WEBVTT - Richmond Fed President Tom Barkin On Getting Inflation Under Control 0:00:03.120 --> 0:00:18.160 Bloomberg Audio Studios, Podcasts, radio News. 0:00:20.400 --> 0:00:23.480 Hello and welcome to another episode of the aud Lots podcast. 0:00:23.600 --> 0:00:24.920 I'm Tracy Alloway. 0:00:24.600 --> 0:00:25.720 And I'm Jico Wisenthal. 0:00:26.040 --> 0:00:29.400 So, Joe, we have a treat for authoughts listeners. 0:00:29.680 --> 0:00:33.280 That's right, we have a special episode of the podcast 0:00:33.360 --> 0:00:35.400 with Richmond Fed President Tom Barkin. 0:00:35.600 --> 0:00:39.720 So we were actually on a reporting trip shadowing Tom 0:00:39.760 --> 0:00:43.160 as he goes through some of his district and speaks 0:00:43.200 --> 0:00:46.800 to local business leaders there. We learned a lot, We 0:00:46.920 --> 0:00:49.200 spent a lot of time with him. You'll hear more 0:00:49.240 --> 0:00:52.280 from that trip in an upcoming odd Lots episode, But 0:00:52.360 --> 0:00:54.640 in the meantime, we also talked to him about some 0:00:54.680 --> 0:00:58.400 more macro trends, things that are happening right now that 0:00:58.440 --> 0:01:01.800 he's seeing in the economy, and we're going to share 0:01:02.040 --> 0:01:04.559 that portion of the interview with you right now. 0:01:05.440 --> 0:01:09.280 So, so far in twenty twenty four, we've seen three 0:01:09.600 --> 0:01:13.360 hotter than generally. The inflation data has been hotter than expected, 0:01:13.440 --> 0:01:15.839 and some of the there's certainly been some cold water 0:01:15.880 --> 0:01:18.080 on some of the soft landing optimism. What do you 0:01:18.280 --> 0:01:21.080 attribute that too, is do you think this is a 0:01:21.120 --> 0:01:23.640 new trend or is it a speed bump in the road, 0:01:23.640 --> 0:01:24.160 as they say. 0:01:24.560 --> 0:01:26.400 Well, so, I think there are two interesting things going 0:01:26.440 --> 0:01:29.720 on with the data. One is demand has been pretty robust, 0:01:30.120 --> 0:01:34.200 against most expectations that it would slow down. We got 0:01:34.280 --> 0:01:37.680 retail sales this week very strong. We've got three strong 0:01:37.760 --> 0:01:41.120 job reports this year, and so the economy in general 0:01:41.200 --> 0:01:44.120 still seems to be very healthy, and I think a 0:01:44.120 --> 0:01:46.640 lot of people wondered whether, you know, we weren't at 0:01:46.680 --> 0:01:49.360 the end of a growth period. Still seems to be strong. 0:01:50.000 --> 0:01:54.480 At the same time, inflation has remained stubbornly above three percent, 0:01:55.080 --> 0:01:58.960 you know, on a monthly annualized rate, and you know, 0:01:58.960 --> 0:02:01.240 there are lots of ways to interpret it. I am 0:02:01.280 --> 0:02:03.160 from the school that no one's as good as they 0:02:03.200 --> 0:02:04.560 are on their best day or as bad as they 0:02:04.560 --> 0:02:07.720 are on their worst. The seven months before the end 0:02:07.720 --> 0:02:09.760 of the year we ran at one point nine percent 0:02:10.120 --> 0:02:13.960 headline inflation. The last three months have been somewhat higher. 0:02:14.520 --> 0:02:17.160 If you took the ten month number, it's not that 0:02:17.400 --> 0:02:20.920 bad actually, and so I think the overall story that 0:02:21.000 --> 0:02:24.520 inflation's moderating is still the right story. But I've been 0:02:24.560 --> 0:02:27.839 of the view that inflation has been will be more 0:02:27.919 --> 0:02:30.360 stubborn to come back to two percent than we would like, 0:02:30.919 --> 0:02:33.200 and in particular in the last half of last year, 0:02:33.680 --> 0:02:36.120 part of the reason the numbers came back so nicely 0:02:36.320 --> 0:02:41.600 was that goods turned deflationary, and that offset still higher 0:02:41.600 --> 0:02:45.440 than normal levels of inflation on services in shelter. We're 0:02:45.440 --> 0:02:49.320 not trying to pick a particular mix of inflation, but 0:02:49.840 --> 0:02:54.400 it did make me worry that if goods price reductions ceased, 0:02:54.720 --> 0:02:57.400 you'd still be left with higher than normal services in shelter, 0:02:57.720 --> 0:03:01.400 and that's what's happened in the first quarter year. Is 0:03:01.400 --> 0:03:03.920 there still room for goods to reduce, of course? Is 0:03:03.919 --> 0:03:06.480 there still a story of why shelter might come down 0:03:06.560 --> 0:03:09.440 with new rents coming down, of course and with wages 0:03:09.480 --> 0:03:13.040 normalizing services. Absolutely, but it hasn't happened yet. 0:03:13.760 --> 0:03:15.839 On this note, the last time we spoke to on 0:03:15.960 --> 0:03:19.720 the podcast, you talked about the need to maybe offset 0:03:19.720 --> 0:03:23.520 housing strength in a different area. So if housing has 0:03:23.600 --> 0:03:26.919 proved to be surprisingly resilient, maybe you need to see 0:03:27.200 --> 0:03:30.160 an offset somewhere else in the economy. Is that still 0:03:30.160 --> 0:03:30.760 your thinking. 0:03:32.040 --> 0:03:34.480 Well, I'm open to housing coming down, and there are 0:03:34.480 --> 0:03:37.560 folks who've done models that suggest that with new rents 0:03:37.600 --> 0:03:39.640 coming down the way they have, we're just minutes away 0:03:39.680 --> 0:03:43.160 from shelter inflation coming down as well, and that would 0:03:43.160 --> 0:03:45.440 be great. If it doesn't come down and you want 0:03:45.440 --> 0:03:48.560 to get to two percent, then either goods or services 0:03:48.640 --> 0:03:51.040 or both need to run at less than their historic 0:03:51.480 --> 0:03:54.600 levels of inflation. That's just simple, simple math. And if 0:03:54.600 --> 0:03:57.080 it doesn't come down, that's what you'd be looking for 0:03:57.120 --> 0:04:00.160 in some sense that relative prices have changed in a way. 0:04:00.960 --> 0:04:03.800 And I want to make this point that that's entirely conceivable. 0:04:03.840 --> 0:04:06.880 Relative prices change all the time. In the two thousands, 0:04:06.880 --> 0:04:10.160 we had healthcare inflation that was quite significant and much 0:04:10.160 --> 0:04:12.200 more than it was in the nineties. But you know, 0:04:12.280 --> 0:04:15.920 goods price deflation came down, so the basket does shift, 0:04:16.480 --> 0:04:18.320 and it's fine if it shifts, just needs to get 0:04:18.320 --> 0:04:18.839 to two percent. 0:04:18.880 --> 0:04:22.200 Overall, there's sort of whispers out there and some people 0:04:22.320 --> 0:04:24.240 talk about it, and you can kind of see it 0:04:24.279 --> 0:04:27.000 in the rates options markets and stuff. But there is 0:04:27.080 --> 0:04:30.360 this talk like, what if the hiking cycle isn't actually over? 0:04:30.440 --> 0:04:33.200 What if the next rate move is not a cut 0:04:33.240 --> 0:04:36.440 as has been the presumption for a while, What do 0:04:36.480 --> 0:04:38.440 you think it would have to take or what would 0:04:38.480 --> 0:04:41.960 you have to see in the data to say, no, 0:04:42.160 --> 0:04:46.000 this isn't just a matter of waiting for the improvement 0:04:46.080 --> 0:04:48.839 to occur. There is a reason to do more work. 0:04:49.279 --> 0:04:51.960 It would have to be around inflation reaccelerating, and you know, 0:04:52.200 --> 0:04:53.560 having conviction that you need to do. 0:04:53.600 --> 0:04:55.640 And when like, I mean, okay, so we've had this 0:04:55.680 --> 0:04:58.800 little three month pick up from the previous seven months, 0:04:58.920 --> 0:05:02.720 what is like, Okay, this is actually inflation reaccelerated rather. 0:05:02.520 --> 0:05:05.960 Than just a durable trend versus a blip. 0:05:06.120 --> 0:05:12.240 Yeah, what does that look like? Well, put, I'm gonna 0:05:12.520 --> 0:05:15.040 say what is the durable? What constitutes a durable trend? 0:05:15.680 --> 0:05:20.360 I mean a trend that is durable. I think it's 0:05:20.360 --> 0:05:23.320 really hard to get into hypotheticals here, you know, what 0:05:23.440 --> 0:05:26.200 I'll what I'll say is we're in a situation today 0:05:26.240 --> 0:05:30.160 where demand is robust, but I see no signs yet 0:05:30.200 --> 0:05:34.440 that it's overheating. And overheating would lead to pressure on wages, 0:05:34.480 --> 0:05:37.479 woul lead to pressure on prices such the things we're escalating, 0:05:37.920 --> 0:05:40.240 and you can't find that in the wage numbers or 0:05:40.240 --> 0:05:42.920 even in the three month price numbers. And you can't 0:05:42.920 --> 0:05:46.080 find that. So you know, demand is robust but not overheating, 0:05:46.400 --> 0:05:49.000 and inflation is has come down and it's still coming 0:05:49.040 --> 0:05:51.480 down on a twelve month basis, but it is stubbornly 0:05:52.080 --> 0:05:54.040 you know, at least over the last three months plateaued 0:05:54.279 --> 0:05:57.320 above our target. And so I think that makes policy 0:05:57.360 --> 0:06:00.560 pretty straightforward. With today's world, which is you have restrictive 0:06:00.600 --> 0:06:03.560 rates and you want to be restrictive and bring inflation down. 0:06:03.880 --> 0:06:07.040 You can come up with scenarios where those the two 0:06:07.080 --> 0:06:09.479 parts of our mandate are in different balance. But right 0:06:09.520 --> 0:06:12.360 now I think you've got healthy but not overheated demand 0:06:12.360 --> 0:06:15.080 and you've got inflation that remain stubbornly high. So I think, 0:06:15.160 --> 0:06:17.040 to me, the polsipath is pretty straightforward. 0:06:17.320 --> 0:06:20.919 I think you anticipated my next question. But you say 0:06:21.200 --> 0:06:24.680 rates are restrictive, how are you judging the restrictiveness of 0:06:24.800 --> 0:06:28.520 monetary policy, Because when I look at something like the 0:06:28.560 --> 0:06:32.320 financial Conditions Index, up until the past week or so, 0:06:32.520 --> 0:06:36.200 or even few days, it was pretty loose. And so 0:06:36.240 --> 0:06:39.440 there seems to be a disconnect between a certain number 0:06:39.440 --> 0:06:42.640 of Fed officials who will say policy is restrictive versus 0:06:42.800 --> 0:06:46.080 looking at something like that financial conditions index, or even 0:06:46.080 --> 0:06:49.800 the amount of refinancing being undertaken by the corporate bond 0:06:49.800 --> 0:06:51.320 market or the loan market recently. 0:06:52.240 --> 0:06:55.200 Right, so there are many financial conditions indices, some of 0:06:55.240 --> 0:06:58.120 them show looser than others. The ones that seem to 0:06:58.160 --> 0:06:59.560 sort the loosest are the ones that put the most 0:06:59.560 --> 0:07:02.920 weight on the equity markets. Obviously we were with our 0:07:02.960 --> 0:07:07.280 carport manufacturer today. He would certainly say financial conditions are tight. 0:07:07.480 --> 0:07:10.560 And it's very clear to me as I talk around 0:07:10.600 --> 0:07:13.600 the economy that there are significant sectors where financial conditions 0:07:13.640 --> 0:07:16.080 are tight, and they do tend to be those sectors 0:07:16.120 --> 0:07:20.440 like this guy who's most vulnerable to construction and to 0:07:20.560 --> 0:07:23.960 home right and people spending around their home, and in 0:07:24.000 --> 0:07:27.320 his case RVs, RV garage covers are a big part 0:07:27.320 --> 0:07:29.720 of what he does. And of course RVs went crazy, 0:07:29.720 --> 0:07:32.720 but people aren't buying r v's at the same pace anymore. 0:07:32.800 --> 0:07:35.520 So I do see interest rates going to the economy, 0:07:35.520 --> 0:07:37.760 and I see that answering. But I also think it's 0:07:37.760 --> 0:07:40.560 fair to say the level of re strictness is something 0:07:40.560 --> 0:07:43.160 you take at some faith. I do like to look 0:07:43.160 --> 0:07:46.120 at you know, real tip yields to give me some sense, 0:07:46.640 --> 0:07:49.720 But you are comparing it to a hypothetical, not a hypothetical, 0:07:49.800 --> 0:07:53.360 a estimated our star. That is hard to know where 0:07:53.360 --> 0:07:55.280 you really are. And there are lots of estimates, including 0:07:55.280 --> 0:07:58.040 one from the Richmond FED, that are higher than most 0:07:58.080 --> 0:08:00.760 people's standard are stars. So yeah, be open to the 0:08:00.800 --> 0:08:04.160 notion that the level of restrictiveness is less than you think. 0:08:04.440 --> 0:08:06.280 And you would learn that through the economy. You learn 0:08:06.360 --> 0:08:09.720 that through demand accelerating more than you'd think it would, 0:08:09.720 --> 0:08:12.440 and that's something you have to be attentive to. I 0:08:12.480 --> 0:08:15.720 haven't yet concluded that the overheating would be that would 0:08:15.720 --> 0:08:18.600 be part of your case for doing more would be overheating. 0:08:18.680 --> 0:08:20.280 So you don't think as you're as restrictive as you 0:08:20.320 --> 0:08:22.000 thought you were, which meant you have to do a 0:08:22.040 --> 0:08:22.520 little more. 0:08:22.800 --> 0:08:24.760 I just have one more question. But when it comes 0:08:24.800 --> 0:08:27.000 to you know, housing obviously just you know, it's a 0:08:27.000 --> 0:08:31.040 big driver of the upward pressure on inflation through various measures. 0:08:31.120 --> 0:08:35.120 It's also sort of this major societal problem that people 0:08:35.440 --> 0:08:39.079 are frustrated with almost across the country. When you're thinking 0:08:39.080 --> 0:08:42.920 about rate policy, how much like do you think about 0:08:43.200 --> 0:08:45.719 now just okay, what's going to happen in the next 0:08:45.800 --> 0:08:49.079 three months or whatever, but how much does restrictive policy 0:08:49.120 --> 0:08:53.080 today restrain the housing supply of tomorrow, whether it's like 0:08:53.400 --> 0:08:57.680 a multifamily. We got recent numbers that new multifamily development 0:08:57.720 --> 0:09:00.800 has really fallen off quite a bit. In theory, that 0:09:00.920 --> 0:09:05.560 means housing more scarcity in twenty twenty six or whatever. 0:09:05.840 --> 0:09:07.920 Do you fold that into your thinking in terms of 0:09:07.960 --> 0:09:08.720 policy today. 0:09:09.240 --> 0:09:11.160 You try to think it through as best you can. 0:09:11.480 --> 0:09:14.280 Don't forget that the impact of higher rates on housing 0:09:14.360 --> 0:09:17.880 demand is pretty immediate, and the impact of higher rates 0:09:17.880 --> 0:09:20.679 on housing supply, because it gets delivered two years later, 0:09:21.240 --> 0:09:24.760 is more further out. And when we started raising rates, 0:09:24.760 --> 0:09:27.120 we were in the middle of as frothy a period 0:09:27.120 --> 0:09:30.360 in the housing market. As I remember, you know, twelve 0:09:30.400 --> 0:09:34.040 bids per house, houses going for forty thousand dollars over list, 0:09:34.640 --> 0:09:37.200 and you know, so low rates wasn't the answer to 0:09:37.240 --> 0:09:40.960 that particular supply and demand issue. I think this theory 0:09:40.960 --> 0:09:43.360 of the case is that you raise rates, it brings 0:09:43.400 --> 0:09:46.480 down demand to levels more in balance with supply, and 0:09:46.520 --> 0:09:49.160 while it may have an impact with supply, you get 0:09:49.160 --> 0:09:51.560 inflation under control, and then you can lower rates again 0:09:51.600 --> 0:09:53.920 so that supply can blossom. I think that's the theory 0:09:53.920 --> 0:09:57.000 of the case. I'll point out that in this and 0:09:57.080 --> 0:09:59.319 I mean you mentioned multi family, but single family starts 0:09:59.320 --> 0:10:02.840 are quite strong, been much stronger than normal in this cycle. 0:10:02.880 --> 0:10:05.240 In part because I think availability of existing homes has 0:10:05.280 --> 0:10:08.520 been so low, and multifamily starts have come down a bunch, 0:10:08.559 --> 0:10:11.640 but that was from a very very high peak, and 0:10:11.720 --> 0:10:13.840 so they're not that far off today where they were 0:10:14.120 --> 0:10:17.520 before the pandemic, and so we're stuff still getting built. 0:10:17.880 --> 0:10:22.040 There is a future potential challenge and supply, but I 0:10:22.080 --> 0:10:24.440 think the hope is that, you know, demand comes off 0:10:25.040 --> 0:10:27.319 enough that we can bring that market into better balance. 0:10:44.120 --> 0:10:47.120 Just going back to the inflation outlook, I think at 0:10:47.120 --> 0:10:49.480 this point there have been a number of FED officials 0:10:49.520 --> 0:10:53.800 who seem to have suggested that the worst outcome of 0:10:54.000 --> 0:10:57.559 the current monetary policy cycle, or one of the worst outcomes, 0:10:57.760 --> 0:11:01.480 would be if they decided to start easing only to 0:11:01.520 --> 0:11:05.120 see inflation pick back up again. And I guess my 0:11:05.240 --> 0:11:09.240 question is, why, why is that so bad? Because couldn't 0:11:09.240 --> 0:11:13.559 you just alter course? Couldn't you start tightening again if 0:11:13.600 --> 0:11:14.679 you saw that in the data. 0:11:15.640 --> 0:11:17.360 Well, I think it's hard to do my job and 0:11:17.480 --> 0:11:20.720 not be aware of the seventies. And I remember the seventies. 0:11:20.760 --> 0:11:24.600 It wasn't pretty. I also had bad hair in that era. 0:11:24.720 --> 0:11:26.880 But you know what happened in the seventies. This is 0:11:26.960 --> 0:11:30.760 the fundamental object lesson of monetary policy is every time 0:11:30.920 --> 0:11:33.520 there was the slightest hint that the economy could be 0:11:33.600 --> 0:11:37.120 turning down, they lowered rates, and then inflation came back up, 0:11:37.440 --> 0:11:40.880 and then they increased rates. And the issue is when 0:11:41.480 --> 0:11:45.040 the FED doesn't look like it's resolute on inflation, inflation 0:11:45.120 --> 0:11:46.880 doesn't come back to where it was before, it comes 0:11:47.200 --> 0:11:49.679 to higher than it was before, which means that every 0:11:49.720 --> 0:11:51.920 time to fight it, you've got to take rates even higher, 0:11:52.520 --> 0:11:54.520 which means that the damage you do the economy is 0:11:54.559 --> 0:11:58.200 even more. And so letting it expectations spiral out of control, 0:11:58.240 --> 0:12:01.040 I think is just a very risky thing for the economy. 0:12:01.080 --> 0:12:04.120 And that's not some theoretical model. We actually lived it 0:12:04.320 --> 0:12:06.920 in the seventies and and much like me, the seventies 0:12:06.920 --> 0:12:07.520 weren't pretty. 0:12:08.679 --> 0:12:11.520 Just because you mentioned our star and the neutral rate 0:12:11.640 --> 0:12:14.360 and I get the sense. And this is just based 0:12:14.360 --> 0:12:17.040 off of a Bank for International Settlements paper that came 0:12:17.080 --> 0:12:19.520 out a couple of weeks ago, but they basically suggested 0:12:19.559 --> 0:12:24.240 that maybe our star is that our stars time in 0:12:24.280 --> 0:12:27.160 the spotlight has kind of come and gone, and the 0:12:27.240 --> 0:12:29.760 ideas that while we should be focused more on what 0:12:29.800 --> 0:12:34.559 the actual inflation data is telling us rather than some hypothetical, unknown, 0:12:34.640 --> 0:12:38.079 neutral rate that we're having to estimate and triangulate from 0:12:38.080 --> 0:12:41.760 a variety of factors. Does our stars still loom large 0:12:41.880 --> 0:12:43.959 in the fed's thinking or do you think it's been 0:12:44.040 --> 0:12:47.040 sort of superseded by what we've seen in the real economy. 0:12:47.760 --> 0:12:50.240 Well, I think we certainly spend a lot of time 0:12:50.360 --> 0:12:52.679 trying to understand and think about our star and where 0:12:52.679 --> 0:12:57.720 it's headed. Not because I believe that there's one precise 0:12:57.800 --> 0:13:02.720 point estimate. The standard deviations around most estimates are quite wide, 0:13:02.880 --> 0:13:04.160 but because I think you have to do have to 0:13:04.160 --> 0:13:07.440 ask yourself the question, are you restrictive or restrictive enough 0:13:07.440 --> 0:13:10.040 for what you're trying to do to inflation? So you 0:13:10.080 --> 0:13:13.319 ask yourself that question, and if the economy comes in 0:13:13.400 --> 0:13:15.480 more robust and inflation comes in more orbust, than you 0:13:15.520 --> 0:13:18.280 ask yourself the question whether your prior assumption was right 0:13:18.360 --> 0:13:20.960 or not, and if it comes in south of where 0:13:20.960 --> 0:13:22.559 you thought, which is what happened for most of the 0:13:22.600 --> 0:13:25.280 twenty tens, then you ask yourself the question of whether 0:13:25.440 --> 0:13:27.640 your estimate of our star was too high. And so 0:13:27.760 --> 0:13:31.120 most estimates in the twenty tens came down significantly. Some 0:13:31.160 --> 0:13:32.760 of that was done by models. Some of that was 0:13:32.800 --> 0:13:35.520 done by just observation of an economy that didn't seem 0:13:35.600 --> 0:13:39.520 very robust despite extremely low rates. If we if our 0:13:39.760 --> 0:13:42.520 economy continues to be as robust it is with rates 0:13:42.679 --> 0:13:44.520 where they are, I think that'll tell you something. 0:13:44.800 --> 0:13:45.679 If it's changed. 0:13:45.800 --> 0:13:48.480 Why there are a lot of people who are better 0:13:48.520 --> 0:13:51.800 at those models than i am. I think productivity would 0:13:51.800 --> 0:13:53.920 be a very simple way to explain the change. A 0:13:54.000 --> 0:13:56.640 higher productivity economy is a higher trend growth economy, which 0:13:57.200 --> 0:13:59.800 would do it. You might argue fiscal you know, has 0:13:59.800 --> 0:14:01.720 some thing to do with it, and certainly we're at 0:14:01.720 --> 0:14:03.760 a different level of fiscal spend today than we were 0:14:03.840 --> 0:14:07.000 in the early twenty tens. But again I'm not going 0:14:07.040 --> 0:14:08.400 to profess to be the expert on that. 0:14:09.840 --> 0:14:12.880 I ask a question, why is it two percent? 0:14:12.960 --> 0:14:16.200 Is it because of the expectations part is more important 0:14:16.200 --> 0:14:18.600 than the actual number. That's like you're trying to set up. 0:14:20.000 --> 0:14:22.320 So there was a debate, you know why two percent? 0:14:22.320 --> 0:14:24.600 There was a debate in the nineties actually, and the 0:14:24.720 --> 0:14:26.040 Richmond Fed was right in the middle of it. Al 0:14:26.080 --> 0:14:29.480 brought us about what the right target should be. Interestingly, 0:14:29.520 --> 0:14:32.760 at the time, the choice was between zero and two right, 0:14:32.840 --> 0:14:35.000 because our mandate is stable prices, and there were those 0:14:35.040 --> 0:14:39.040 who thought stable means stable. Stable zero is stable. It 0:14:39.120 --> 0:14:41.280 was widely debated the way, all the way till it 0:14:41.320 --> 0:14:44.320 was announced in twenty twelve. But nowhere in that debate 0:14:44.400 --> 0:14:46.480 can you find evidence that people were debating three, four 0:14:46.520 --> 0:14:48.280 or five. They were debating one or one and a 0:14:48.320 --> 0:14:51.880 half or two or zero. Why pick two? Well, a 0:14:51.920 --> 0:14:54.640 few things that are relevant. Pretty much every central bank 0:14:54.640 --> 0:14:56.840 in the world has two plus or minus. Some have 0:14:57.040 --> 0:14:58.800 up to two or one and a half to two 0:14:58.840 --> 0:15:01.680 and a half. Second, it seems to have worked for 0:15:01.800 --> 0:15:03.920 thirty years. I mean we actually delivered it, so it's 0:15:03.920 --> 0:15:05.840 not some random number you could never get to. 0:15:06.640 --> 0:15:06.840 Third. 0:15:06.920 --> 0:15:10.640 There is mismeasurement in there, and the mismeasurement is actually 0:15:11.000 --> 0:15:13.360 thought by most people to say that actual inflation is 0:15:13.360 --> 0:15:15.400 a little bit less than the two percent number. A 0:15:15.440 --> 0:15:19.680 good example would be encyclopedias. Used to buy and I 0:15:19.760 --> 0:15:22.640 used to buy encyclopedia. No one buys an encyclopedia Today. 0:15:22.640 --> 0:15:25.360 It's on your phone, and so it's out of the index, 0:15:25.680 --> 0:15:29.080 and so it's gone from being whatever world book was, 0:15:29.280 --> 0:15:31.200 you know, three hundred and ninet nine dollars to zero. 0:15:31.720 --> 0:15:34.920 That's deflation, but it's out of the index. And so technology, 0:15:34.960 --> 0:15:37.280 actually you're not buying a camera anymore or film is 0:15:37.320 --> 0:15:39.600 taking the set of things out of the index that 0:15:40.080 --> 0:15:43.360 you know deflationary. But maybe the best reason is it's 0:15:43.360 --> 0:15:46.360 really hard to hit your target exactly. If you set 0:15:46.360 --> 0:15:48.640 a target at zero and you don't hit it exactly, 0:15:48.680 --> 0:15:52.240 you're in deflationary territory. And deflation is where everything tomorrow 0:15:52.320 --> 0:15:54.840 costs less than it does today. So the incentive to 0:15:54.880 --> 0:15:57.680 buy today goes down, which means an economy you know, 0:15:57.760 --> 0:16:00.800 tends to stagnate, and that's Japan and what has been through. 0:16:00.840 --> 0:16:02.800 So two gives you a little bit of room against zero, 0:16:02.920 --> 0:16:04.880 means we can do a little bit to cut rates 0:16:04.880 --> 0:16:06.440 when we need to. That's the theory of it. 0:16:06.680 --> 0:16:09.480 And you said, since it's work, there's no need to 0:16:09.520 --> 0:16:10.000 change it. 0:16:11.080 --> 0:16:13.680 Yeah, And in particular, you'd never change it before you 0:16:13.760 --> 0:16:16.600 hit it. And so we're out there trying to hit 0:16:16.600 --> 0:16:20.320 a target. If inflation is at three and you decide 0:16:20.640 --> 0:16:23.440 new targets three, I just don't think that works for 0:16:23.480 --> 0:16:25.760 your credibility. And that's really the major tool the FED 0:16:25.840 --> 0:16:26.880 has is credibility. 0:16:28.320 --> 0:16:31.200 All Right, Tom thank you so much. That was fantastic. 0:16:31.320 --> 0:16:32.880 No, I love you guys. Great to with you. 0:16:32.960 --> 0:16:33.520 Thank you so much. 0:16:33.520 --> 0:16:33.760 Thank you. 0:16:34.280 --> 0:16:39.360 Keep that in Dash. That was our conversation with Tom Barkin. 0:16:39.720 --> 0:16:42.640 I'm Tracy Alloway. You can follow me at Tracy Alloway. 0:16:42.800 --> 0:16:45.600 And I'm Joe Wisenthal. You can follow me at the Stalwart. 0:16:45.840 --> 0:16:49.120 Follow our producers Carman Rodriguez at Carman armand Dash, Ol 0:16:49.120 --> 0:16:52.240 Bennett at Dashbot and kill Brooks at kil Brooks. And 0:16:52.280 --> 0:16:55.000 thank you to our producer Moses Ondom. More odd Laws 0:16:55.080 --> 0:16:57.800 content go to Bloomberg dot com slash odd Lot, where 0:16:57.800 --> 0:17:00.360 we have transcripts, a blog, and a newsletter that comes 0:17:00.360 --> 0:17:02.800 out every Friday. 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