Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Well, thank you for
Speaker 1: joining us. This is your first round of interviews one
Speaker 1: year into the job.
Speaker 2: Well here as of today.
Speaker 1: Actually, yeah, the FED minutes that were out this week
Speaker 1: suggested that a majority of the members agreed that it
Speaker 1: would be worth cutting rates in September. But I presume,
Speaker 1: given your comments after the meeting that you're waiting for
Speaker 1: more evidence that you were not among them.
Speaker 2: So yeah, I think it made sense, or it makes
Speaker 2: sense for me to really look at some of the
Speaker 2: data that comes in the next few weeks. And I
Speaker 2: think this mandate on the inflation site's really important. I
Speaker 2: think we seem to be getting some really good movement
Speaker 2: that direction. But before we act, at least before I
Speaker 2: act or recommend acting, I think we need to see
Speaker 2: a little bit more.
Speaker 1: Well we essentially on the path to it, in other words,
Speaker 1: of we get as predicted inflation numbers, jobs numbers in
Speaker 1: the next month. Would you agree it's time?
Speaker 2: You know, I like the word path, and I also
Speaker 2: believe that we've seen some cooling in the labor market
Speaker 2: that also kind of works in tandem a little bit
Speaker 2: with that. Not exactly sure, I would go there just
Speaker 2: yet I think it kind of is the nature of
Speaker 2: what happened with the inflation numbers and how much of
Speaker 2: those inflation numbers were kind of supply driven that got cured,
Speaker 2: and then how much is is the policy restrictive? And
Speaker 2: I think while it's restrictive, I don't know if it's
Speaker 2: overly restrictive. So you know, for me, policy as implies
Speaker 2: patients and I would say, let's be patient.
Speaker 1: Well, what are you worried about? What would be the
Speaker 1: scenario that would drive inflation back up again?
Speaker 2: So if we get any kind of spark and demand,
Speaker 2: I mean I go around the tenth district quite a bit.
Speaker 2: We still have employed numbers, unemployment numbers in the two
Speaker 2: and a half three and a half percent range. I
Speaker 2: think a lot of people are looking at how do
Speaker 2: we hire skilled labor over the next twelve months. So
Speaker 2: I still think we could see a little bit of
Speaker 2: demand pick up if we're not careful with the decisioning,
Speaker 2: at least from the tenth district standpoint. I'm a big
Speaker 2: fan of the Beije book. I try to understand what's
Speaker 2: happening in tenth district and then try to see what's
Speaker 2: happening regionally. With the other eleven banks. And I think
Speaker 2: there's from a trend standpoint, things look pretty good. But
Speaker 2: I still think we have some time.
Speaker 1: Well, in terms of trend, it seems that we are
Speaker 1: seeing a slowdown in salaries and wages and that people
Speaker 1: have spent a lot, if not all, of their pandemic
Speaker 1: bonuses that they got. So what are the people in
Speaker 1: your district saying, companies in your district saying about whether
Speaker 1: there would be another spark of demand?
Speaker 2: Yeah, so there everybody seems to be pretty busy still.
Speaker 2: And I think in some cases, I would say the
Speaker 2: housing market, the healthcare market is still has a high
Speaker 2: demand factor for people skilled people, and I think, you know,
Speaker 2: the margins and some of the healthcare industry are narrowing,
Speaker 2: and so you could see some inflationary factor in some
Speaker 2: of these areas. And I still think we've got to
Speaker 2: fix this housing supply market, and I think there's going
Speaker 2: to be more demand in that market over the next
Speaker 2: two or three years.
Speaker 1: Well that's going to be a question is how does
Speaker 1: the FED get the housing market going again since the
Speaker 1: FED essentially put a stop to it, or do you
Speaker 1: think that's your responsibility?
Speaker 2: So I would probably say that the rates are less
Speaker 2: impactful about buying a home today than what's happened with
Speaker 2: the cost of home through the pandemic. I mean, there
Speaker 2: were the supply issues that we had in twenty two
Speaker 2: and twenty three really show the housing market from a
Speaker 2: cost standpoint. And I think as I go around the district,
Speaker 2: the whole issue of that first time home buyer, affordable housing,
Speaker 2: that seems to be the number one issue. So I
Speaker 2: think we've got some work to do in that area,
Speaker 2: but I think it's less rate sensitive as it is
Speaker 2: just pure cost driven.
Speaker 1: Now you were a banker, your whole career has been
Speaker 1: in banking. What's the banking side of the ledger look
Speaker 1: like in the tenth district in terms of being able
Speaker 1: to create and supply credit both to businesses and in
Speaker 1: agriculture is a big deal, And of course that's sort
Speaker 1: of a separate banking business.
Speaker 2: It is. So I've been to several bank association groups,
Speaker 2: I've visited with a lot of bankers one on one
Speaker 2: and with their boards. The one thing I do say
Speaker 2: is I'm actually pleased and quite proud of how the
Speaker 2: industry is adapted itself through this kind of rate policy
Speaker 2: move Since twenty two. It seems like they've adapted their
Speaker 2: funding bases, their clients, their credit side, and so earnings
Speaker 2: and capital seem to be in pretty good shape. And
Speaker 2: so I think now the conversation comes around really the
Speaker 2: liquidity funding. We talk a lot about the discount window
Speaker 2: and how that integrates and so. But by and large,
Speaker 2: the banking industry, not just in the tent district, but
Speaker 2: by large numbers look pretty good. I don't see any
Speaker 2: black clouds forming in that regard. Now. As the monetary
Speaker 2: policy discussions continue, we'll see how it affects things like
Speaker 2: the yield curve and things like that, which I think
Speaker 2: are really important to the banking business.
Speaker 1: Well, banks deal obviously in reserves, and right now there
Speaker 1: are a lot of them. As that comes down, what
Speaker 1: a lot of analysts say is it's going to come
Speaker 1: down unequally, especially for smaller banks. Are you worried at
Speaker 1: all about the smaller banks in your strict having liquidity problems?
Speaker 2: I don't see that today there is. I would say
Speaker 2: that we talk a lot at the monetary policy table
Speaker 2: about the balance sheet about abundant reserve reserves. I think
Speaker 2: over time, the analytics about what abundant reserves is and
Speaker 2: then we have a really robust supervisory team that keeps
Speaker 2: very close track of things like liquidity and reserves. There
Speaker 2: doesn't seem to be a lot of concern in the industry,
Speaker 2: and I think, frankly, maybe even after the Silicon Valley experience,
Speaker 2: I think bankers are generally a little bit more conservative
Speaker 2: on the whole liquidity metrics in their banks.
Speaker 1: I have to ask you, I think I know the answer,
Speaker 1: but I'll let you tell me what you thought of
Speaker 1: the report that the euro of Labor Statistics put out
Speaker 1: at eight hundred and eighteen thousand fewer jobs over the
Speaker 1: twelve months to the first quarter of this year.
Speaker 2: Yeah, So the first thing that comes to mind is
Speaker 2: are we getting the data wrong in that regard? The
Speaker 2: second is, if you look at it seems like a
Speaker 2: large number until you put it in perspective of the
Speaker 2: twelve months, and so you know, while it's a big number,
Speaker 2: it doesn't really change the path of the way I
Speaker 2: think of things when I think about monetary policy and
Speaker 2: the effect of the labor force and what's going on.
Speaker 2: I'm actually really interested in the dynamics of the labor
Speaker 2: force really coming out of the pandemic. You know, the behaviors,
Speaker 2: the compensation structures, the demographics. I think studying those relative
Speaker 2: to the future labor force, maybe thinking a little bit
Speaker 2: about what AI generated AI does to things like productivity.
Speaker 2: I think those are important things to look at. Now
Speaker 2: we have to look at some of the data relative
Speaker 2: to what we do with policy in the labor force.
Speaker 2: But the recent print here isn't a big concern for me.
Speaker 1: So you wouldn't agree with the argument that some make
Speaker 1: on Wall Street that the FED is behind the curve.
Speaker 2: No, I don't really agree with that. I mean here
Speaker 2: here again, I think we've got to get as a
Speaker 2: FED better at at the data sets that we're using.
Speaker 2: I'm a new central banker. I'd like to see us
Speaker 2: move toward a more real time data set versus there
Speaker 2: still seems to be some lags, some serious lags in
Speaker 2: some of the data that we get. So using new technologies,
Speaker 2: maybe some of the AI technologies, maybe we get better
Speaker 2: data as we move forward. But we've got to really
Speaker 2: focus on that with our economists and our and our
Speaker 2: analysts about you know, where's the data coming from and
Speaker 2: can we rely on it well?
Speaker 1: To follow up on that as as sort of and
Speaker 1: wrap things up. We have the framework review coming up
Speaker 1: this fall. Is that number one for you? Is the
Speaker 1: data or what else would you like to see looked at?
Speaker 1: I realized generally to say what would change, but what
Speaker 1: would you like to see looked at?
Speaker 2: So Joe Gruber is our chief economist and head of research,
Speaker 2: and his team came up with this transmission of monetary
Speaker 2: policy subject matter for this Jackson Hole event. Perfect timing.
Speaker 2: So I think we're going to some of these research
Speaker 2: All these researchers are going to release their paper soon,
Speaker 2: and I think there's going to be some really good
Speaker 2: insights into the data collection, the analytics, and how we
Speaker 2: transmit and communicate monetary policy going forward. So I think
Speaker 2: there's going to be a very robust discussion about how
Speaker 2: that's done as we move into the future.
Speaker 1: Well, one aspect of that that really interests people on
Speaker 1: trading desk on Wall Street is, and you would experience
Speaker 1: this as a banker. The whole financial system has changed
Speaker 1: since the Great Financial Crisis, and now everything's run on
Speaker 1: repo and you need a lot of paper out there
Speaker 1: to satisfy the banks, and you've set up all these
Speaker 1: systems to make sure it works. Has it gotten too complex?
Speaker 2: I don't think so. I mean, look, I came from
Speaker 2: that world. You can overcomplicate it if you're not careful.
Speaker 2: I just think that community bankers understand their markets, They
Speaker 2: understand the demands that their clients have, that they understand
Speaker 2: how to move capital and credit to build their communities
Speaker 2: and regions. So I don't see the business as over complicated.
Speaker 2: I do believe there are some things that are happening,
Speaker 2: let's say FORED like for instance, FED now, where you're
Speaker 2: going to see money moving twenty four hours, seven days
Speaker 2: a week. People are going to do business on Sundays
Speaker 2: relative to banks and the business they do with banks.
Speaker 2: So there is some complexities in there. But I think
Speaker 2: some of the technology, some of the policies, conversations we're
Speaker 2: going to have around things like modernizing the discount window
Speaker 2: on their behalf, I think those are going to be
Speaker 2: really net ads for the banking business.
Speaker 1: One last question on this subject, Buzzle Vazzel endgame as
Speaker 1: they call it, which we know is never going to
Speaker 1: be an endgame. But as a banker and now a
Speaker 1: central banker, what's your.
Speaker 2: Perspective, So you know, in my former life as a
Speaker 2: community banker. It was always interesting to me, we really
Speaker 2: need to try to understand as regulators, how do we
Speaker 2: even the playing field. Capital is a big one. I've
Speaker 2: talked to bankers around my district and they believe that, look,
Speaker 2: we've got to try to figure out how to make
Speaker 2: that field equal. That you've got tangible capital ratios with
Speaker 2: small banks that are running at nine ten percent, some
Speaker 2: of the larger banks run it at you know that,
Speaker 2: six and seven. So I think the capital conversation is
Speaker 2: an important one. I think Vice Chair bar On the
Speaker 2: Board is on his team and along with a lot
Speaker 2: of our supervisors around the Federal Reserve System, are having
Speaker 2: a very active conversation about it. I think we also
Speaker 2: have to align things like the Community Reinvestment Act to
Speaker 2: what's happening in community banks. I think those are real,
Speaker 2: big policy matters that we need to really get aligned
Speaker 2: well with the industry.