Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: ALBERTA. Muslim is a newly minted president of Saint Louis
Speaker 2: fed Wall Street experience with Tutor investments out of the LC.
Speaker 2: The PhD from Pennsylvania are Michael McKee in conversation with
Speaker 2: Alberto Busslim.
Speaker 3: So we're within reach of the dual of the dual
Speaker 3: mandate goals UH and Monterrey policies well positioned. It's moderately
Speaker 3: restrictive and appropriately so because inflation is running above our
Speaker 3: target and therefore interest rates are above the neutral rate.
Speaker 3: So that's the backdrop. Also, policy could be you know,
Speaker 3: the the h could be accelerated, could be slowed, or
Speaker 3: could be paused. So there's some optionality depending on how
Speaker 3: the environment and the outlook evolve. So that's that's the
Speaker 3: backdrop for the semi where I can speak about myself.
Speaker 3: I'm keeping all my options open. There's more data coming
Speaker 3: we have, you know, CPI, pp I, unemployment, Retail sales PMI.
Speaker 3: There's a lot of data coming between now and the
Speaker 3: December meeting. So I'm going to wait till I see
Speaker 3: that data, until i can be assured in which way
Speaker 3: I'm leaning. So I think I'm keeping you know, optionality
Speaker 3: for December in my in my assessment, but I do
Speaker 3: think in the in the broader arc of what we're
Speaker 3: trying to do, the broader arc is we want to
Speaker 3: continue to bring inflation down towards two percent while supporting
Speaker 3: the labor market. And in that broader arc, you know,
Speaker 3: it doesn't have to be a linear process where you're
Speaker 3: going in that direction. No matter what you know, the
Speaker 3: economy needs to tell us how fast to go or
Speaker 3: how slow to go. And right now I see an
Speaker 3: economy that is growing above potential, Labor markets have full employment,
Speaker 3: inflation is above target. My assessment of risks around the
Speaker 3: dual mandate have as I said that the risk that
Speaker 3: inflation may have stalled, may be stalling, not the central scenario,
Speaker 3: but there's a risk of that have increased since September.
Speaker 3: And you know, all those things, plus uncertainty about where
Speaker 3: the final destination is the neutral rate, and uncertainty about
Speaker 3: productivity trends, all those things suggest to me that the
Speaker 3: time may be coming to consider the possibility of slowing
Speaker 3: down or possibly pausing.
Speaker 1: What is it that you want if the economy is
Speaker 1: speaking to you, what is it that you want the
Speaker 1: economy to say, that will help you make a decision.
Speaker 1: If we have data come in as forecast on Wall Street,
Speaker 1: as anticipated by you're fed forecasts, are we at the
Speaker 1: kind of place in the economy where you would be
Speaker 1: comfortable pausing.
Speaker 3: I think what I would like to see going forward
Speaker 3: is with rates above their neutral level, because inflation is
Speaker 3: above two percent. I would like that to continue to
Speaker 3: exert downward pressure on inflation. And as that is happening
Speaker 3: or expected to happen, that then interest rates can come
Speaker 3: down to neutral. So that's what I would like to see.
Speaker 3: Of course, we need to look at the other side
Speaker 3: of the dual mandate, which is the labor market, and
Speaker 3: the labor market looks looks pretty healthy. As I said
Speaker 3: of my remarks, I am watching the gross flows, so
Speaker 3: the unemployment rate is rather low, consistent with full employment.
Speaker 3: But if you look underneath that, the gross flows and
Speaker 3: the labor market have slowed materially, and it's important to
Speaker 3: keep an eye on that to make sure that that's
Speaker 3: not a sign of a potentially this or the adjustment
Speaker 3: labor market. I think the chances of that at present
Speaker 3: are low. As I said, businesses are healthy there is
Speaker 3: a little reason for layoffs to begin to happen. But
Speaker 3: I'm attentive to that side of the mandate.
Speaker 1: Also, what are the CEOs in your district telling you
Speaker 1: about their employment plans? What are you hearing?
Speaker 3: So they say that the labor market has normalized relative
Speaker 3: two year or two years ago when they had meaningful
Speaker 3: labor market labor shortages where hiring people was difficult, where
Speaker 3: they had to pay up for new hires. That has normalized,
Speaker 3: so the labor market is more normal. Some CEOs, particularly
Speaker 3: CEOs that have to employ a lot of skilled labor,
Speaker 3: are still reporting shortages of skilled labor and still having
Speaker 3: to pay up to replace folks. They are reporting, for example,
Speaker 3: that turnover in the labor market that they observe has
Speaker 3: come down, consistent with the aggregate data that I that
Speaker 3: I talked about minute ago. There are more job applicants
Speaker 3: per vacancy, so the labor market has eased and it's
Speaker 3: getting easier to fill positions. They report wage gains in
Speaker 3: the three and a half to four percent range, which
Speaker 3: is consistent with the aggurate data. And that's yeah, that's it.
Speaker 1: It sounds like you're describing something that would fall into
Speaker 1: the category of soft lending or goldilocks.
Speaker 3: You know, I try to stay away from labels like
Speaker 3: goldilocks or soft landing. You know, I just I think
Speaker 3: of very clinically and I think, you know, we have
Speaker 3: a dual mandate and we have to hit that dual mandate.
Speaker 3: I don't try to put labels around it. I know
Speaker 3: folks in the press love to put labels on it,
Speaker 3: and that's fine. You know, I think the as I
Speaker 3: said when I began the remarks, you know, the achieving
Speaker 3: the dual mandate is within sight. You know, if you
Speaker 3: look at headline PC inflation is three above target, which
Speaker 3: is within the margin of error, within the standard deviation.
Speaker 3: If you look at the labor market, you know, the
Speaker 3: unployment rate is at four point one percent. That's below
Speaker 3: a level a natural rate. So we're getting rather close.
Speaker 3: But the job isn't done, and you know, we're very committed.
Speaker 3: I am committed. My colleagues are very committed to finishing
Speaker 3: that job.
Speaker 1: I take it from the way you've set this up
Speaker 1: that you think policy is restrictive now is it significantly so?
Speaker 3: So context before we began to using cycle in September,
Speaker 3: I think one could one could say policy was either
Speaker 3: restrictive or perhaps very restrictive. A way to think of
Speaker 3: it is the policy or rate was above by some
Speaker 3: margin what policy rules will suggest to you that it
Speaker 3: should be. And you can see it in the economy
Speaker 3: when you look at the housing market, when you look
Speaker 3: at low modern income households which are under financial pressure.
Speaker 3: You can see it in small businesses that are levered,
Speaker 3: also having financial and financing pressure. So you can see
Speaker 3: it in different parts of the economy where the restrictiveness
Speaker 3: wasn't is binding. We've begun a process of recalibration and
Speaker 3: we've brought down the interest rate by seventy five basis points.
Speaker 3: In my assessment, I think, as I said of my remarks,
Speaker 3: we're getting closer to a policy rate consistent with those
Speaker 3: policy rules. So that policy rule doesn't mean you're at neutral.
Speaker 3: It means you are at neutral plus a premium for
Speaker 3: the fact that inflation is still above target. So I
Speaker 3: think policy is still restrictive. I think it's moderately restrictive.
Speaker 3: I tend to look at very broadly at things, and
Speaker 3: you know, if you look at businesses or households that
Speaker 3: have access to capital markets, financing, or have savings and
Speaker 3: wealth in capital markets, that part is rather accommodative, you know,
Speaker 3: rather supportive. Capital markets are rather supportive, so financial conditions
Speaker 3: are accommodative there. If you look at businesses or households
Speaker 3: that don't have access to capital marks, that need to
Speaker 3: finance themselves in banks and don't have wealth effects, So
Speaker 3: not on the fans cancide, but on the investment side,
Speaker 3: cannot avail themselves of wealth effects, you know, those folks.
Speaker 3: For those folks, businesses or households, Manterrey policy is rather restrictive.
Speaker 3: So on balance, I think it is still restrictive. You know,
Speaker 3: given the Materrey policy that you think is optimal, what
Speaker 3: is the outcome for the economy. You know, there are
Speaker 3: several Well, how do we do that? Let me go
Speaker 3: through process. How we do this is we take a
Speaker 3: lot of input from an array of models. We take
Speaker 3: a lot of input from talking to businesses and households
Speaker 3: all over the country. We talk to professional forecasters and
Speaker 3: understand you know, their perspectives. So we take a lot
Speaker 3: of input into this and there's always uncertainty, and how
Speaker 3: we manage that uncertainty is, you know, we have the
Speaker 3: baseline scenario and there's balance of risks around them, and
Speaker 3: we write those down and we submit them, and some
Speaker 3: Wall Street analysts have gathered all that balance of risk
Speaker 3: data that we submit, that all the reserve banks submit,
Speaker 3: and they're you know, making statements about the reaction function
Speaker 3: of the FED based on that balance of risks. So,
Speaker 3: so going to your question, there are several several policies
Speaker 3: that have been proposed during the campaign and look like
Speaker 3: they're going to be implemented over the course of this
Speaker 3: year and next year and perhaps the years to come.
Speaker 3: I think we cannot wait until all that uncertainty is
Speaker 3: resolved to continue our SUPM forecast. So we have to
Speaker 3: continue to do our job and continue to do the
Speaker 3: s A P forecasting, which is and input into our
Speaker 3: decision making every quarter. And as we progress over time,
Speaker 3: that resolution of uncertainty about you know, which policies, what
Speaker 3: are their contours, what is the timing of the policies,
Speaker 3: the sequencing, what is the net effect on demand, on supply,
Speaker 3: on prices, on quantities you know will be revealed. Now
Speaker 3: we can't. I think I think it would be not
Speaker 3: good service to the people that we serve if we
Speaker 3: abstained from engaging in s a p forecasts between now
Speaker 3: and the time that that resolution of that full uncertainty
Speaker 3: is is is achieved, which could take a year or two.
Speaker 3: Uh So we're going to gradually absorb information as it
Speaker 3: as it as it is available to us and incorporate, uh,
Speaker 3: you know, new policies into our forecast. One the contours
Speaker 3: of those policies are understood, and we can quantify things
Speaker 3: and understand how they affect would affect the dual mandate.
Speaker 1: Well, you're looking are you going to say you're data
Speaker 1: dependent in terms of what the new fiscal policies might be?
Speaker 1: Are you going to be able to make estimates of
Speaker 1: what's going to happen and react on those.
Speaker 3: So my staff is already making, you know, doing exercises
Speaker 3: of you know, for different tariff configurations, how might that
Speaker 3: affect the economy, for different fiscal configurations, how might that
Speaker 3: affect the economy. So we're beginning to exercise our muscle
Speaker 3: memory or or you know, forecasting muscle in terms of
Speaker 3: understanding so that when you get the final configuration of
Speaker 3: these policies, we can then go back to all these
Speaker 3: exercises that we are beginning to do and understand. Okay,
Speaker 3: given what we have to take those as inputs, to
Speaker 3: take those policies inputs, and then go and analyze how
Speaker 3: that could possibly affect our dual.
Speaker 2: Many goals Alberta mus still in the Saint Louis fed
Speaker 2: in conversation with Michael Keith