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Speaker 1: We are pleased to welcome Neil Kashkari, the President of

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Speaker 1: the Federal Reserve Bank of Minneapolis, to the table today.

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Speaker 1: Thank you for coming in, making the trip all the

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Speaker 1: way to New York only for us.

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Speaker 2: I'm sure nothing else, nothing else.

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Speaker 1: There would be nothing else this morning, And except for

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Speaker 1: Blueberg surveillance. You're kind of known as the guy who

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Speaker 1: is the most hawkish. I don't want to characterize you

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Speaker 1: exactly now, given how things have changed over the last

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Speaker 1: couple of months, but you have left open the possibility

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Speaker 1: of doing more.

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Speaker 3: How much more would you.

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Speaker 1: Think the economy might need. Are we talking about just

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Speaker 1: that one leftover move from the dot plot in September?

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Speaker 1: Or if you have to start raising again, do you

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Speaker 1: have to go farther Probably?

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Speaker 4: Well, first of all, it's great to see you, Thanks

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Speaker 4: for having me. People are looking for certainty, and I

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Speaker 4: wish I could give that certainty. Provided there's been so much,

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Speaker 4: so much unusual about the reopening of the economy, and

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Speaker 4: the dynamics that led to the high inflation, and how

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Speaker 4: long it is taken, and the dynamics as the disinflation

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Speaker 4: process has taken hold. I wish I knew we have

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Speaker 4: to let the inflation data guide us to labor market

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Speaker 4: data guide us.

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Speaker 3: Just to point out the obvious.

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Speaker 4: Our forecasts have not been great over the past couple

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Speaker 4: of years, and so we just need to We're all committed.

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Speaker 4: Everybody on the FMC is committed that two percent is

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Speaker 4: our inflation target. We have to get inflation back down

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Speaker 4: to two percent over a reasonable period of time. Ultimately,

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Speaker 4: the economy will tell us how much is needed to

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Speaker 4: get there, and I just don't know.

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Speaker 1: Well, at what point do you think you would believe

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Speaker 1: you have tightened enough or not tightened enough?

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Speaker 3: What is it that you're looking for.

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Speaker 4: Well, I'll give you some good news is that core

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Speaker 4: PC on a three month basis is running about two

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Speaker 4: point five percent, and it's lower than the six month data.

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Speaker 4: It's lower than the one year data. So that suggests

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Speaker 4: that the disinflation is real. If we continue to see

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Speaker 4: inflation numbers of that range two point five percent or

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Speaker 4: lower on a go forward basis, that would tell me, okay,

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Speaker 4: we are now on a path back to two percent inflation.

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Speaker 4: But three months data is still only three months data,

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Speaker 4: and if we see that start to tick back up again,

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Speaker 4: that would tell me our job is not yet done.

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Speaker 1: Tick back up means what? In other words, we get

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Speaker 1: another couple of CPI reports in a PCE report before

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Speaker 1: your next meeting, a couple of tents higher. The Chairman

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Speaker 1: and others say it's going to be lumpy or does

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Speaker 1: it have to be a significant move? In other words,

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Speaker 1: what are you thinking about for December?

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Speaker 4: Well, I think we'd look at as the Chairman always says,

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Speaker 4: we look at all of the data. So what surprises

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Speaker 4: over the past few months. We've been surprised by how

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Speaker 4: strong American consumers have been, Consumer spending is held up

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Speaker 4: remarkably well, we've been surprised by GDP growth. When activity

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Speaker 4: continues to run this hot, that makes me question is

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Speaker 4: policy as tight as.

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Speaker 3: We assume that it currently is.

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Speaker 4: So if you saw inflation tick back up and you

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Speaker 4: saw continued very strong economic activity on the real side

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Speaker 4: of the economy, that would tell me.

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Speaker 3: Okay, we might need to do more.

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Speaker 4: So it's hard for me to say this one data

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Speaker 4: point to be here, I would be looking at the

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Speaker 4: suite of data.

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Speaker 2: Did we outsce doing more to financial markets in the

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Speaker 2: arts week? Have we outsolced doing more to financial markets?

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Speaker 4: You know, this is a very complicated question on what

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Speaker 4: has been driving the long end of the Yeld curve.

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Speaker 4: Some people point to term premium, and I always joke

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Speaker 4: the term premium is the economist version of dark matter,

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Speaker 4: is the residual of all the stuff we can't explain.

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Speaker 4: It's not that our models are wrong, it's the dark

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Speaker 4: matter is out there.

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Speaker 3: So that's the term premium.

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Speaker 4: And some people say, well, that's driven by fiscal If

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Speaker 4: it was fiscal driving the term premium, I would have

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Speaker 4: expected to see a week dollar usually when investors are

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Speaker 4: worried about a country's fiscal position, their currency weekends, our

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Speaker 4: currency has been quite strong. It makes me wonder, is

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Speaker 4: it really fiscal driving the term premium. Another possibility is

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Speaker 4: the path of policy over the next few years that

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Speaker 4: could explain both the stronger dollar and the weaker stock

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Speaker 4: market going into the last meeting. Another one is that

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Speaker 4: maybe the neutral rate is higher, or maybe it's a

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Speaker 4: combination of all.

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Speaker 3: Three of these.

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Speaker 4: And so these are things that we're spending a lot

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Speaker 4: lot of time trying to understand what the markets you're doing.

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Speaker 4: But just speaking for myself, I'm not comfortable saying which

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Speaker 4: of those three it is, because which of those three

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Speaker 4: it is determines what it means for policy. If it

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Speaker 4: is the term premium, then it is doing some work

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Speaker 4: for the FED. But if it's the neutral rate, or

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Speaker 4: if it's the forward guidance of the path of policy,

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Speaker 4: then we would actually have to follow through to preserve

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Speaker 4: those rates.

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Speaker 2: So how did this line end up in the statement?

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Speaker 2: And I'll share it with our audience. The kind of

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Speaker 2: financial and credit conditions for households and businesses are likely

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Speaker 2: to wound economic activity, hiring, and inflation. Where's that coming from?

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Speaker 3: Oh, that's been there for a long time.

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Speaker 4: I mean, that's been in there since the Silicon Valley

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Speaker 4: bank episode and the banking stresses leading to some tightening

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Speaker 4: of credit conditions across the economy.

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Speaker 3: So I think that that's right. I, for.

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Speaker 4: One, don't say that that means the recent moves in

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Speaker 4: the your curve.

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Speaker 2: How slid is that assessment? Can that change from month

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Speaker 2: to month meting to mating, because some of those comments

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Speaker 2: around that has inspired quite a move in this market

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Speaker 2: over the last week.

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Speaker 4: Well, you know, one of the things about the statement,

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Speaker 4: it's we always have to be careful about putting things

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Speaker 4: into the statement because they tend to be long lived

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Speaker 4: and it's hard to pull them out of the statement

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Speaker 4: because as soon as you take something out, then all

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Speaker 4: of a sudden, people say, oh my gosh, they're declaring

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Speaker 4: that all the banking stresses are over as an example,

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Speaker 4: and so you know, I would look at all of

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Speaker 4: the range of commentary that you get, look at what

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Speaker 4: the chairman says, look at his press conference to get

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Speaker 4: a read of the thoughts of the committee.

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Speaker 5: You said that people want certainty and that you can't

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Speaker 5: give it to them, and I understand that, but people

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Speaker 5: don't just want certainty, they also want some sort of

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Speaker 5: guiding philosophy. Do you think that Fetcher Powell has outlined

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Speaker 5: some sort of guiding philosophy and where the bar is

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Speaker 5: to cut rates and where the bar is to raise

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Speaker 5: them further?

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Speaker 4: Well, I think he's articulated very clearly that we're committed

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Speaker 4: to getting back to two percent inflation.

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Speaker 3: Right.

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Speaker 4: There's been some chatter amongst economists that maybe we should

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Speaker 4: raise the inflation target. I think he's done a great

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Speaker 4: job saying that is not on the table. We're not

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Speaker 4: going to do that. We're going to get inflation back

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Speaker 4: to two percent, and we're going to let the data

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Speaker 4: guide us we've moved very aggressively. We've made a lot

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Speaker 4: of progress on inflation. We're not done yet, meaning inflation

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Speaker 4: is not back to our target, and if we need

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Speaker 4: to do more, we will.

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Speaker 5: There seem to be a feeling in markets that the

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Speaker 5: bar to cut rates has been lowered over the past

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Speaker 5: week or two weeks. Suddenly not only are we reaching

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Speaker 5: a pause and have we seen a peek in the

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Speaker 5: FED funds rate, but that also the Fed will cut

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Speaker 5: next year, maybe surgically. Neil Dada is talking about that,

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Speaker 5: He's coming up next. Do you want to push back

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Speaker 5: against that? Do you think that the bar to cut

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Speaker 5: is still just as high as it was?

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Speaker 4: I have no idea where market participants are getting that.

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Speaker 4: There's no discussion amongst me and any of my colleagues

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Speaker 4: about when we're going to start preparing to cut rates.

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Speaker 4: The only thing that's been talked about at all is

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Speaker 4: that at some point, when inflation is well on its

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Speaker 4: way back down, if we didn't back off a little bit,

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Speaker 4: then real rates will be getting tighter and tighter and tighter.

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Speaker 3: And that's real, But that's mass.

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Speaker 5: But is there enough weakness currently in the market in

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Speaker 5: the economy, I should say to give you that sense

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Speaker 5: at this point, look at.

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Speaker 4: The last GDP print. I mean, does anybody look at

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Speaker 4: that and think, oh my gosh. The economy we for

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Speaker 4: the last twelve months GDP has been very strong. The

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Speaker 4: labor market continues to be quite robust. Yes, the unemployment

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Speaker 4: rate has ticked up to three point nine percent, but

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Speaker 4: we've also seen a huge surge of labor supply, which

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Speaker 4: is really positive come online. So I'm looking at this,

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Speaker 4: I'm seeing consumers that are strong. My air by the way,

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Speaker 4: my airplane that I came here on was one hundred

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Speaker 4: percent full yesterday.

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Speaker 3: It's going to be one hundred percent full today.

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Speaker 4: I'm not seeing a lot of evidence if the economy

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Speaker 4: is weakening.

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Speaker 1: Well, whether you go higher or not, you are on

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Speaker 1: board for longer. And so you must have modeled out

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Speaker 1: some idea of how long you would need to leave

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Speaker 1: rates unchanged before you could get down to a level

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Speaker 1: low enough that you could take your foot off the

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Speaker 1: break a little bit. How long do you think you'll

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Speaker 1: be at five point five into twenty twenty four.

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Speaker 4: Well, I think it's going to depend if we continue

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Speaker 4: to see inflation prints similar to the ones we've seen

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Speaker 4: the last few months, you know, and we end up

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Speaker 4: with a year over a year at two point five

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Speaker 4: percent core inflation and it continues to trend down.

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Speaker 3: That constellation would.

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Speaker 4: Give me evidence to say, hey, we ought to look

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Speaker 4: at should we start backing off just so the real

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Speaker 4: policy isn't getting tighter and tighter and tighter, because we're

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Speaker 4: clearly on our way back down to two percent. But again,

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Speaker 4: I don't want to just point to one data series.

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Speaker 4: We will be looking at the suite of data to

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Speaker 4: try to get a read of where the economy is headed.

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Speaker 1: Well, not just data. You talk to businesses in your

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Speaker 1: district all the time. What are they telling you now

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Speaker 1: about their view of growth and hiring and pricing going forward?

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Speaker 4: It's moderating. So the labor market is still tight in

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Speaker 4: my district. People especially in the Dakotas, really have a

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Speaker 4: hard time finding workers. But in Minnesota it's still a

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Speaker 4: tight labor market, but it's not as tight as it

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Speaker 4: was six months ago. It's not as tight as it was.

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Speaker 3: A year ago.

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Speaker 4: So that kind of maps to the national data that

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Speaker 4: we're seeing of a gently cooling labor market but one

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Speaker 4: that's still very very warm. Same thing with economic activity,

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Speaker 4: depending on the sector. They're saying, Hey, we feel pretty

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Speaker 4: good about things. We're a little cautious about the future. Obviously,

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Speaker 4: they watch the news, they read the news. There's a

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Speaker 4: lot of economic anxiety that is reported on that people,

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Speaker 4: you know, factor that into their own thinking and their

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Speaker 4: own business planning. So I think the outlooks are still optimistic,

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Speaker 4: but it's cautious optimists we are.

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Speaker 1: They still raising prices or think they need to.

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Speaker 3: So it's funny.

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Speaker 4: Still they still buy and large have some pricing power,

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Speaker 4: more than they had before the pandemic, but not as

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Speaker 4: much pricing power as they had six months or a

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Speaker 4: year ago.

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Speaker 2: Can we finish on housik?

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Speaker 3: Sure?

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Speaker 2: In the space of three years, we've had record low

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Speaker 2: interest rates in the highest rates in several decades. Is

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Speaker 2: this housing market broken?

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Speaker 4: Well, I think since the pandemic, we have structurally underbuilt

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Speaker 4: the number of units that we need to meet our

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Speaker 4: growing population. And that's the factor, And that's really about

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Speaker 4: regulation at the local level that are creating barriers to

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Speaker 4: more supply coming in.

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Speaker 3: The raid environment will settle out over time.

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Speaker 4: But structurally we have to actually bring a lot more

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Speaker 4: supply online to meet American scud.

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Speaker 2: Of the time but it could be like twenty thres

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Speaker 2: two years. I think this is the issue here. The

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Speaker 2: legacy of this FORMC could well be a generation of

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Speaker 2: people looked down of the housing market. Why do you

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Speaker 2: say that there could be a generation of people with

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Speaker 2: two three percent mortgages that never sound their home.

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Speaker 3: Yeah, I don't know. People end up needing to move.

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Speaker 4: It's funny when people don't tell their home because they're

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Speaker 4: locked into a low mortgage.

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Speaker 3: That's less supply, but that's also one less buyer.

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Speaker 4: Most people who buy homes are leaving another home, and

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Speaker 4: so that affects both the supply side and the demand side.

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Speaker 2: Of Just why I set a generation lock down because

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Speaker 2: I'm renting and can't buy, so I'm not sounding anything.

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Speaker 2: And that's the generation I'm talking about that generation specifically,

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Speaker 2: you concern that could be the legacy of this FORMC.

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Speaker 4: Now, I think the legacy of this FORMC is that

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Speaker 4: we've dealt with the pandemic very aggressively. Then we were

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Speaker 4: surprised by very high inflation, but then we move very

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Speaker 4: aggressively to bring the inflation back down.

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Speaker 1: Well, ask you about a story on the Bloomberg terminal

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Speaker 1: today about all the financial CEOs from the US over

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Speaker 1: in Hong Kong, sounding very doer and down about the

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Speaker 1: prospects for the economy. They suggest that things are pretty

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Speaker 1: fragile right now, both in the economy and the markets,

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Speaker 1: given everything that's going on around the world, and in

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Speaker 1: the shadow banking system as well as theirs.

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Speaker 3: How worried are you.

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Speaker 4: Well, I mean, we're always worried about things that can

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Speaker 4: happen all around the world. We've got teams of people

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Speaker 4: looking at different scenarios around the world. Ultimately we have

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Speaker 4: to focus on what we can control, you know, geopolitics.

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Speaker 4: When Hamas attacked Israel, the first thing we thought of

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Speaker 4: is what's it going to do to the oil market?

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Speaker 4: What's it going to do to commodity prices. Remarkably, the

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Speaker 4: response so far has been muted, But that's something we're

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Speaker 4: obviously paying close attention to. But the broader geopolitical issues

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Speaker 4: are just so far outside of our bounds of forecasting.

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Speaker 4: We have a hard enough time forecasting inflation trying to

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Speaker 4: forecast where geopolitics is going.

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Speaker 3: We just have to focus what we can control.

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Speaker 2: Oil price is dropped, I mean, that's the crizy thing

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Speaker 2: about the last month.

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Speaker 5: Is it doesn't make any sense, and this is the

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Speaker 5: reason why trying to get it right is just impossible.

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Speaker 5: And then trying to get the idea of a FED

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Speaker 5: put and whether they're going to respond. I'm just saying

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Speaker 5: people are talking about that now, So yeah.

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Speaker 2: We're talking about it in the last few hours. Yes,

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Speaker 2: it's sporting on this program, Neil, Always a pleasure, Thank you, sir.

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Speaker 2: Neil Kashkari, the Minneapolis FED president. Alongside Bloomberg's might be

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Speaker 2: the key