1
00:00:02,400 --> 00:00:07,120
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:07,000 --> 00:00:09,360
Speaker 2: The Center, The Federal Reserve Trader is looking ahead to

3
00:00:09,440 --> 00:00:11,600
Speaker 2: the FED minutes this week and a great decision at

4
00:00:11,640 --> 00:00:13,600
Speaker 2: the end of the month. The former New York Fed

5
00:00:13,600 --> 00:00:15,800
Speaker 2: president built out le calling for the Central Bank to

6
00:00:15,840 --> 00:00:18,720
Speaker 2: improve its communication, writing the better the quality of the

7
00:00:18,720 --> 00:00:22,560
Speaker 2: Fed's communication, the more accurately market participants can assess how

8
00:00:22,600 --> 00:00:25,800
Speaker 2: policy is likely to change. This tightens the linkage between

9
00:00:25,920 --> 00:00:30,320
Speaker 2: monetary policy actions and financial conditions, which increases the speed

10
00:00:30,360 --> 00:00:35,120
Speaker 2: and precision of monetary policy transmission. Bill Johndice now for more. Bill,

11
00:00:35,159 --> 00:00:36,879
Speaker 2: Welcome to the show, sir, and a very happy new

12
00:00:36,920 --> 00:00:38,560
Speaker 2: year to you. Where do you think the Fed is

13
00:00:38,600 --> 00:00:41,920
Speaker 2: struggling to communicate right now? On what issue? Specifically?

14
00:00:43,000 --> 00:00:46,919
Speaker 3: I think the sorary econotic projections last month was confusing

15
00:00:46,920 --> 00:00:49,879
Speaker 3: the people because there was a pretty big up up

16
00:00:49,920 --> 00:00:53,360
Speaker 3: through revision to the inflation estimates for twenty twenty five,

17
00:00:53,840 --> 00:00:57,040
Speaker 3: yet it was hard for Paul to explain the sources

18
00:00:57,040 --> 00:01:01,040
Speaker 3: of that. He noted that the participants and operate from

19
00:01:01,080 --> 00:01:04,120
Speaker 3: a common set of assumptions. Some are assuming effects of

20
00:01:04,880 --> 00:01:07,920
Speaker 3: Trump tariff and deportation policies, some weren't, and some didn't

21
00:01:07,959 --> 00:01:10,360
Speaker 3: say whether they were or weren't, So each of the

22
00:01:10,360 --> 00:01:13,200
Speaker 3: projections has a different set of assumptions embedded in it,

23
00:01:13,440 --> 00:01:17,360
Speaker 3: which makes it very hard to anticipate what the Fed

24
00:01:17,440 --> 00:01:18,920
Speaker 3: thinks is going to happen and how they're going to

25
00:01:18,920 --> 00:01:19,440
Speaker 3: react to it.

26
00:01:19,880 --> 00:01:22,039
Speaker 1: Bill is the issue for the FED right now communication

27
00:01:22,400 --> 00:01:26,319
Speaker 1: or just not necessarily understanding which direction of this economy

28
00:01:26,360 --> 00:01:26,840
Speaker 1: is going to go.

29
00:01:26,880 --> 00:01:31,440
Speaker 3: In both, I think the problem is they're having trouble

30
00:01:31,480 --> 00:01:35,560
Speaker 3: communicating how they're likely to react to the Trump policies.

31
00:01:35,760 --> 00:01:38,200
Speaker 4: Obviously, if terroists are broad based, that is one effect.

32
00:01:38,240 --> 00:01:42,000
Speaker 3: If they're much more targeted, as the Watching Post report suggest,

33
00:01:42,440 --> 00:01:43,640
Speaker 3: that has a different implication.

34
00:01:43,800 --> 00:01:44,920
Speaker 4: So it's a lot of the I'm certainly about what

35
00:01:44,920 --> 00:01:46,520
Speaker 4: Trump policies are going to be, and of.

36
00:01:46,480 --> 00:01:49,360
Speaker 3: Course the Fed is uncertain about how the economy itself

37
00:01:49,440 --> 00:01:52,680
Speaker 3: is going to perform. A key issue for the Fed

38
00:01:52,720 --> 00:01:54,800
Speaker 3: in terms of the economy is the labor market going

39
00:01:54,800 --> 00:01:55,880
Speaker 3: to continue to weaken or not.

40
00:01:56,920 --> 00:01:57,639
Speaker 4: Had been very.

41
00:01:57,480 --> 00:01:59,760
Speaker 3: Clear that he thinks the labor market is still weakening

42
00:02:00,000 --> 00:02:01,480
Speaker 3: and he doesn't want it to waken any further.

43
00:02:01,880 --> 00:02:04,760
Speaker 4: So that's why Friday's paydroll and ployer report is so important.

44
00:02:04,760 --> 00:02:06,640
Speaker 1: When you talk about a reaction function. This has been

45
00:02:06,680 --> 00:02:08,680
Speaker 1: one of the big quag buyers for people. What is

46
00:02:08,760 --> 00:02:12,000
Speaker 1: sort of the scenario analysis that the FED is doing

47
00:02:12,000 --> 00:02:13,760
Speaker 1: and how they're going to respond to it. Do you

48
00:02:13,840 --> 00:02:16,480
Speaker 1: think that they have that scenario analysis or do you

49
00:02:16,560 --> 00:02:20,080
Speaker 1: think that increasingly, by default, it is becoming an increasingly

50
00:02:20,160 --> 00:02:21,720
Speaker 1: data point dependent federal reserve.

51
00:02:23,080 --> 00:02:25,760
Speaker 3: Well, there's definitely a scenario analysis that takes place before

52
00:02:25,800 --> 00:02:26,320
Speaker 3: each meeting.

53
00:02:26,440 --> 00:02:27,880
Speaker 4: The staff prepares.

54
00:02:27,639 --> 00:02:30,280
Speaker 3: What's so called tealbook, and in the Tealbook there's a

55
00:02:30,320 --> 00:02:34,520
Speaker 3: baseline forecast, but there's also these alternative simulations which suggests

56
00:02:34,520 --> 00:02:37,440
Speaker 3: how the economy might evolve if things happen differently.

57
00:02:37,560 --> 00:02:39,920
Speaker 4: I think that's another problem with the Summary of Economic Projections.

58
00:02:40,720 --> 00:02:43,560
Speaker 3: It's a modal forecast and it doesn't talk about at

59
00:02:43,560 --> 00:02:45,480
Speaker 3: all about what's going to happen if things turn out

60
00:02:45,480 --> 00:02:49,200
Speaker 3: differently than what FED officials expect. So I think one

61
00:02:49,240 --> 00:02:51,919
Speaker 3: thing the FED could do is actually do what a

62
00:02:51,960 --> 00:02:54,480
Speaker 3: lot of foreign central banks do is actually have a

63
00:02:54,600 --> 00:02:58,000
Speaker 3: consensus forecast, difficult to do with a committee of nineteen

64
00:02:58,040 --> 00:03:01,000
Speaker 3: people spread all over the country. You could actually start

65
00:03:01,040 --> 00:03:03,720
Speaker 3: to publish the staff forecast. There is a staff forecast

66
00:03:03,760 --> 00:03:06,400
Speaker 3: available before every meeting, and if you put that out there,

67
00:03:06,400 --> 00:03:09,680
Speaker 3: you have a better sense of what the baseline assumptions

68
00:03:09,720 --> 00:03:10,359
Speaker 3: of the FED are.

69
00:03:10,720 --> 00:03:13,639
Speaker 5: But Bill isn't one of the issues that Comm's problems

70
00:03:13,720 --> 00:03:16,120
Speaker 5: is because they don't want to or can't be seen

71
00:03:16,200 --> 00:03:18,640
Speaker 5: talking about policy. Do you just think the FED should

72
00:03:18,639 --> 00:03:21,799
Speaker 5: be more open about policy all of the members?

73
00:03:23,480 --> 00:03:26,680
Speaker 3: Well, clearly what happens on tiarists and deportation is going

74
00:03:26,720 --> 00:03:29,079
Speaker 3: to have a big, big effect on the Commy in

75
00:03:29,080 --> 00:03:31,880
Speaker 3: twenty twenty twenty five, So I don't think you can

76
00:03:31,960 --> 00:03:35,560
Speaker 3: avoid thinking about that in terms of making your economic forecast.

77
00:03:35,880 --> 00:03:37,960
Speaker 3: I think the FED is reluctant to talk about it

78
00:03:37,960 --> 00:03:40,400
Speaker 3: because he doesn't want to get self engaged into this

79
00:03:40,480 --> 00:03:43,920
Speaker 3: political discussion, and I think they're worried that will politicize

80
00:03:43,960 --> 00:03:46,520
Speaker 3: the FED, So they're trying to think about it with

81
00:03:46,600 --> 00:03:48,440
Speaker 3: how talking about it at the same time.

82
00:03:48,640 --> 00:03:51,200
Speaker 5: Is your main concern right now with the FED communications

83
00:03:51,320 --> 00:03:53,960
Speaker 5: or would you do anything differently on policy?

84
00:03:55,280 --> 00:03:57,440
Speaker 3: I think they are in a pretty good place right now.

85
00:03:57,440 --> 00:04:00,560
Speaker 3: I think that they understand that the Commy is doing okay.

86
00:04:01,520 --> 00:04:05,800
Speaker 3: Inflation is a little bit sticky, so it makes sense

87
00:04:05,840 --> 00:04:08,080
Speaker 3: to wait. They also understand that there's a lot of

88
00:04:08,120 --> 00:04:11,080
Speaker 3: uncertainty about what policy is going to be forthcoming, and

89
00:04:11,240 --> 00:04:13,280
Speaker 3: Paul said when things are usurned, you should slow down.

90
00:04:13,400 --> 00:04:14,840
Speaker 4: So I think that all makes a lot of sense.

91
00:04:14,880 --> 00:04:17,880
Speaker 4: I think the big disconnect I think between.

92
00:04:17,560 --> 00:04:19,559
Speaker 3: Markets and the FED is where is the FED heading

93
00:04:19,640 --> 00:04:22,280
Speaker 3: over the medium the longer term. The FED says we're

94
00:04:22,279 --> 00:04:24,920
Speaker 3: heading to three percent federal funds rate. The market says

95
00:04:24,920 --> 00:04:27,120
Speaker 3: we're heading to something more like a four percent federal

96
00:04:27,120 --> 00:04:27,560
Speaker 3: fund rates.

97
00:04:27,560 --> 00:04:28,000
Speaker 4: So there's a.

98
00:04:27,920 --> 00:04:31,760
Speaker 3: Pretty big gap about what is a neutral monitary policy.

99
00:04:32,040 --> 00:04:34,120
Speaker 3: FED thinks the neutral monitary policy is quite a bit

100
00:04:34,120 --> 00:04:36,520
Speaker 3: easier than we are today. The market thinks that the

101
00:04:36,640 --> 00:04:39,560
Speaker 3: neutral monitary policy is slightly easier than where we are today.

102
00:04:39,839 --> 00:04:42,479
Speaker 2: But what did you do with your own forecast when

103
00:04:42,520 --> 00:04:44,840
Speaker 2: you had Trump coming in in Volume one? How did

104
00:04:44,880 --> 00:04:46,800
Speaker 2: you change things? So do you anticipate the changes to

105
00:04:46,839 --> 00:04:50,000
Speaker 2: policy beforehand or react once it was introduced.

106
00:04:51,640 --> 00:04:52,800
Speaker 4: I think I thought.

107
00:04:52,600 --> 00:04:54,520
Speaker 3: That there was more risk in the forecast, So I

108
00:04:54,560 --> 00:04:56,640
Speaker 3: think the biggest change for me was to talk about

109
00:04:56,720 --> 00:04:59,240
Speaker 3: risk and uncertainty going up. And I think that's what's

110
00:04:59,320 --> 00:05:01,680
Speaker 3: happened to I mean, I think we the big transition

111
00:05:01,760 --> 00:05:04,120
Speaker 3: from Biden to Trump is under Biden, we sort of

112
00:05:04,200 --> 00:05:06,480
Speaker 3: knew exactly what the policies were, and in fact, over

113
00:05:06,480 --> 00:05:08,279
Speaker 3: the last two years there hasn't really been much in

114
00:05:08,400 --> 00:05:10,960
Speaker 3: terms of new policy initiatives. Now we're going into the

115
00:05:10,960 --> 00:05:12,520
Speaker 3: Trump era, when you know there's gonna be a lot

116
00:05:12,520 --> 00:05:14,440
Speaker 3: of changes in policy and yet and.

117
00:05:14,400 --> 00:05:16,280
Speaker 4: We don't know yet they're what they're going to be.

118
00:05:16,360 --> 00:05:18,240
Speaker 3: So I think we're going from a period of low

119
00:05:18,360 --> 00:05:20,200
Speaker 3: uncertainty to much higher uncertainty.

120
00:05:20,640 --> 00:05:22,279
Speaker 4: That's what's got to get priced into markets.

121
00:05:22,279 --> 00:05:24,200
Speaker 3: That's one reason why I think the bond market has

122
00:05:24,240 --> 00:05:26,280
Speaker 3: done poorly over the last few months.

123
00:05:26,520 --> 00:05:28,640
Speaker 2: Oh, I appreciate your time, as always bought down to

124
00:05:28,760 --> 00:05:31,400
Speaker 2: the former New York Fed president. Looking at to twenty

125
00:05:31,440 --> 00:05:32,720
Speaker 2: twenty five and beyond,