WEBVTT - Richmond Fed’s Tom Barkin on the Surprisingly Resilient Real Economy 0:00:02.740 --> 0:00:04.420 Bloomberg Audio Studios. 0:00:04.880 --> 0:00:05.580 Podcasts. 0:00:05.900 --> 0:00:06.420 Radio. 0:00:06.840 --> 0:00:07.260 News. 0:00:18.590 --> 0:00:21.369 Hello and welcome to another episode of the Odd Thoughts Podcast. 0:00:21.430 --> 0:00:22.250 I'm Tracy Alloway. 0:00:22.370 --> 0:00:23.590 And I'm Joe Wiesenthal. 0:00:23.710 --> 0:00:24.910 Joe, we're still in Jackson Hole. 0:00:25.030 --> 0:00:25.430 That's right. 0:00:25.550 --> 0:00:26.550 Plenty to talk about. 0:00:26.630 --> 0:00:26.829 Plenty. 0:00:27.170 --> 0:00:30.530 We just got the speech from Fed Chair Kevin Warsh, 0:00:30.990 --> 0:00:34.409 which I think most people would describe as hawkish, although 0:00:34.510 --> 0:00:37.050 maybe there's kind of a gap in between the hawk 0:00:37.090 --> 0:00:37.850 and the ish part. 0:00:37.870 --> 0:00:38.129 Sure. 0:00:38.490 --> 0:00:41.570 And there's still plenty of questions about the direction of 0:00:41.650 --> 0:00:44.430 the U.S. economy and monetary policy in general. So we 0:00:44.450 --> 0:00:45.680 should talk a little bit more about it. 0:00:45.850 --> 0:00:46.269 We should. 0:00:46.290 --> 0:00:49.349 And beyond that, you know, there's many theoretical questions out there. 0:00:49.990 --> 0:00:52.269 What is the neutral rate of interest? What is the 0:00:52.310 --> 0:00:54.630 role of AI on productivity? And all of that is 0:00:54.650 --> 0:00:59.030 very interesting. Where's the term premium at? But also, it'd 0:00:59.050 --> 0:01:00.770 be interesting to know what the central bankers are hearing 0:01:00.790 --> 0:01:03.470 about actual businesses right now. And like, what's going on 0:01:03.530 --> 0:01:03.950 on the ground? 0:01:04.160 --> 0:01:06.280 On the ground color. OK, and there is one man 0:01:06.360 --> 0:01:08.580 that we go to for on the ground color. We 0:01:08.600 --> 0:01:10.080 have the perfect guest, of course. We're going to be 0:01:10.100 --> 0:01:13.600 speaking with Richmond Fed President Tom Barkin. So, Tom, thank 0:01:13.620 --> 0:01:15.140 you so much for coming back on Odd Lots. 0:01:15.380 --> 0:01:16.819 Great to be back with you. I think it's my 0:01:16.840 --> 0:01:18.959 third year in a row here in Jackson Hole. 0:01:19.150 --> 0:01:19.910 Oh, we appreciate it. 0:01:20.069 --> 0:01:22.130 Yeah, no, and they let you outside of the hotel room. 0:01:22.170 --> 0:01:24.230 We get the Tetons in the back, so this is great. 0:01:24.490 --> 0:01:27.020 The production values have gone up, I will say. Okay, 0:01:27.030 --> 0:01:30.420 so let's just start very simply. Warsh's speech, what did 0:01:30.440 --> 0:01:30.700 you think? 0:01:31.459 --> 0:01:33.240 I mean, he does a great job. He's a great speaker, 0:01:33.340 --> 0:01:35.679 and I thought it was a very authentic speech. I mean, 0:01:36.220 --> 0:01:38.119 Kevin laid out, I think, how he sees the world. 0:01:38.280 --> 0:01:41.020 He laid out how he sees the economy. The folks 0:01:41.040 --> 0:01:44.420 I've talked to appreciated the clarity in the thing, and 0:01:44.470 --> 0:01:46.789 I personally... I thought he had a very accurate sense 0:01:46.810 --> 0:01:48.370 of the economy. So I was very much aligned with 0:01:48.390 --> 0:01:49.650 what he said, and I thought he said it well. 0:01:50.030 --> 0:01:52.610 You know, so he said, okay, inflation seems to be 0:01:52.650 --> 0:01:55.970 going in the wrong direction right now. He described policy 0:01:56.010 --> 0:01:58.190 as not restrictive. So then you fill in the blanks, 0:01:58.810 --> 0:02:00.470 and it's like, okay, that means rate hikes. But he 0:02:00.490 --> 0:02:04.910 didn't quite say that. Just for you, as you see things, A, 0:02:04.990 --> 0:02:08.280 do you agree about inflation and the stance of policy? 0:02:08.639 --> 0:02:10.580 But then more importantly, then what do we do about it? 0:02:10.620 --> 0:02:13.300 Yeah, so the economy's solid. I think he said that. 0:02:13.940 --> 0:02:16.380 And you can definitely see that in The GDP numbers 0:02:16.419 --> 0:02:19.340 and the consumer spending numbers. I mean, it's been crazy 0:02:19.380 --> 0:02:23.000 this year that gas prices went up and consumer spending accelerated. 0:02:23.560 --> 0:02:25.900 It's been crazy that you have all this uncertainty and 0:02:26.060 --> 0:02:29.810 artificial intelligence spending has led business investment to almost double 0:02:29.840 --> 0:02:32.870 versus this historic thing. So there's a lot of momentum 0:02:32.889 --> 0:02:35.990 in the economy. Jobs market seems to have stabilized. Unemployment 0:02:36.030 --> 0:02:38.330 rates low. So all that's good. And I'm not saying 0:02:38.370 --> 0:02:40.290 inflation is definitely heading in the wrong direction. It's just 0:02:40.330 --> 0:02:42.610 not in the right place. And that's how I think 0:02:42.669 --> 0:02:44.919 it's not in the right. place. I also would say 0:02:45.240 --> 0:02:48.640 the job market's good, but it's not frothy. I mean, 0:02:48.660 --> 0:02:52.580 this low-hire, low-fire thing continues. And so that's where the 0:02:52.620 --> 0:02:54.300 policy thing will figure out. I've had the number one 0:02:54.320 --> 0:02:56.519 thing people have asked me after his speech is, well, 0:02:56.540 --> 0:02:59.220 I guess that makes you, you know, September, that tells 0:02:59.240 --> 0:03:01.340 you something for September. And I said, well, I listened 0:03:01.360 --> 0:03:02.980 to his speech and I'm pretty sure he doesn't like 0:03:03.000 --> 0:03:05.740 forward guidance. So I don't think you should take any 0:03:05.760 --> 0:03:07.459 forward guidance from a speech from a guy who doesn't 0:03:07.480 --> 0:03:09.430 give forward guidance. And I think it's probably a good 0:03:09.450 --> 0:03:09.890 way to think about it. 0:03:09.889 --> 0:03:10.930 We can't help ourselves is the problem. 0:03:10.990 --> 0:03:14.130 No, I know. But I think you can talk about 0:03:14.150 --> 0:03:15.850 the economy in a very good way, and then you 0:03:15.889 --> 0:03:17.570 can talk about forward guidance. If you choose not to 0:03:17.610 --> 0:03:19.060 do forward guidance, you don't do forward guidance. 0:03:19.570 --> 0:03:22.080 I want to talk more about forward guidance, but since 0:03:22.120 --> 0:03:24.700 you mentioned the resilience of the economy, do you have 0:03:24.740 --> 0:03:27.600 a working theory for what's going on here? Because I think, 0:03:27.800 --> 0:03:30.560 to your point earlier, it's surprised a lot of people 0:03:30.620 --> 0:03:34.520 that even with prices still pretty high, gas going up, 0:03:35.160 --> 0:03:38.100 all the economic uncertainty, consumers keep spending. 0:03:38.450 --> 0:03:40.210 They do keep spending. And I would compare it to 0:03:40.290 --> 0:03:43.250 coming out of the Great Recession, where out of the 0:03:43.270 --> 0:03:45.550 Great Recession, you had people who lost their jobs, lost 0:03:45.590 --> 0:03:49.230 their house, lost their car, savings destroyed, need to rebuild 0:03:49.270 --> 0:03:52.130 for retirement. We had five, six, seven years, the secular 0:03:52.150 --> 0:03:55.310 stagnation where people weren't spending the way you thought they would. 0:03:55.870 --> 0:03:58.350 I compare it to COVID. We thought for two months 0:03:58.410 --> 0:04:00.120 it was going to be terrible. But then coming out 0:04:00.130 --> 0:04:02.760 of it, people had money in their pockets. You had stimulus. 0:04:02.800 --> 0:04:06.140 You had spending money you hadn't spent. You had equity 0:04:06.160 --> 0:04:08.520 values up. You had home values up. And I think 0:04:08.540 --> 0:04:11.200 you had a mindset that just says, I'm bound and 0:04:11.220 --> 0:04:13.560 determined to spend. And so we all know the wealthy 0:04:13.580 --> 0:04:15.780 people are spending because they have more wealth. But even 0:04:15.800 --> 0:04:18.859 those with less wealth, what I hear is a very 0:04:18.940 --> 0:04:23.180 creative consumer figuring out ways to find money, to spend money, 0:04:23.240 --> 0:04:25.940 to borrow from the future. You can see the finding 0:04:25.990 --> 0:04:28.990 money and the growth of private label, the move to 0:04:29.010 --> 0:04:30.890 Walmart and dollar stores, you know, if you look at 0:04:30.930 --> 0:04:34.989 their results. But people aren't carrying insurance. There's a story 0:04:35.029 --> 0:04:36.850 in the journal a couple weeks ago about more people 0:04:36.870 --> 0:04:39.060 living from home. You know, you and I think more 0:04:39.080 --> 0:04:40.839 people living from home, oh, my God, my kids are 0:04:40.860 --> 0:04:43.760 coming back. I think, wait a second, those are people 0:04:43.820 --> 0:04:46.040 not paying rent, and they're using that money to spend 0:04:46.160 --> 0:04:49.940 on something else. And I've talked to auto lenders who 0:04:49.980 --> 0:04:53.810 talk about people being 60 days delinquent, not 120 days delinquent, 0:04:53.820 --> 0:04:56.010 because they need to find the money, but they don't 0:04:56.029 --> 0:04:58.950 want to lose their car. I've talked to gas providers 0:04:58.990 --> 0:05:00.890 who say people aren't paying the gas bill during the 0:05:00.930 --> 0:05:03.090 summer because no one's going to have a problem with 0:05:03.130 --> 0:05:05.669 gas in the summer. It's the winter that matters. So 0:05:05.710 --> 0:05:08.690 people are finding ways to effectively borrow from the future, 0:05:08.750 --> 0:05:11.390 savings rates down. And I think that's what's keeping the 0:05:11.410 --> 0:05:15.540 spending going. And underneath it all is this just positive 0:05:15.620 --> 0:05:17.860 energy to keep spending. And I really do think as 0:05:17.900 --> 0:05:20.000 long as the markets are healthy and people have jobs, 0:05:20.640 --> 0:05:22.380 they're going to keep finding a way to spend. 0:05:22.680 --> 0:05:25.490 That was a very good sort of summary of one 0:05:25.500 --> 0:05:28.510 of the engines of the economy that's clearly continuing to 0:05:28.589 --> 0:05:31.280 fire up. We traveled with you, was that 2023 or 0:05:31.279 --> 0:05:32.960 2024 that we were. 0:05:32.820 --> 0:05:35.280 In Mount Airy? 24, I think. 0:05:35.279 --> 0:05:35.880 2024. 0:05:35.880 --> 0:05:37.950 And at that point, one of the things, you know, 0:05:37.990 --> 0:05:40.550 we were talking about sort of rural housing issues, rural 0:05:40.589 --> 0:05:43.170 childcare issues, but also in one of the themes that 0:05:43.270 --> 0:05:47.680 came up was the scarcity of skilled trades. And now 0:05:47.800 --> 0:05:49.780 I have to imagine it's much worse because every, you know, 0:05:49.800 --> 0:05:52.280 if you're a skilled electrician, you probably are working, at 0:05:52.320 --> 0:05:55.300 least in theory, the AI boom, et cetera. We talked 0:05:55.320 --> 0:06:00.339 to Austin Goolsbee yesterday about, We talked to Austin Goolsbee 0:06:00.560 --> 0:06:02.520 maybe two days ago, and he's like, yes, we hear 0:06:02.540 --> 0:06:05.240 a lot of people complaining about the date, uh, scarcity 0:06:05.260 --> 0:06:06.940 of skilled trades and the AI build out. 0:06:07.839 --> 0:06:08.820 People are always complaining. 0:06:08.860 --> 0:06:11.580 I'm not, he wasn't sure how much is actually related 0:06:11.900 --> 0:06:16.190 to data center and AI construction. What's your read on 0:06:16.370 --> 0:06:19.849 the scarcity of parts, materials, and labor for general things 0:06:20.210 --> 0:06:23.070 and the degree to which AI investment is crowding out 0:06:23.170 --> 0:06:25.750 and making life more difficult for other types of industry. 0:06:26.089 --> 0:06:30.690 Yeah, so it's been a monumental construction investment cycle. $ 700 0:06:30.470 --> 0:06:32.489 billion announced in one week, I think, at the beginning 0:06:32.529 --> 0:06:36.310 of February alone. And for sure, if you're trying to 0:06:36.350 --> 0:06:40.870 find switchgears or transformers or electricians, they are very hot 0:06:41.070 --> 0:06:42.890 and in very short supply. So there's no doubt in 0:06:42.940 --> 0:06:44.710 my mind that there are constraints being put on it. 0:06:45.100 --> 0:06:49.080 I think the overall construction cycle, though, it's fascinating because 0:06:49.700 --> 0:06:53.380 office buildings aren't being built. Multifamily starts growing. are way down. 0:06:54.220 --> 0:06:57.180 You do have, you know, industrial is starting to come back. 0:06:57.560 --> 0:07:00.320 Home building's okay, not great. And so I do think 0:07:00.339 --> 0:07:03.240 there's been a big movement in terms of construction from 0:07:03.360 --> 0:07:06.100 one sector of the construction market into another sector of 0:07:06.120 --> 0:07:08.660 the construction market. Now, how much of that is crowding out, 0:07:08.700 --> 0:07:10.900 I think is a good question because when I talk 0:07:10.960 --> 0:07:14.130 to people in, let's say multifamily construction, they'll tell me 0:07:14.170 --> 0:07:16.110 you can't pencil it out and they want to talk 0:07:16.150 --> 0:07:17.850 about interest rates. And of course I say, well, is 0:07:17.890 --> 0:07:20.310 it really interest rates? Because we had the same interest 0:07:20.350 --> 0:07:22.630 rates in 04 and 05 and you're building lots of buildings. 0:07:23.020 --> 0:07:25.540 And then they'll acknowledge that construction costs are up and 0:07:26.280 --> 0:07:28.380 labor costs are up and they have to put more 0:07:28.460 --> 0:07:30.920 equity into projects and all that kind of stuff. And 0:07:30.960 --> 0:07:33.930 so it's more than that. But you could argue that 0:07:33.990 --> 0:07:36.490 all this data center construction is making it more expensive 0:07:36.550 --> 0:07:38.870 to do this other construction, which means they're not doing 0:07:38.890 --> 0:07:41.330 this other construction because it's more expensive. So there's a 0:07:41.370 --> 0:07:42.770 chicken and egg question in there. 0:07:43.130 --> 0:07:45.430 Just within your district, I know you travel around and 0:07:45.630 --> 0:07:47.090 as we said, you like to talk to people on 0:07:47.110 --> 0:07:49.680 the ground and actual businesses. But what are the most 0:07:49.840 --> 0:07:53.440 notable impacts of AI that you're seeing so far, whether 0:07:53.480 --> 0:07:56.040 it's on something like the labor market in the low hire, 0:07:56.100 --> 0:07:58.440 low fire environment or prices? 0:07:59.080 --> 0:08:01.670 Well, so it's interesting. I mean, the number one impact 0:08:01.760 --> 0:08:03.970 is a political impact. And what I mean by that 0:08:04.050 --> 0:08:06.690 is every chamber of commerce meeting I do, every town 0:08:06.730 --> 0:08:09.970 hall I do, I'm getting questions about jobs and water 0:08:10.090 --> 0:08:11.930 and data centers and all the rest of it. It's 0:08:11.970 --> 0:08:14.600 really quite striking. And you can see when you travel 0:08:14.940 --> 0:08:17.840 the issues on people's minds by the questions that they ask. 0:08:17.880 --> 0:08:20.160 In terms of the economy itself, I don't think it's 0:08:20.180 --> 0:08:24.320 having this massive productivity impact quite yet outside of just 0:08:24.360 --> 0:08:27.240 a couple areas where there really is a structure where 0:08:27.660 --> 0:08:31.190 you can substitute an agent for like call centers, programming. 0:08:31.200 --> 0:08:35.790 I mean, you see it there. There's some heavy documentation, 0:08:35.830 --> 0:08:39.910 compliance documents. But by and large, the productivity boom we're seeing, 0:08:39.929 --> 0:08:42.219 which is significant, I think has really been driven by O22. 0:08:43.740 --> 0:08:46.220 when you had people short workers, and so they invested 0:08:46.260 --> 0:08:49.200 in automation, they invested in new staffing models and different 0:08:49.240 --> 0:08:52.200 operating processes, and they're reaping the benefits of those today. 0:08:52.780 --> 0:08:57.660 And people are enthusiastic, owners, executives are enthusiastic about AI, 0:08:57.980 --> 0:09:00.760 workers somewhat less so. But it's still being very much 0:09:00.880 --> 0:09:04.050 used as a extra added, get my job done better, 0:09:04.110 --> 0:09:07.230 get my job done faster kind of thing. The one 0:09:07.250 --> 0:09:09.910 place you see it though is on the hiring side. Because, 0:09:10.190 --> 0:09:11.870 you know, this may not be true for Bloomberg, but 0:09:11.929 --> 0:09:15.020 in everywhere else in the economy, people are saying, you know, 0:09:15.040 --> 0:09:17.120 I don't know what the future looks like. Maybe I 0:09:17.140 --> 0:09:19.700 don't need to hire as much. I wonder whether AI 0:09:19.720 --> 0:09:22.319 can do that job. And so why don't you leverage 0:09:22.360 --> 0:09:24.280 and see if you can't fill the job using AI 0:09:24.370 --> 0:09:26.750 first and then we'll hire later. That's happening, you know, 0:09:26.790 --> 0:09:28.809 at some scale. And so I do think that's the place, 0:09:29.510 --> 0:09:30.590 you know, where it's most relevant. 0:09:30.880 --> 0:09:33.240 You know, one thing that's clearly working in, I guess, 0:09:33.280 --> 0:09:36.500 the Fed's favor when it comes to the dual mandate 0:09:36.679 --> 0:09:39.180 is the housing market is pretty, you know, it's not 0:09:39.230 --> 0:09:39.780 very hot. 0:09:40.140 --> 0:09:43.089 That's sort of most of the numbers there are. 0:09:43.110 --> 0:09:45.110 Going in the right direction, so to speak, from a 0:09:45.150 --> 0:09:48.530 getting inflation back to target perspective. But how confident are 0:09:48.550 --> 0:09:51.470 you that that will persist, especially if we've had softness 0:09:51.510 --> 0:09:55.530 in construction? Then eventually, do you have any anxiety that 0:09:55.710 --> 0:09:58.310 eventually then that turns into housing tightness again? 0:09:59.150 --> 0:10:01.420 Oh, I think that's... highly likely. You know, at some 0:10:01.460 --> 0:10:03.620 point you won't have, you've got a whole generation of 0:10:03.660 --> 0:10:05.640 people who really want houses and the price isn't quite 0:10:05.679 --> 0:10:08.280 right for them. At some point, you know, they'll have 0:10:08.320 --> 0:10:10.300 their second kid and they need a bigger house or they'll, 0:10:10.540 --> 0:10:12.860 and so the demand will come. And then if you 0:10:12.880 --> 0:10:15.209 don't have the housing inventory, you know, whether it's rental 0:10:15.370 --> 0:10:18.550 or single family, then the prices will go back up. 0:10:19.130 --> 0:10:21.340 I will say we sort of got in the mode 0:10:21.380 --> 0:10:22.980 a few years ago that I think we should back 0:10:23.080 --> 0:10:26.180 off of, of trying to take the inflation data and 0:10:26.240 --> 0:10:28.219 parse it, you know, and take this part out of 0:10:28.280 --> 0:10:29.060 it and this part out of it. 0:10:29.200 --> 0:10:32.599 It's very tempting to do that, to torture it and 0:10:32.620 --> 0:10:33.440 get the answer you want. 0:10:33.520 --> 0:10:35.300 And I was getting, for a while, you know, when 0:10:35.360 --> 0:10:38.660 rents were coming, where market rent numbers were coming down 0:10:38.720 --> 0:10:41.709 faster than the CPI rent numbers, I was getting emails 0:10:41.750 --> 0:10:44.229 from real estate developers saying, you've got your numbers wrong 0:10:44.309 --> 0:10:46.610 and the rents are coming down faster. Well, I'm not 0:10:46.650 --> 0:10:48.950 getting those emails anymore. You know, they're not saying, hey, 0:10:49.270 --> 0:10:51.230 let's take the article that Apple, you know, your Apple 0:10:51.270 --> 0:10:54.450 phone just got more expensive. No, I mean, so you 0:10:54.470 --> 0:10:56.880 don't want to over parse it. You want to say overall, 0:10:56.920 --> 0:10:59.599 there's a there's about a money in the system. There's 0:10:59.620 --> 0:11:03.240 an amount of goods people are trying to buy with 0:11:03.280 --> 0:11:06.120 that money. Maybe prices of housing came down, but maybe 0:11:06.160 --> 0:11:08.670 prices of something go up. And you're looking at inflation 0:11:08.710 --> 0:11:10.510 as a total basket. That's how I like to think 0:11:10.550 --> 0:11:10.809 about it. 0:11:11.020 --> 0:11:14.260 Yeah. So Warsh was talking about this yesterday. You know, 0:11:14.280 --> 0:11:16.860 he was talking about looking at the breadth of inflation 0:11:16.880 --> 0:11:21.810 and things like that. And I'm curious, do you still 0:11:21.910 --> 0:11:23.890 see he was also talking about a lot of the 0:11:23.970 --> 0:11:25.770 one off shocks that we've seen. So the Iran war 0:11:25.790 --> 0:11:28.020 and the impact on gas prices and things like that. 0:11:29.000 --> 0:11:32.660 Is the overall environment just more inflationary in general when 0:11:32.700 --> 0:11:36.719 we see these one-off shocks that just seem to keep coming, right? 0:11:36.880 --> 0:11:38.740 It's like this month it's this one thing and okay, 0:11:38.760 --> 0:11:40.660 maybe it'll fade away into the background after a while, 0:11:40.700 --> 0:11:43.500 but then the next month there's another thing on the way. 0:11:43.880 --> 0:11:45.780 It seems like it. And I think the question is, 0:11:45.980 --> 0:11:48.980 is normal today or was normal 10 years ago? And 0:11:49.000 --> 0:11:51.260 I think normal may be a lot more like today 0:11:51.320 --> 0:11:53.380 than it was 10 years ago. If you think about 0:11:53.400 --> 0:11:56.380 the environment of 10 years ago, fracking and what that 0:11:56.460 --> 0:12:00.880 did to help bring energy prices down. And demographics, which 0:12:00.920 --> 0:12:03.360 meant you had more workers and kept wage costs under control. 0:12:04.020 --> 0:12:07.729 And e-commerce, which was bringing prices down for stuff you 0:12:08.010 --> 0:12:11.770 bought online. And there were just a bunch of globalization, access, 0:12:12.210 --> 0:12:15.790 all these factors which were, I think, bringing inflation down. 0:12:16.270 --> 0:12:18.210 I don't think it's ridiculous to imagine that 10 years 0:12:18.250 --> 0:12:20.000 later you might have a bunch of factors that would 0:12:20.200 --> 0:12:23.500 bring inflation up. Now, the inflation we realize in time 0:12:23.559 --> 0:12:25.600 depends on what we do about it. So just because, 0:12:25.800 --> 0:12:27.700 you know, I like to use the analogy of sailing. 0:12:28.040 --> 0:12:29.760 You know, you just sail differently if you've got the 0:12:29.800 --> 0:12:31.979 wind behind you than if you're sailing into the wind. 0:12:32.240 --> 0:12:34.500 You can still get there. You just have to, you know, 0:12:34.590 --> 0:12:36.530 tighten your sheet. And I think that's the kind of 0:12:36.570 --> 0:12:38.650 risk we've got if you're in a world with an 0:12:38.910 --> 0:12:43.449 ever-continuing set of inflationary shocks. You just have to lean 0:12:43.470 --> 0:12:44.069 against that wind. 0:12:59.870 --> 0:13:02.090 So obviously one of the things that came up in 0:13:02.130 --> 0:13:05.230 the speech, and again, we know that Chairman Warsh is 0:13:05.270 --> 0:13:07.250 not a fan of forward guidance. There's going to be 0:13:07.290 --> 0:13:10.610 these task forces, et cetera, that may revisit some of 0:13:10.690 --> 0:13:15.310 the Fed's approaches to communications, et cetera. Would you be 0:13:15.390 --> 0:13:17.989 on board with saying, you know what, we don't need 0:13:18.030 --> 0:13:21.630 dots anymore. We don't need to have press conferences. Like 0:13:22.030 --> 0:13:23.949 for most of Fed's history, the chair didn't have a 0:13:23.970 --> 0:13:26.860 press conference. Would you, in your mind, should all of 0:13:26.890 --> 0:13:27.770 these things be on the table? 0:13:28.130 --> 0:13:29.440 Should you be talking to us right now? 0:13:29.490 --> 0:13:30.270 Yeah, yeah, seriously. 0:13:30.650 --> 0:13:33.199 So there's sort of, there was someone who said the 0:13:33.340 --> 0:13:34.780 theory of a great mind is being able to hold 0:13:34.860 --> 0:13:37.140 two opposable thoughts at the same time. So I hold 0:13:37.160 --> 0:13:39.559 the following two thoughts to be very clear. One is, 0:13:40.179 --> 0:13:42.580 if we're relatively transparent about how we think about things, 0:13:43.080 --> 0:13:45.559 that helps build credibility with the public. It helps build 0:13:46.250 --> 0:13:49.070 trust in the institution. And it helps markets do some 0:13:49.090 --> 0:13:51.229 of the work for you. That's the famous Bernanke theory. 0:13:51.750 --> 0:13:54.650 I also 100% agree with Chairman Warsh when he says, 0:13:55.230 --> 0:13:56.990 sometimes if you give too much forward guidance, you get 0:13:57.030 --> 0:13:58.750 stuck in it and you end up, having to make 0:13:58.790 --> 0:14:02.429 a suboptimal decision because you've misguided. And I think it's 0:14:02.470 --> 0:14:06.630 fair to say that's part of the 2021, 2022, you know, story, 0:14:06.690 --> 0:14:08.820 which is we had very strong forward guidance in place 0:14:08.860 --> 0:14:10.900 and it was very hard to get your way out 0:14:10.940 --> 0:14:13.380 of it. So I can hold both those thoughts, you know, 0:14:13.540 --> 0:14:15.200 at the same time. And I hope to keep coming 0:14:15.220 --> 0:14:16.590 and talking to you as long as you'll have me. 0:14:17.350 --> 0:14:20.270 What about like dots, like these, specific techniques. 0:14:20.290 --> 0:14:23.130 So we'll have to debate the techniques, and I'm sure 0:14:23.170 --> 0:14:26.680 we will. My view on the SEP is I really 0:14:26.740 --> 0:14:31.220 like doing the SEP. I mean, I like negotiating, arguing, 0:14:31.280 --> 0:14:35.479 debating with my team, my policy bias next to my 0:14:35.580 --> 0:14:39.410 economy bias. And it often happens that I've gotten a 0:14:39.410 --> 0:14:41.370 little out of whack. I mean, I still think the 0:14:41.390 --> 0:14:42.890 policy ought to be that, but I'm not really thinking 0:14:42.930 --> 0:14:44.630 about it in the right way. And And we have 0:14:44.650 --> 0:14:46.650 those debates and I feel it really sharpens my thinking. 0:14:46.670 --> 0:14:49.250 So regardless of whether we release it or not, I 0:14:49.270 --> 0:14:50.820 plan to keep doing an SEP because I think it, 0:14:51.180 --> 0:14:53.440 you know, having your own forecast and working against the 0:14:53.480 --> 0:14:56.990 forecast is a pretty healthy thing. Now, should we release it? 0:14:57.360 --> 0:14:58.980 The one thing I don't like about the SEP is 0:14:59.020 --> 0:15:02.040 I think the dot plot itself is a picture that 0:15:02.260 --> 0:15:05.270 overwhelms the story. And I've said this in other forums, 0:15:05.330 --> 0:15:08.790 but you know, the, if what comes out as I 0:15:08.810 --> 0:15:11.650 go do a chamber of commerce in Greensboro and somebody 0:15:12.100 --> 0:15:13.760 says to me, well, I see the Fed promised two 0:15:13.780 --> 0:15:16.760 more rate cuts this year, then that's not good communication 0:15:16.780 --> 0:15:19.260 because that's not what we've done. We've done a set 0:15:19.280 --> 0:15:22.870 of forecasts independently. And so good communication to me has 0:15:22.890 --> 0:15:25.650 to communicate well. And if what's happening is that picture 0:15:26.310 --> 0:15:30.210 is swamping the narrative, then we're going to think differently 0:15:30.230 --> 0:15:30.830 about the picture. 0:15:31.210 --> 0:15:33.550 So I take the point that there's a risk with 0:15:33.590 --> 0:15:36.990 forward guidance that the Fed could get boxed into a 0:15:37.030 --> 0:15:40.030 certain decision in a suboptimal way. But that said, and 0:15:40.070 --> 0:15:41.970 I also take the point that there's a distinction between 0:15:42.130 --> 0:15:45.270 forward guidance and the reaction function in general. But all 0:15:45.290 --> 0:15:48.880 of that said, at some point, if inflation is above target, 0:15:49.840 --> 0:15:52.200 you would think the Fed needs to act. And Warsh 0:15:52.300 --> 0:15:55.860 kind of insinuated this in his speech. He talked about, well, 0:15:55.920 --> 0:15:58.540 inflation's been above target for, what was it, 65 months 0:15:58.880 --> 0:16:02.040 or something? And he said that is squarely on the Fed. 0:16:02.430 --> 0:16:04.020 When you hear something like that, I mean, you were 0:16:04.060 --> 0:16:05.980 in the room, you were at the Fed for part 0:16:06.160 --> 0:16:09.460 or all of the past 65 months. What do you think? 0:16:09.500 --> 0:16:10.260 What's your reaction? 0:16:10.640 --> 0:16:14.200 Well, I'm definitely 100% insistent on getting inflation under control. 0:16:14.980 --> 0:16:17.810 And I think it's fair to hold that mirror against 0:16:17.830 --> 0:16:19.750 what we're doing and ask ourselves the question of whether 0:16:19.770 --> 0:16:21.790 we're doing it the right way. I think there are 0:16:21.830 --> 0:16:23.710 two ways you can look at where we are today. 0:16:23.750 --> 0:16:26.910 You can take a 65-month view or you can take a, 0:16:27.370 --> 0:16:29.320 I'll get the months right, a 47-month view followed by 0:16:29.380 --> 0:16:32.780 an 18-month view. And if you do the second, which 0:16:32.800 --> 0:16:35.170 I'm not arguing for, I'm just saying it's a perfectly 0:16:35.230 --> 0:16:39.010 defensible way to do it, is you say inflation happened. 0:16:39.070 --> 0:16:41.410 Maybe we were a little slow. We raised rates. Inflation 0:16:41.430 --> 0:16:44.330 came down. If you go to March of 2025, you've 0:16:44.370 --> 0:16:48.620 got 2.3%, 2.4% inflation, and everything seems to be headed 0:16:48.630 --> 0:16:50.920 in the right direction. The economy is moving. The labor 0:16:50.960 --> 0:16:53.900 market was a little weak. The plane is going to land. 0:16:53.940 --> 0:16:56.820 And then, of course, you've had this series of external shocks, 0:16:56.860 --> 0:17:00.540 whether it be AI or tariffs or oil price increases. 0:17:00.940 --> 0:17:03.240 And that's taken inflation right back up. But you could 0:17:03.300 --> 0:17:05.700 argue in that and then we'll bring it down. That's 0:17:05.880 --> 0:17:09.590 that is an argument. It's a colorable argument. And it's 0:17:09.670 --> 0:17:12.490 not a 65 month argument. It's a 47 and 18 0:17:12.490 --> 0:17:16.050 month argument. On the other hand, you say, don't give 0:17:16.070 --> 0:17:19.429 me your excuses. It's been 65 months and it's been over. And, 0:17:20.070 --> 0:17:22.230 you know, maybe rates aren't that restrictive and maybe you 0:17:22.260 --> 0:17:24.399 have to think about those. And that's the argument I'm 0:17:24.420 --> 0:17:25.320 sure we're going to have. 0:17:25.660 --> 0:17:28.820 What are manufacturers in your district saying about tariffs these days? 0:17:28.840 --> 0:17:32.680 It feels like it's become behind AI and the oil shock. 0:17:32.720 --> 0:17:34.330 We don't even talk about trade. Oh, it's a lot 0:17:34.380 --> 0:17:36.430 quieter than it is now. But, I mean, it depends 0:17:36.470 --> 0:17:37.290 what sector you're in. 0:17:37.310 --> 0:17:40.390 I mean, if you're a steel or aluminum manufacturer, that's 0:17:40.450 --> 0:17:43.350 created a price umbrella that's helped your industry. If you're 0:17:43.710 --> 0:17:46.850 somebody moving operations into the country, you know, there's a 0:17:46.890 --> 0:17:49.600 real argument there. The people who are the most unhappy 0:17:49.619 --> 0:17:51.240 about it are the people who it affects the most. 0:17:51.770 --> 0:17:53.290 And the ones who are most poignant, if I could 0:17:53.310 --> 0:17:55.369 put it that way, are the foreign manufacturers who have 0:17:55.390 --> 0:17:58.810 assembly operations. Many of them are in South and North Carolina. 0:17:59.470 --> 0:18:02.619 And they said, no, we've actually moved manufacturing to the US. 0:18:02.680 --> 0:18:05.460 But what that actually means is they create their components 0:18:05.580 --> 0:18:08.119 in Europe and they ship them to the US and 0:18:08.140 --> 0:18:10.619 then they assemble them. They're still getting tariffed. And so 0:18:10.660 --> 0:18:14.910