Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Authoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 1: And I'm Joe. Why isn't thal so Joe.
Speaker 2: Trump nominated Kevin Worsh to be FED chair last week.
Speaker 2: We've been talking about it on the show. Obviously, this
Speaker 2: has big market implications, but I'm starting to think that
Speaker 2: the sociological, yeah, questions and aspects of this are kind
Speaker 2: of more interesting.
Speaker 1: I'm so intrigued by the constellation of people who have
Speaker 1: come out either in support or opposition of this name.
Speaker 1: It is not like any other nominee that I can recall,
Speaker 1: where you have fairly sort of mainstream, even sort of
Speaker 1: liberal names like Jason Furman or Geita Gopinath say there's
Speaker 1: a great pick, et cetera. And then you have Paul
Speaker 1: Krugman and Neil Dudda say is a terrible pick and
Speaker 1: so forth. It is. It cuts in ways that I
Speaker 1: would not have necessarily anticipated, not like any other Trump
Speaker 1: pick that I recall.
Speaker 2: Yeah, it is very split, and it feels like there's
Speaker 2: a split within Worsh's own thinking as well. Right, because
Speaker 2: here we have a guy who has talked about wanting
Speaker 2: to overhaul the FED right and even break some heads.
Speaker 2: I think it was a direct quote that we've mentioned before.
Speaker 2: He has given a speech that is literally titled an
Speaker 2: ode to independence the Central Bank. But at the same time,
Speaker 2: there's a big question mark about how and why he
Speaker 2: has suddenly seemingly gone from an inflation hawk to someone
Speaker 2: who's advocating for low rates totally.
Speaker 1: And of course I think I mean, for you know,
Speaker 1: just to be blunt, this would have been something that
Speaker 1: any nominee from this administration, to some extent, there would
Speaker 1: have been question marks around because you know, obviously Trump
Speaker 1: has been very critical of Jerome Powell, despite the fact
Speaker 1: that he nominated him himself, and it's clear that he
Speaker 1: wants a low rates now kind of guy in there.
Speaker 1: He said after the nomination, he's like, you know, he
Speaker 1: didn't make many promises, but he's gonna I think he's
Speaker 1: gonna be a low rates guy. And then he joked
Speaker 1: a couple of days later that he was going to
Speaker 1: sue but that wasn't you know, he was joking. He
Speaker 1: said he was going to sue if worship. Yeah, joke, Aircus,
Speaker 1: you don't know. But this has been the big thing.
Speaker 1: And so the question is the degree to which an
Speaker 1: incoming FED chair presume if he passes the Senate, which
Speaker 1: isn't guaranteed, but if he passes the Senate, can establish
Speaker 1: his commitment to what he's long talked about. It just
Speaker 1: FED independence, while also you know, not immediately angering the
Speaker 1: guy who nominated him, exactly the extent that matters.
Speaker 2: Exactly right, So we need to talk about all of this,
Speaker 2: get a little bit more color on I guess fedboard culture, yeah,
Speaker 2: and politicals as well, and market implications of course, And
Speaker 2: we really do have the perfect guest. We're going to
Speaker 2: be speaking with, Richard Clarida. He is, of course global
Speaker 2: economic advisor at PIMCO, a professor of economics at Columbia,
Speaker 2: and most importantly for the purpose of this particular conversation,
Speaker 2: he's a former vice chair of the Federal Reserve Board.
Speaker 2: So honestly the perfect guest. Rich Thanks for coming back
Speaker 2: on the show.
Speaker 3: Thank you, looking forward to our discussion.
Speaker 2: So why don't I just start with the very obvious
Speaker 2: question and we can dig in from there. But last
Speaker 2: week when the news broke about worsh being selected by Trump,
Speaker 2: what was the first thought that went through your head.
Speaker 3: I think it's a very sensible chance. It makes sense
Speaker 3: along important dimensions. In particular, it's important because I think,
Speaker 3: based upon background and what he's been writing recently, that
Speaker 3: Warsh will work very well with Scott Bessett at the Treasury.
Speaker 3: There is Fed independence that get into, but it's important.
Speaker 3: It's a practical matter that the FED work well with
Speaker 3: the Treasury, and so it makes sense along a lot
Speaker 3: of dimensions.
Speaker 1: Actually, let's just get into that, because I do find
Speaker 1: that to be very interesting. Say more about working with
Speaker 1: the Treasury. You know, some people would say that is
Speaker 1: not the Fed's job. In fact, I would say, you know,
Speaker 1: Kevin Worrish, going back to the immediate post Great Financial
Speaker 1: Crisis era, had talked about how, for example, it's not
Speaker 1: the Fed's job to backstop fiscal policy. It's not the
Speaker 1: Fed's job to enable larger deficits, which I believe saw
Speaker 1: QI is enabling. But from your perspective, talk to us
Speaker 1: about what a positive relationship between the FED share and
Speaker 1: the Treasury Secretary looks like.
Speaker 4: Yeah, thank you for letting me add some color to that,
Speaker 4: because their dimensions and domains where it would actually be
Speaker 4: a very bad idea for the FED to be domin
Speaker 4: NATed by the Treasury, but along several dimensions. A collaborative
Speaker 4: working relationship is important, and i'll name names several. First,
Speaker 4: is the FED, going back to its founding, is the
Speaker 4: fiscal agent of the government. It has a responsibility to
Speaker 4: make sure that the treasury market has adequate liquidity, that
Speaker 4: it functions properly, and so that that's an important element
Speaker 4: of the job and always has been. It's also important
Speaker 4: because the FED has an important role in bank regulation,
Speaker 4: but not a not a monopoly role. The control of
Speaker 4: the currency, which is within Treasury, also has a regulation
Speaker 4: responsibility as to fdi C. So as a matter of
Speaker 4: necessity on bank regulation there needs to be a degree
Speaker 4: of coordination, and so I would really highlight those two areas.
Speaker 2: So I mentioned at the beginning that I'm kind of
Speaker 2: interested in the inner functioning of the FED board. From
Speaker 2: your perspective, how does communication between the and the Treasury
Speaker 2: actually happened. I'm sort of envisioning, like, I don't know,
Speaker 2: a WhatsApp or signal group group chat.
Speaker 4: There is a tradition, it's not in statute, There is
Speaker 4: a tradition that the Treasury Secretary and the FED chair
Speaker 4: meet on a regular basis, oftentimes over breakfast.
Speaker 3: And so during my time that.
Speaker 4: Was the primary point of contact was bilateral between when
Speaker 4: I was there, a Jay Poll and Stephen Mnuchen and
Speaker 4: then when Janet Yellen became a Treasury secretary. So that's informal.
Speaker 4: They're typically not staff in the room for that. There's
Speaker 4: also the Financial Stability Oversight Council, which was a creation
Speaker 4: in Dodd Frank which by statute is chaired by the
Speaker 4: Treasury Secretary, and then they're the FED among other agencies,
Speaker 4: also participates in that process. And then thirdly, as I mentioned,
Speaker 4: anything involving a bank regulation is typically going to involve
Speaker 4: if the senior or even device to share for supervision
Speaker 4: level interaction on bank regulation.
Speaker 1: You know, let's get into some of the I guess
Speaker 1: criticisms or perhaps questions about Kevin Worshon. There's a few
Speaker 1: different dimensions. One is, of course, there's perception that he's
Speaker 1: long been an inflation hawk and suddenly he sounded more
Speaker 1: dubvish over the last twelve eighteen months or whatever. Setting
Speaker 1: that aside, though, you know, some of the criticisms start
Speaker 1: early on, including his judgment around the Great Financial crisis
Speaker 1: concerned more about inflation, you know, even up into fall
Speaker 1: two thousand and eight than employment right on the eve
Speaker 1: of collapse, also seemed to get very anxious about inflation
Speaker 1: soon coming out of the worst of it, etc. Like
Speaker 1: when you think about, okay, like his qualifications and what
Speaker 1: we can expect from him, how much like when you
Speaker 1: go back to that era, how much should we hold
Speaker 1: that against him, perhaps either that he was off the
Speaker 1: mark or that he was at least very far out
Speaker 1: of consensus at the time.
Speaker 3: Well, I think you have to look at the entire picture.
Speaker 4: And Kevin was also very involved with Ben and Tim
Speaker 4: Geidner and Dudley and the crisis response to the global
Speaker 4: financial crisis, which really played out over a period of
Speaker 4: twelve to eighteen months. And I think by most accounts,
Speaker 4: in my judgment, that he actually added a lot of
Speaker 4: value in the fog of war inflation. As I myself learned,
Speaker 4: especially in periods of crisis and unusual large shocks, inflation
Speaker 4: forecasting can be challenging. So I don't think I would
Speaker 4: hold that particular episode against them. I think it does
Speaker 4: fairly characterize the way that most of us think about
Speaker 4: Kevin throughout during that period and really the last fifteen
Speaker 4: years is he has been a pretty consistent critic of
Speaker 4: the FED under the second half of Bernanky and then
Speaker 4: Yelling and Powell, and typically the criticism has come from
Speaker 4: the hawkish direction, and certainly in that episode his criticism
Speaker 4: of the FED was that some certain quotes would indicate that.
Speaker 3: Hawkish inclination as well.
Speaker 4: Maybe just I can follow up because in your earlier
Speaker 4: comment you also mentioned his recent advocacy.
Speaker 3: For lower rates.
Speaker 4: Now it's important this is in the context of a
Speaker 4: committee that under Pale's leadership, beginning in September of twenty
Speaker 4: twenty four, already began to cut rates. In fact, when
Speaker 4: I did your show earlier and we were talking about
Speaker 4: that right after I think the initial rate cuts under Powell,
Speaker 4: I made reference to what I've been calling for some
Speaker 4: time now, a FED.
Speaker 3: Is running what I call the quote two points.
Speaker 4: Something inflation target, which was they don't like it to
Speaker 4: start with the three, four, five, six or seven, but
Speaker 4: if inflation gets down to two points something, they can
Speaker 4: start to talk and think about rate cuts, as they
Speaker 4: did under Pale. And importantly at the December FED meeting,
Speaker 4: so just about six weeks ago, the FED indicated through
Speaker 4: those very imperfect dot plots that a majority of the committee,
Speaker 4: of that existing committee, which Kevin will inherit, felt that
Speaker 4: at least one more ray cut this year, given the circumstances,
Speaker 4: would be appropriate. So, yes, Kevin has come out in
Speaker 4: favor of ray cuts in his public comments. Don't know
Speaker 4: what he said privately to the President, but I doubt
Speaker 4: that they differed what he said publicly. But that's in
Speaker 4: the context of a committee that at least a majority
Speaker 4: of whom think that in this year it'll be appropriate
Speaker 4: to cut at least once.
Speaker 2: I'm just going to keep pretending to be an anthropologist
Speaker 2: and ask a bunch of cultural questions. But what actually
Speaker 2: is the role of FED chair when you're in a
Speaker 2: monetary policy meeting? So, you know, let's say that Warsh
Speaker 2: has some sort of outlier opinion. I don't know, he's
Speaker 2: prioritizing employment versus prices or whatever. Can he convince everyone
Speaker 2: at the table, all the voting members to actually change
Speaker 2: their minds?
Speaker 3: Crazy.
Speaker 4: It's a great question because a point that I like
Speaker 4: to make, at least in my professional time, which goes
Speaker 4: back to Paul Vulker. We tend to talk about the
Speaker 4: FED as the Vulgar FED, the Greenspan FED, pal Yellen,
Speaker 4: Bernank FED. And that's appropriate because in this era FED
Speaker 4: shares have been persuasive and they've usually got their way.
Speaker 3: But importantly, the.
Speaker 4: FED as an institution was specifically designed by the Congress
Speaker 4: in the nineteen thirties in such a way that any
Speaker 4: material monetary policy decision do they raise or lower interest rates,
Speaker 4: or do they buy or sell treasuries requires an affirmative
Speaker 4: vote of a committee comprised of twelve members.
Speaker 3: And so, as I'd like to say, and I'll say it.
Speaker 4: Again, really, the power of the FED chair is the
Speaker 4: power of persuasion, because at the end of the day,
Speaker 4: he or she only has one vote. Now, it's often
Speaker 4: argued that, well, rich, that's silly, because rarely do FED
Speaker 4: shares get out voted, And that's true. It happened once
Speaker 4: or twice under Vulgar, it happened way back in the
Speaker 4: nineteen forties.
Speaker 3: And so yes, empirically it.
Speaker 4: May appear as though chairs always get their way, but
Speaker 4: remember FED chairs know where the committee is leaning, and oftentimes,
Speaker 4: or certain circumstances, they may themselves decide not to be
Speaker 4: on the losing end of a particular vote, but to
Speaker 4: try to persuade the committee over time to move in.
Speaker 3: Their a direction.
Speaker 4: Now one thing I can't really speak to the Greenspan FED,
Speaker 4: but beginning under Bernanki and continuing under Yellen, and certainly
Speaker 4: with Jay Powell, there is a lot of pre meeting
Speaker 4: FMC meeting communication and indeed Powell during my time there
Speaker 4: would have individual bilateral discussions with the other eighteen people,
Speaker 4: not just the voters, but you know there are twelve
Speaker 4: voters and another seven Reserve Bank presidents who don't vote
Speaker 4: in a particular year. So Powell would have eighteen individual
Speaker 4: phone calls or face to face meetings before every meeting.
Speaker 4: I don't think that was the practice under green Span,
Speaker 4: for example. And so part of really what a FED
Speaker 4: chair does is to get a sense of where individuals
Speaker 4: on the committee are. But really an important power that
Speaker 4: the chair does have is the chair sets the agenda
Speaker 4: for the meeting, and the staff briefings, for the most part,
Speaker 4: are prepared by the board staff, sometimes with input from
Speaker 4: the Reserve Bank presidents, and the board staff reports to
Speaker 4: the chair, and so the agenda for the meeting and
Speaker 4: oftentimes details about the sort of analysis that would be
Speaker 4: useful for the discussion will be something that the chair
Speaker 4: will have a view. No during you asked for anecdotes,
Speaker 4: you know, during during my time because of my background
Speaker 4: in monetary economics, Chair Palel J. Palell did ask me
Speaker 4: to take a pretty hands on role in interfacing between
Speaker 4: himself and the staff, in particular the forecasting in the
Speaker 4: monetary affairs groups. But ultimately my role was really you know,
Speaker 4: in service to what he wanted to do to produce
Speaker 4: a successful meeting.
Speaker 3: The final thing, I'll say, you got me sort of
Speaker 3: wound up.
Speaker 1: It was all great.
Speaker 3: The final thing I'll.
Speaker 4: Say is, and I think this has been publicly reported,
Speaker 4: but it's at a typical FED meeting, there is a
Speaker 4: policy announcement that comes out a two PM that's a decision,
Speaker 4: and the committee of course is discussing that decision, but
Speaker 4: it's discussing other options. And at a typical meeting, in
Speaker 4: addition to the the FED statement and the policy action
Speaker 4: that was the outcome of the meeting, the committee is
Speaker 4: also discussing alternatives, actually tangible altern is, alternative A, alternative B,
Speaker 4: alternative C. And there can be quite extensive back and
Speaker 4: forth in the meetings about those alternatives. And so even
Speaker 4: at the end of the day with the public sees,
Speaker 4: the FED decided to keep rates on hold, and there
Speaker 4: were two descents, was for Governors Myron and Waller. A
Speaker 4: lot more is being discussed at the meeting as potential
Speaker 4: alternatives to that statement and that decision, and a lot
Speaker 4: of discussion in meetings can be about what the committee
Speaker 4: thinks might be appropriate for the next meeting or the
Speaker 4: meeting down the road. Indeed, one of the many things
Speaker 4: I learned, I made a promise to myself when I
Speaker 4: was in the job to try to learn something new
Speaker 4: every day, and I usually did. And one of the
Speaker 4: things I didn't appreciate before I got in to the
Speaker 4: FED is, especially the chair and the powerfit, you really
Speaker 4: need to have a sense of the arc of both
Speaker 4: the year in terms of the data flow you're likely
Speaker 4: to get it, and the arc of where decisions need
Speaker 4: to be made and how they're made. And so there's
Speaker 4: a lot sort of like an imperfect but not completely
Speaker 4: a bad analogy is we've heard of legendary football coaches
Speaker 4: who like script the first fifty plays of the game,
Speaker 4: so sometimes they move away, but they want to have
Speaker 4: a plan about how they'll react if the defense does
Speaker 4: a certain thing.
Speaker 3: Or the other.
Speaker 4: And it's not dissimilar to the way, at least when
Speaker 4: I was at the palfed that we would be thinking
Speaker 4: not only about the January meeting and then start thinking
Speaker 4: about March, but really the arc of the of the year,
Speaker 4: you know, based upon your view of the data and
Speaker 4: a number of other considerations. So those are some tangible
Speaker 4: examples of the way chairs I think put their imprint
Speaker 4: on the process.
Speaker 1: So thinking of calling several plays in a row, we've
Speaker 1: seen Kevin Warsh very skeptical of forward guidance and some
Speaker 1: of the monetary policy innovations that occurred in two thousand
Speaker 1: and eight, two thousand and nine and so forth. I
Speaker 1: think it's easy maybe for people to forget that things
Speaker 1: like the dots, the press conference and so forth, these
Speaker 1: are all very modern. For most of the fed's history,
Speaker 1: there was none of this stuff.
Speaker 2: Do you think I remember the invention of the dot plant?
Speaker 2: Remember that we.
Speaker 1: Were trying to I still don't get it, but yeah,
Speaker 1: well we were.
Speaker 2: Trying to figure out internally at Bloomberg, like the best
Speaker 2: way to tlate that information.
Speaker 1: Do you think I mean setting, I said Worsh's view.
Speaker 1: Do you think there's an argument to be made that
Speaker 1: some of these communication innovations that maybe made a lot
Speaker 1: of sense during a period of ZERP where the FED
Speaker 1: was trying to convince the market that would be on
Speaker 1: hold for a very long time, that maybe they can
Speaker 1: be revisited and we don't need so much of this
Speaker 1: stuff in normal times.
Speaker 4: Yeah, so I think let's focus now on communication stuff
Speaker 4: that was your specific question, but perhaps later also talk
Speaker 4: about Kevin's other critiques, which are broadly the balance sheet
Speaker 4: and sort of mission create in the size and the
Speaker 4: composition of balance sheet. And then third critique is is
Speaker 4: grounding FED policy both actions and communication more towards a
Speaker 4: policy rules framework and a less moving away from what
Speaker 4: he calls meeting by meeting discretion. But let's talk about
Speaker 4: communication and having observed and taught this and actually done
Speaker 4: it for four years, I want to begin with a
Speaker 4: historically factual statement that's important to provide some contexts. It
Speaker 4: is perfectly possible to conduct a very successful monetary policy
Speaker 4: without any forward guidance. Paul Vulker did it for eight years,
Speaker 4: and Alan Greenspan did it for seventeen. Now there would
Speaker 4: be little handsome winks and nods. But forward guidance as
Speaker 4: we know it today is really something that was not
Speaker 4: really in the toolkit of Paul Volker or for the
Speaker 4: first seventeen years Alan Greenspan. No green spans endlesslie fascinating.
Speaker 4: And one of the fascinating things about green Span is
Speaker 4: that in his last two years, say not coincidentally at
Speaker 4: the time that Ben Bernanke was a FAG governor, right
Speaker 4: at the very end in two thousand and four to six,
Speaker 4: Greenspan began to dip his toe into forward guidance. But
Speaker 4: for the most part that was not really part of
Speaker 4: the toolkit.
Speaker 3: So why did forward guide? First of all?
Speaker 4: Then what is forward guidance and why to become part
Speaker 4: of the toolkit? Well, at its most basic level, forward
Speaker 4: guidance is providing information to observers and importantly to financial
Speaker 4: markets about the committee's expectation of the path for interest rates. Now,
Speaker 4: there's a huge academic literature. I've contributed to it myself,
Speaker 4: and one of the interesting things that you might find
Speaker 4: that might be surprising about that literature is it's spent
Speaker 4: a lot of time twenty years ago arguing that forward
Speaker 4: guidance was irrelevant because the Feds looking at inflation data,
Speaker 4: the market's looking at inflation data. Inflation's too damn high,
Speaker 4: the Federal raise rates if it's low, don't cut rate,
Speaker 4: So you don't really get any You don't really get
Speaker 4: any incremental benefit by t telling people what you're going
Speaker 4: to do if they.
Speaker 3: Were going to do it anyway.
Speaker 4: And so the case for forward guidance then has to
Speaker 4: then rest on something other than it's okay to talk about.
Speaker 3: What you're going to do.
Speaker 4: And wherefore guidance really became a focus of the Fed
Speaker 4: was out of desperation at the zero bound, so rates
Speaker 4: got cut to zero after Lehman Brothers. The economy was
Speaker 4: in free fall, the financial system was on the vergic collapse,
Speaker 4: and the Bernanki Fed couldnot use conventional policy to lower
Speaker 4: rates because they had hit you a zero bound, and
Speaker 4: so they began to provide guidance to the markets to
Speaker 4: essentially reassure markets that they were not on a hair
Speaker 4: trigger to high rates, because they kept noticing that even
Speaker 4: though the economy was weak, inflation was low, unemployment was high,
Speaker 4: the bomb market kept pricing in rate heights that they
Speaker 4: had no intention of delivering, and so forward guidance really
Speaker 4: took on an important role when the FED was trapped
Speaker 4: at the zero bound. Now interesting corollary then is what
Speaker 4: do you do when you raise rates above zero? And
Speaker 4: of course the power FED did that beginning well, Yellen
Speaker 4: and then Powell did that, and I was actually there
Speaker 4: for the rate hikes in that cycle, and the FED
Speaker 4: by the time I arrived, importantly because of the dots,
Speaker 4: the FED had begun to had continued to use forward
Speaker 4: guidance even after rates got above zero, and oftentimes the
Speaker 4: dot plot was an input into that, since it provides
Speaker 4: imperfect but potentially useful information about the committee's intention to
Speaker 4: adjust rates. Let me say, however, that I think it's
Speaker 4: entirely appropriate that Kevin Worsh or anyone who becomes a
Speaker 4: FED chair now think about the cost and benefits of
Speaker 4: for guidance. Indeed, I've said for at least a decade,
Speaker 4: including before when I joined the FED, that forward guidance
Speaker 4: and quantitative easing are not exempt from the laws of economics.
Speaker 4: They have benefits but also costs. There are probably diminishing returns,
Speaker 4: and so I don't think it's at all inappropriate for
Speaker 4: the FED under the leadership of the chair to think
Speaker 4: about benefits and cost of forward guidance and circumstances when
Speaker 4: it may be useful, in circumstances when it.
Speaker 3: May not be. Let me just add a little coda here.
Speaker 4: Another dimension of FED communication that's changed has really been
Speaker 4: the result of a change in technology and access. So,
Speaker 4: you know, if you go back to the nineteen eighties, yes,
Speaker 4: when Vulker gave a speech, people would read it in
Speaker 4: the Times, on Wall Street Journal.
Speaker 3: Would report on it. But other than that, FED communication
Speaker 3: was pretty limited.
Speaker 4: And of course now, of course we all have access
Speaker 4: to the Internet and financial news, and each FED president
Speaker 4: and FED governor give speeches and so there's a lot
Speaker 4: more individual discussion of what individuals on the committee think
Speaker 4: would be appropriate policy, as well as formal guidance as well.
Speaker 4: I think that's sort of where we are on forward
Speaker 4: guidance as of today.
Speaker 2: Just one follow up to that. The way I think
Speaker 2: about it from a market perspective is that forward guidance,
Speaker 2: you know, since two thousand and eight two thousand and nine,
Speaker 2: has had the effect of dampening volatility, especially in the
Speaker 2: bond market. And now if you have less forward guidance,
Speaker 2: it would seem perhaps there's a risk that volatility makes
Speaker 2: a return. Putting on your your PIMCO hat. From the
Speaker 2: perspective of the bond market, what would less forward guidance
Speaker 2: actually mean.
Speaker 3: I think you hit the nail on the head. I
Speaker 3: think the most robust prediction I would.
Speaker 4: Make is it would it would increase the stomach extent
Speaker 4: market volatility, in particular interest rate volatility. And importantly, and
Speaker 4: I'll just be very direct and blunt, in the decade,
Speaker 4: remember rates for zero for seven years after the global
Speaker 4: financial crisis. Janet Yellen did not hype rates until December
Speaker 4: of twenty fifteen, and they've been on hold for seven years.
Speaker 4: And so not only was realized rate volatility low at
Speaker 4: the front end of the curve, but the FED was
Speaker 4: using a lot of forward guidance and a lot of
Speaker 4: quantitative easing, and that was suppressing interest rate volatility for
Speaker 4: a very long period of time. And then even once
Speaker 4: the FED began to lift off, because it was deploying
Speaker 4: forward guidance, that also served at the margin to suppress
Speaker 4: rate volatility.
Speaker 3: And you see this.
Speaker 4: For example, the move index, which is basically a bond
Speaker 4: market index of volatility, got down.
Speaker 3: To very low levels.
Speaker 4: So part of what has been happening really in the
Speaker 4: last several years under the power FED is bond market
Speaker 4: implied volatility has gone up relative to the suppressed levels
Speaker 4: of the decade before the pandemic, but not really up
Speaker 4: to levels that were at all unusual back in the
Speaker 4: nineteen nineties. And so I think my first order assessment
Speaker 4: is we may be going back to what I would
Speaker 4: call more normal or pre GFC levels.
Speaker 3: Of rate volatility.
Speaker 4: Now, the FED is not the only game in talent
Speaker 4: when it comes to rate volatility. There's reasons for rate
Speaker 4: volatility to be elevated because of uncertainty about fiscal policy
Speaker 4: for examples as well.
Speaker 1: You know, first of all, I want to say, you know,
Speaker 1: I remember the concern that the FED had in two
Speaker 1: thousand and nine about does the market see the FED
Speaker 1: as a hair trigger out inflation. I don't think a
Speaker 1: lot of people remember this, but in early two thousand
Speaker 1: and nine, the market was pricing in rate hikes by
Speaker 1: the end of two thousand and nine, which seems almost
Speaker 1: unbelievable in retrospect when you remind us that the FED
Speaker 1: went seven years without a hike. So there really was
Speaker 1: a very intense challenge on the Fed's hand to convince
Speaker 1: the market that it was going to stay on hold
Speaker 1: for a very long time, and I think for guidance
Speaker 1: clearly played a sort of specific tech role there. Let's
Speaker 1: talk now about balance sheet. Bill Dudley wrote a column
Speaker 1: for Bloomberg Opinion after the Warst nomination. He was sort
Speaker 1: of critical. He said he didn't think that Worsh was
Speaker 1: going to be able to shrink the balance sheet much
Speaker 1: further and less there were some other changes, perhaps relating
Speaker 1: to banks capital requirements, et cetera. Worsh's own criticisms of
Speaker 1: the balance sheet seem a little bit of a moving
Speaker 1: target at some point. How well do you I mean,
Speaker 1: maybe I would ask how well does any economist have
Speaker 1: a handle on the effects of balance sheet policy? But
Speaker 1: what's your read on sort of the reality of Worsh's
Speaker 1: coming intersection perhaps with the balance sheet?
Speaker 3: Yeah?
Speaker 4: So, I think there are two related but distinct elements
Speaker 4: to this thing. First is that Kevin has been publicly
Speaker 4: and consistently critical of every expansion in the Fed's balance
Speaker 4: sheet since the first Q one program. So he very
Speaker 4: famously said he was opposed to the q E two
Speaker 4: program in twenty ten. Although I think he did vote
Speaker 4: for it, but then he left soon after, and so
Speaker 4: there's the issue of backward looking. Oh, the FED should
Speaker 4: not have been buying treasuries and mortgages as it did,
Speaker 4: and I think there's no reason to think he's changed
Speaker 4: his mind. Indeed, Secretary Bessant wrote a piece with a
Speaker 4: very provocative title, the Fed's you know, gain of function
Speaker 4: monetary policy, and he was also critical in retrospect of.
Speaker 3: The expansion in the Fed's balance sheet.
Speaker 4: The important question, of course, for odd lots listeners and
Speaker 4: for markets is okay, that's the past looking ahead. And
Speaker 4: one of the many interesting things that Kevin Warsh said
Speaker 4: during his I guess campaign to become FED share was
Speaker 4: to call for a new accord between the Treasury and
Speaker 4: the Fed with regards to the balance sheet.
Speaker 3: Now he hasn't provided a lot of details.
Speaker 4: What we do know is what the first accord between
Speaker 4: the FED and the Treasury looked like, which was back
Speaker 4: in nineteen fifty one. And what was interesting about that
Speaker 4: it was essentially the Fed's declaration of independence to raise
Speaker 4: rates without getting approval from the Treasury, which is why
Speaker 4: Fed historians think of it as really a signal event
Speaker 4: in FED history.
Speaker 3: So I don't think that's really an issue. Now.
Speaker 4: Presumably what Kevin means when he talks about an accord
Speaker 4: is a mutual understanding between the FED and the Treasury
Speaker 4: about the.
Speaker 3: Size and composition of its balance sheet.
Speaker 4: And so, for example, you could agree that the FED
Speaker 4: needs to have the current size balance sheet, but it
Speaker 4: should not own mortgage backed securities or thirty year treasury issues,
Speaker 4: should own t Bill. So that's a conversation you can have.
Speaker 4: You can I also have a conversation about the FED
Speaker 4: having a smaller balance sheet. Admirer of Bill and I
Speaker 4: read that column and agreed with almost all of it.
Speaker 4: The point being is to get from here to there
Speaker 4: is not straightforward. In particular, it involves the banking system
Speaker 4: in terms of the level of reserves and the backing system.
Speaker 4: The FED has been very reticent, although it's been tempted,
Speaker 4: and it's discussed selling mortgage backed securities. You can find
Speaker 4: it in the transcripts going back a dozen years, two years.
Speaker 4: And so right now there is no appetite in the
Speaker 4: existing FED to think about shrinking the balance sheet through
Speaker 4: any sort of any sort of a sale. And then, finally,
Speaker 4: and I do want to get this on the table,
Speaker 4: because I think it's a very important point that is
Speaker 4: often imperfectly appreciated, is the following. In two thousand and eight,
Speaker 4: coincident with the global financial crisis, the FED also achieved
Speaker 4: from Congress the statutory authority to pay interest on bank reserves.
Speaker 4: Until that point, the FED created reserves by buying securities,
Speaker 4: but they earned a zero interest rates. And that not
Speaker 4: just the FED, but most other central banks now pay
Speaker 4: a market rate of interest on bank reserves. And the
Speaker 4: reason why that's important is the following. What it means
Speaker 4: is that when the FED does do a QE program,
Speaker 4: when it buys a mortgage security or a treasury, it's
Speaker 4: not really printing money in the sort of money in
Speaker 4: banking sense that you're buying a coupon and paying for
Speaker 4: it with one hundred dollars bill and thus extinguishing the
Speaker 4: coupon payment. What you're really what the FED really does
Speaker 4: now with modern QE and interest on reserves, is it's
Speaker 4: not extinguishing government debt. It's just changing the maturity composition
Speaker 4: of government debt from fixed to floating. Because at the
Speaker 4: end of the day, the Fed's balance sheet and the
Speaker 4: Treasury's balance sheet are consolidated. When the fed's profitable, the
Speaker 4: Treasury gets that interest income. In recent years, the FED
Speaker 4: has not been profitable, and it's been withholding those remittances.
Speaker 4: And so once you think of it that way, then
Speaker 4: you start to think about a scenario where a Treasury
Speaker 4: secretary could if he chose to say, you know what,
Speaker 4: I want to be the big sheriff in.
Speaker 3: Town when it comes to maturity composition.
Speaker 4: So if I think there are too many thirty year treasuries,
Speaker 4: I'll buy them and sell tea bills, and the FED
Speaker 4: can buy the tea bills. And so there are scenarios
Speaker 4: over time where we could rethink what QE is in
Speaker 4: addition to what the size of the balance sheet is.
Speaker 4: But this is not you know, a thirty men it
Speaker 4: or you know, a one week exercise. This will be
Speaker 4: a pretty complicated, intricate process. But I don't want to
Speaker 4: rule out out of hand that it's something that is,
Speaker 4: you know, beyond considering or discussing.
Speaker 2: So other than his distaste for the size and potentially
Speaker 2: composition of the FED balance sheet, there's something else that
Speaker 2: Warsh doesn't seem to like, and that's I guess, traditional
Speaker 2: economic models. So he's been critical of the Phillips curve.
Speaker 2: For instance, He's been critical of data dependency at the FED,
Speaker 2: which kind of leaves the question, if you're not going
Speaker 2: to focus on data and you're not going to focus
Speaker 2: on models, what are you actually using to formulate monetary policy?
Speaker 2: Do you have any read on what that could be?
Speaker 4: I think, you know, and I've known Kevin, I think
Speaker 4: for a dozen years. I didn't our terms as FED
Speaker 4: officials did not coincide, But I've gotten to know him since,
Speaker 4: and we've met many times in ad many conversations, and they'll.
Speaker 3: Like and I read most of not all that he writes.
Speaker 4: You know, My sense is really that his critique is
Speaker 4: that a lot of economic models in macro tend to
Speaker 4: put a lot of emphasis on the.
Speaker 3: Demand side of the economy.
Speaker 4: Now I can point you to my first speech has
Speaker 4: FED Vice chair in October twenty eighteen, where I also
Speaker 4: put on the table that policy need to think about
Speaker 4: the supply side of the economy, and the FED doesn't
Speaker 4: want to be in the business of raising rates because
Speaker 4: too many people have a job if that's not inflationary.
Speaker 4: And the way you sort of score that circle is
Speaker 4: your outlook on productivity and so it is correct that
Speaker 4: if you get more growth because you've got a more
Speaker 4: productive economy, either through invation or deregulation, then the FED
Speaker 4: should not get in the way of that. And indeed,
Speaker 4: during my time the power FED didn't you know, the models,
Speaker 4: both in the FED and outside in twenty nineteen were
Speaker 4: saying and indeed, if you look at FED communication in
Speaker 4: twenty seventeen, it was saying, if the unemployment rate falls
Speaker 4: below five percent, we'll have to hike rates because that's
Speaker 4: going to be inflationary. And by the time I got there,
Speaker 4: the unemployment rate was in the fours and we didn't
Speaker 4: have inflation, and it got down to the low threes.
Speaker 4: And so it is correct that there is a supply
Speaker 4: as well as a demand side to the economy, and
Speaker 4: if the supply side can grow faster with higher employment
Speaker 4: with that inflation, the FED should not get in the
Speaker 4: way with that. So I one hundred percent agree with
Speaker 4: with that. Now, the challenge is the economy. As Jay
Speaker 4: Powill said, the economy is constantly changing.
Speaker 3: And maybe just a little.
Speaker 4: Bit of a wonkish comment for the walks in your audience,
Speaker 4: and let me set the record straight. You know, the
Speaker 4: old sayings, facts are stubborn things, and we all live.
Speaker 4: You know where three of us were around the nineteen nineties,
Speaker 4: and green Span is justly.
Speaker 3: Complimented as he should be.
Speaker 4: Indeed, what I teach this material is emphasize this period
Speaker 4: for recognizing that because of the Internet and connectivity and
Speaker 4: personal computing, that there potentially was an eminent increase in
Speaker 4: pick up in productivity. And the staff and other governors
Speaker 4: were saying we should hike rates in green Span, and
Speaker 4: I said, no, let's see, we may get this may
Speaker 4: be a.
Speaker 3: Productivity led boom.
Speaker 4: And that's indeed the story between nineteen ninety five and
Speaker 4: nineteen ninety nine. But if you look at the Greenspan
Speaker 4: fed in nineteen ninety nine, it was hiking rates even
Speaker 4: though we had very strong productivity growth and we had
Speaker 4: strong economic growth in the face of a very buoyant
Speaker 4: stock market. And what people forget is that by two thousand,
Speaker 4: the federal funds rate was at six and a half percent.
Speaker 4: So it is true that green Span did hold off
Speaker 4: for several years, but by the end of that of
Speaker 4: that tech internet boom and dare I say, irrational zuberants
Speaker 4: his famous phraseology green Span was hiking rates very aggressively
Speaker 4: in the face of very strong productivity growth. So when
Speaker 4: people refer to that period approvingly as a reason for
Speaker 4: the FED to hold off from, you know, hiking or
Speaker 4: certainly or continue to cut rates because of productivity, you
Speaker 4: have to look at the entire decade. You just cherry
Speaker 4: pick three or four years.
Speaker 1: These interesting you know, just while we're here talking about
Speaker 1: green green Span, I mean, why did he raise rates
Speaker 1: so aggressively And did Greenspan's own rate hikes in the
Speaker 1: late nineties not really gel with his own comments about
Speaker 1: the capacity for the economy to grow during a time
Speaker 1: of expanding productivity.
Speaker 4: The explanation, I would argue was really was really twofold.
Speaker 4: I do think by that time, although I haven't memory
Speaker 4: the memoir, but I think by that time the irrational
Speaker 4: exuberance piece was a factor.
Speaker 3: Is there is a wealth effect.
Speaker 4: So if stocks are going up, people are wealthy, they
Speaker 4: spend more, and so central banks don't like to be
Speaker 4: in the business of pricking bubbles. But there is a
Speaker 4: connectivity between a very very fully valued stock market and
Speaker 4: your macro out look. You know, we all remember some
Speaker 4: of us remember pets dot com.
Speaker 3: You know, the sock puppet super Bowl commercials.
Speaker 4: And also I just think by that point, although inflation
Speaker 4: had not moved above I should also mention the other
Speaker 4: fashioning thing about that period is it's clear now from
Speaker 4: the transcripts that the green Span Fed by the mid
Speaker 4: to late nineties was in essence running what we would
Speaker 4: now call an inflation targeting regime, and that the target
Speaker 4: was two But green Span was always resistant to the
Speaker 4: idea the FED should ever publicly say that they were
Speaker 4: targeting two percent inflation. But by the late nineties you
Speaker 4: have inflation moving up close to two percent, and you
Speaker 4: could really thank you. This is a period where green
Speaker 4: SPAN's basically saying, I don't want to go back to
Speaker 4: the battle days of eight seven five percent inflation. And
Speaker 4: so it was probably preemptive as well, not resisting the
Speaker 4: productivity but merely trying to keep the economy and bound.
Speaker 4: And then the final thing I'll say, sorry to be wonky,
Speaker 4: is that, as a matter of economic modeling, other things
Speaker 4: being equal, if you've got faster productivity growth, you'd expect
Speaker 4: that to move up what economists called the neutral rate
Speaker 4: of interest anyway, And I think actually Bill Dudley made
Speaker 4: that point in his column as well.
Speaker 2: Never apologize for being a wonky on this show. I
Speaker 2: want to go back to the question of central bank independence.
Speaker 2: So if we assume that Warsh truly wants to do
Speaker 2: his own thing outside of presidential influence, and again there
Speaker 2: are some people who doubt that is the case. But
Speaker 2: if we take that premise, how does he actually display
Speaker 2: or demonstrate the central banks independence when you have a
Speaker 2: president who likes to talk about interest rates and likes
Speaker 2: to joke, as we were saying earlier about you know,
Speaker 2: I'm going to sue Worsh if he doesn't lower rate.
Speaker 1: You also use the word campaign in Kevin Worsh's campaign,
Speaker 1: which I thought was an interesting choice of words to
Speaker 1: describe the last several months.
Speaker 4: That's okay, that's he's he's a very he's a good choice.
Speaker 4: And there were three other candidates, and and it worked.
Speaker 4: I think I think there'll be a couple of things
Speaker 4: Tracy that we'll we'll see pretty soon. In fact, i'll
Speaker 4: let you and your listeners society if it's it's a joke.
Speaker 4: But one thing I find humorous I'll share with you
Speaker 4: is that, you know, if if Jay Powell really wanted
Speaker 4: to complicate the situation for his successor you know, he
Speaker 4: cut race at the march in the in the April
Speaker 4: meeting to get the funds rate down to the level
Speaker 4: where at least the committee seems to think is the destination,
Speaker 4: so that there's nothing for the next person to do.
Speaker 4: I don't think Kyle's going to do that because I
Speaker 4: don't think it's.
Speaker 1: A monetary policy by trolling. I don't know if that's
Speaker 1: that doesn't sound like a Powell thing, but that would
Speaker 1: be funny.
Speaker 4: But you know, but but but but there is a
Speaker 4: kernel of truth to it, which is as we said
Speaker 4: earlier in the in the podcast, the power of the
Speaker 4: chair is the power persuasion. Wars will only have one vote.
Speaker 4: You've got some very very high profile and confident people.
Speaker 4: There's a voting rotation, as your listeners know. So right
Speaker 4: now you've got folks like Beth Hammick, and you've got
Speaker 4: Louri Logan, Neil cashcar and Minnesota are voting now, and
Speaker 4: an Anna Paulson in Philadelphia, I believe, and you know,
Speaker 4: and Laurie Logan and and and Hammock and Cash Cary
Speaker 4: will not will not be shy publicly or I'm sure
Speaker 4: in the meetings if they disagree with what they would perceive.
Speaker 4: And I'm not saying Warrish would do this, As you know,
Speaker 4: we're going to keep cutting rates below a level where
Speaker 4: the Committee seems to have a broad sense that the
Speaker 4: neutral rate, the destination rate.
Speaker 3: Is going to be somewhere in the low threes, you know,
Speaker 3: three and a quarter, three whatever.
Speaker 4: And so I do think that we'll, under the sort
Speaker 4: of baseline scenario for the economy, we may get to
Speaker 4: that level of rates sometime this year. And then at
Speaker 4: that point the issue would be depending on if there's
Speaker 4: political pressure on how the worst FED would navigate that.
Speaker 4: And my sense is, notwithstanding all the discussion of the
Speaker 4: supply side benefits of AI and deregulation, you know, if
Speaker 4: if the hint or the discussion of a future rate
Speaker 4: cut would would trigger nervousness in the financial markets break
Speaker 4: even inflations go up, expected inflation measures go up, you know,
Speaker 4: I think Wars would, and I think Wars in the
Speaker 4: FED would take that seriously. Some My read is that
Speaker 4: he will, he will navigate the data as it comes.
Speaker 3: He'll he'll want to focus on the supply side.
Speaker 4: But at the end of the day, look, no FED
Speaker 4: chair wants to go down in the history books as
Speaker 4: the FED chair that squandered forty years a price of stability.
Speaker 4: And so at the end of the day, and this
Speaker 4: is I think perhaps what the President was referring to
Speaker 4: on more than one occasion when he was thinking about
Speaker 4: who he was going to choose. I'm paraphrasing, but he
Speaker 4: said something like, you know, people will say one thing
Speaker 4: and then they get in the job and they disappoint you.
Speaker 4: And so I think that's an element of the institution
Speaker 4: and of the committee structure that will continue to be relevant.
Speaker 1: It's so interesting. I mean, something that's interesting is when
Speaker 1: you mentioned the forty years of general price stability. It's
Speaker 1: interesting that, like Arthur Burns, that is a name that
Speaker 1: has a lot of it's been tarnished right because of
Speaker 1: the inflation, and yet Bernanki, who you know, went through
Speaker 1: the Great Financial Crisis, the worst downturn ever by and large,
Speaker 1: is remembered as having been a very good central bank
Speaker 1: a chief. And so it's striking that, yeah, you have
Speaker 1: a few years of inflation, everything's all, You're a disaster.
Speaker 1: But if you have a great recession underneath your term,
Speaker 1: by and large, you could still have a pretty good reputation.
Speaker 1: I want to ask, though, you know, the thing is,
Speaker 1: right now, we still have above target inflation, and maybe
Speaker 1: AI will drive a productivity boom and allow the economy
Speaker 1: to grow very fast with low rates, et cetera. In
Speaker 1: the here and know that we haven't even gotten back
Speaker 1: to two percent yet, and so and a lot of
Speaker 1: these benefits of AI still very theoretical.
Speaker 4: Yeah, well, I'll be even more blunt.
Speaker 3: I think you can make a case.
Speaker 4: That although longer term AI will be disinflationary, as the
Speaker 4: productivity benefits arrive.
Speaker 3: I think it make a very plausible case that between between.
Speaker 4: Now and then, the cap ax build out to train
Speaker 4: the models is going to be increasing demand and a
Speaker 4: fully employed economy before the productivity benefits arise. And so
Speaker 4: if I were still teaching enter me at Macro, this
Speaker 4: had actually be a pretty interesting case starting to go
Speaker 4: on on the chalkboard that in five years you've got
Speaker 4: more GDP per worker. That's great, that's disinflationary. But between
Speaker 4: now in year five, you're going to be doubling your
Speaker 4: tech capital spending investment, which is adding demand before the
Speaker 4: productivity benefits show up. So it's not a slam dunk
Speaker 4: to me at all about about what AI means for
Speaker 4: monetary policy near term, even though maybe in five years
Speaker 4: the productivity benefits are so large it will it will
Speaker 4: have a different you know, tendon to be disinflationary. So
Speaker 4: I think it's AI is complicated along every dimension you
Speaker 4: can think.
Speaker 3: It's a complicated technology.
Speaker 4: It has complicated economics and social potential ramifications. And I
Speaker 4: think it's it's not a slam dunk easy situation for
Speaker 4: the Central Bank either.
Speaker 1: I have one last question about central bank independence setting.
Speaker 1: Aside Worshi's comments, something we haven't talked about at all
Speaker 1: is the subpoena to Jerome Powell the over the offices
Speaker 1: over the renovation. Powell was very specific that he thought
Speaker 1: the subpoena was motivated by punishing him or trying to
Speaker 1: get back at him for doing great policy that the
Speaker 1: President didn't like. Two things related to that. A does
Speaker 1: the subpoena, in your view, sort of add to your
Speaker 1: worry either medium or long term about how long the
Speaker 1: Central Bank truly will be an independent institution in the
Speaker 1: United States? And a corollary to that, you mentioned Powell
Speaker 1: control the ors by doing all the rate cuts now,
Speaker 1: what do you see as the odds that he stays
Speaker 1: on the board until his term as governor ends, even
Speaker 1: if he's no longer chair.
Speaker 4: First of all, there is precedent in the Fed's a
Speaker 4: very very precedent focused institution, legendary FED chair. Indeed, you
Speaker 4: have a building name after a Mayriorner Eccles was an
Speaker 4: FDR appointee, and then when Harry Truman became president, Harry
Speaker 4: Truman named another FED chair, and Eccles stayed on and
Speaker 4: actually became a real thorn in Truman's side.
Speaker 3: I would be surprised if J.
Speaker 4: Powell stays on for the remainder of his term as governor,
Speaker 4: which runs through January of twenty twenty eight. Would I
Speaker 4: be shocked if he stayed for a meeting or to know?
Speaker 3: Only Powell knows.
Speaker 4: He's been asked that question two dozen times and he
Speaker 4: always gives the same answer. But I sense he's probably
Speaker 4: not going to be staying on. You know, in terms
Speaker 4: of this case, you know Powell's comments, can you stand
Speaker 4: for themselves?
Speaker 3: I won't weigh in.
Speaker 4: What I will say though, is we have not only
Speaker 4: this the current thing that you just mentioned about investigation
Speaker 4: on the building. You know, we also have the Lisa
Speaker 4: Cook case.
Speaker 3: He's going to weigh in on that.
Speaker 4: And this is all sort of tied up into this
Speaker 4: idea of can Congress establish a central bank with a
Speaker 4: degree of independence to raise or lower rates? And an
Speaker 4: important element of this is this idea of four cause removal.
Speaker 3: You know, beyond that, it's just going to play out.
Speaker 4: And I don't have any particular expertise about where we'll lend,
Speaker 4: but I will say is at the end of the day,
Speaker 4: I do expect that the FED is an institution and
Speaker 4: it will have sufficient independence to raise a lower rates
Speaker 4: because of its institutional structure, and I think ultimately the
Speaker 4: courts are going to back that up.
Speaker 2: All right, Richard Clarita truly the perfect guest. Thank you
Speaker 2: so much for coming back on.
Speaker 1: A those Thank you, thanks, rich That was great.
Speaker 2: So that was a really fun conversation. I like the idea,
Speaker 2: I'm not sure I like. I am intrigued by the
Speaker 2: idea of monetary policy by trolling.
Speaker 1: It's so funny if there's like no room lift to
Speaker 1: cut by the time Kevin got there, and then you
Speaker 1: couldn't fulfill any inclination to cut.
Speaker 2: But I think it actually raises an important point, and
Speaker 2: I'm thinking back to the conversation we did with Emmy
Speaker 2: Nakamura where she talks about central banks building up a
Speaker 2: sort of store of credibility and then having to spend
Speaker 2: it at various points. If you have a president who
Speaker 2: is so opinionated when it comes to interest rates and
Speaker 2: certainly not shy about tweeting or talking about them, I
Speaker 2: feel like it inherently starts to spend down some of
Speaker 2: that credibility because it just becomes very, very difficult, I think,
Speaker 2: to demonstrate your own independence.
Speaker 1: Yeah, I think it's going to be really tricky.
Speaker 2: You know.
Speaker 1: It's obviously something we talked about with Uskanda last week,
Speaker 1: which is that there's multiple potential nominees who would have
Speaker 1: come in with the willingness to cut rates further at
Speaker 1: this point. Christopher Waller being an obvious one. He's been
Speaker 1: voting for rate cuts, but he also has a lot
Speaker 1: of credibility because he was voting for rate hikes and
Speaker 1: you know twenty twenty two, twenty twenty three and so forth.
Speaker 1: I think it's going to be you know, it'll be
Speaker 1: tricky for worsh and but on the other hand, look,
Speaker 1: I would say Also, you know, it's easy to say, oh,
Speaker 1: he's got to come in, he's got to build credibility.
Speaker 1: A lot of people really like him. A lot of
Speaker 1: people who have worked with him at various times, who
Speaker 1: have known him, think he's a serious thinker, that he
Speaker 1: knows what he's talking about, that even if he doesn't
Speaker 1: always agree with them, particularly on things relate to the
Speaker 1: balance sheet communication, that he's an honest broker. So maybe,
Speaker 1: you know, maybe we are overstating the risks or maybe
Speaker 1: it's easy to overstate the risk that he comes in
Speaker 1: and has a real fight on his hands to get
Speaker 1: the policy agenda that he wants.
Speaker 2: Oh to be a fly on the wall of the
Speaker 2: first meeting with Warrish.
Speaker 1: Ramp, Yeah, it'll be it'll be super interesting. I also
Speaker 1: really like, I wonder if he's going to get rid
Speaker 1: of the press conference. That's my prediction. Yeah, I wouldn't
Speaker 1: be surprised. And you know what I'll say, like, these
Speaker 1: are new things. It's not a it's it's not like
Speaker 1: he'd be overturning eighty years of precedent here. This is
Speaker 1: a very modern thing and a lot of the communications
Speaker 1: innovations were, as Rich said, a very specific purpose when
Speaker 1: the FED was ebserp to convince the market that it
Speaker 1: would stay low because and they needed to make that case.
Speaker 1: So if there's a sort of honest look at all
Speaker 1: of these POSTGFC monetary policy changes, I certainly think that's
Speaker 1: totally fine.
Speaker 2: I think Jackson Hole might be in danger too, you
Speaker 2: think so, Yeah, maybe just out of pure self interest.
Speaker 2: I hope not joy going to one of the most
Speaker 2: beautiful places on Earth every year.
Speaker 1: But yeah, I hope it doesn't go away.
Speaker 2: All right, shall we leave it there?
Speaker 1: Let's save it there.
Speaker 2: This has been another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.
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