:10:48,920 --> 00:10:52,400 Speaker 3: Uh So we're going to gradually absorb information as it 170 00:10:52,559 --> 00:10:56,720 Speaker 3: as it as it is available to us and incorporate, uh, 171 00:10:57,480 --> 00:11:00,680 Speaker 3: you know, new policies into our forecast. One the contours 172 00:11:00,679 --> 00:11:04,280 Speaker 3: of those policies are understood, and we can quantify things 173 00:11:04,280 --> 00:11:07,720 Speaker 3: and understand how they affect would affect the dual mandate. 174 00:11:07,920 --> 00:11:10,080 Speaker 1: Well, you're looking are you going to say you're data 175 00:11:10,120 --> 00:11:14,880 Speaker 1: dependent in terms of what the new fiscal policies might be? 176 00:11:15,679 --> 00:11:19,240 Speaker 1: Are you going to be able to make estimates of 177 00:11:19,240 --> 00:11:21,439 Speaker 1: what's going to happen and react on those. 178 00:11:21,960 --> 00:11:27,559 Speaker 3: So my staff is already making, you know, doing exercises 179 00:11:27,640 --> 00:11:31,800 Speaker 3: of you know, for different tariff configurations, how might that 180 00:11:31,880 --> 00:11:37,360 Speaker 3: affect the economy, for different fiscal configurations, how might that 181 00:11:37,400 --> 00:11:43,720 Speaker 3: affect the economy. So we're beginning to exercise our muscle 182 00:11:43,760 --> 00:11:46,360 Speaker 3: memory or or you know, forecasting muscle in terms of 183 00:11:46,720 --> 00:11:50,480 Speaker 3: understanding so that when you get the final configuration of 184 00:11:50,520 --> 00:11:54,280 Speaker 3: these policies, we can then go back to all these 185 00:11:54,280 --> 00:11:57,760 Speaker 3: exercises that we are beginning to do and understand. Okay, 186 00:11:57,880 --> 00:12:01,600 Speaker 3: given what we have to take those as inputs, to 187 00:12:01,640 --> 00:12:05,280 Speaker 3: take those policies inputs, and then go and analyze how 188 00:12:05,760 --> 00:12:07,680 Speaker 3: that could possibly affect our dual. 189 00:12:07,720 --> 00:12:10,440 Speaker 2: Many goals Alberta mus still in the Saint Louis fed 190 00:12:10,480 --> 00:12:12,040 Speaker 2: in conversation with Michael Keith