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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: We'd like to thank Graphael Bostik for joining us here

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Speaker 2: on Bloomberg Television and Radio worldwide. They were just talking

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Speaker 2: about how the President came out a short time ago

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Speaker 2: and said the Fed should lower interest rates when he talks,

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Speaker 2: do you listen.

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Speaker 1: Well, we hear lots of voices.

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Speaker 3: I would say, my job is really to talk within

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Speaker 3: the sixth district and see where policies should go based

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Speaker 3: on what I'm hearing. In terms of the momentum of

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Speaker 3: the economy and today, what I would say is there's

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Speaker 3: a lot of uncertainty. Forecasting is maybe a bit more

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Speaker 3: challenging than it's been in the past. But look, I

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Speaker 3: state on my job to just talk to the business

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Speaker 3: folks that we see and hear from them to understand

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Speaker 3: sort of what's happening on the ground, and that really.

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Speaker 1: Is the thing that it informs me very much.

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Speaker 2: Well, this is the part where I'm normally going to

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Speaker 2: try to pry out of you some sort of guidance

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Speaker 2: on future interest rate moves. But when you look at

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Speaker 2: the summary of economic projections, the dot plot from last week,

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Speaker 2: one gets the impression that you don't really have a

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Speaker 2: clue at this point.

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Speaker 3: Well, you know, what we've heard, and what I've heard

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Speaker 3: is that we don't really know where the economy is

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Speaker 3: going to go. Business leaders don't know, families don't know,

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Speaker 3: and local policymakers don't know either. So one of the

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Speaker 3: things that really has impressed upon me is the idea

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Speaker 3: that people are taking on board information as it occurs.

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Speaker 3: What they're hearing or things that are leading to expectations

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Speaker 3: that there'll be upward pressure on prices so that inflation

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Speaker 3: will happen longer.

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Speaker 1: And I've taken that on board.

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Speaker 3: So my projection of where inflation is going to go

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Speaker 3: this year is pretty much sideways, and we won't get

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Speaker 3: back to a more neutral level of inflation or two

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Speaker 3: percent target. I don't project until sometime early in twenty

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Speaker 3: twenty seven, but it is very much hearing people taking

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Speaker 3: the latest news figure out what that means for them,

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Speaker 3: and then I will respond to that in terms of

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Speaker 3: how I think about the economy's trajectory and policy.

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Speaker 1: Last month, you.

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Speaker 2: Said you thought we would have two rate cuts this year.

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Speaker 2: The dot plot didn't change, still calling for two rate cuts,

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Speaker 2: but a number of people move their dots up to say,

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Speaker 2: maybe we get fewer than that.

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Speaker 1: Were you one of those?

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Speaker 3: I was one of those, So I was at two.

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Speaker 3: I moved to one mainly because I think we're going

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Speaker 3: to see inflation be very bumpy and not moved dramatically

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Speaker 3: and in a clear way to the two percent target,

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Speaker 3: because that's being pushed back. I think the appropriate path

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Speaker 3: for policy is also going to have to be pushed

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Speaker 3: back and getting us to that neutral level.

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Speaker 2: Well, some of your colleagues also move their dots down,

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Speaker 2: suggesting that we might see more rate cuts, probably because

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Speaker 2: they think the economy will weaken. What do you think

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Speaker 2: the odds of a economy weakening because of fiscal policies are?

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Speaker 3: Well, what I would say is I am hearing more

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Speaker 3: concerns about the trajector of the economy.

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Speaker 1: That's undoubted.

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Speaker 3: But what I also will say is the data that's

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Speaker 3: come in today has not actually shown that, and we've

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Speaker 3: still seen a resilient economy. I do know that consumer

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Speaker 3: sentiment has started to take a dip. And the question

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Speaker 3: that we face right now is is consumer sentiment going

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Speaker 3: to be a leading indicator like it was pre pandemic,

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Speaker 3: or is it going to be something that doesn't really

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Speaker 3: translate into actual observed behavior in the economy. That is

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Speaker 3: how it played out for most of the pandemic. Right now,

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Speaker 3: it's an open question and it's one of the things

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Speaker 3: I'm going to be watching very closely in the months

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Speaker 3: to come.

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Speaker 2: Well, it's hard to know for sure what consumers are

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Speaker 2: going to do, but you talk to business leaders all

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Speaker 2: the time. What's a general attitude of CEOs right now

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Speaker 2: about business outlook and about their plans for say, hiring

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Speaker 2: or even raising prices.

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Speaker 3: So we actually have started to ask our business leaders

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Speaker 3: exactly this question, where do you think pricing pressures are

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Speaker 3: going to go higher or lower? What we've heard consistently

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Speaker 3: is they think they're going to go higher. Then we

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Speaker 3: ask what do they think is going to happen in

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Speaker 3: terms of their sales, And they're also quite bullish.

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Speaker 1: On the sales rising as well, well, which.

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Speaker 3: Says to me they think that consumers are going to

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Speaker 3: be able to manage these higher levels of prices and

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Speaker 3: whatever changes in prices that happen moving forward.

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Speaker 1: We'll have to see if that actually plays out.

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Speaker 3: I think that'd be one of the big questions and

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Speaker 3: stories that emerges through the course of twenty twenty five,

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Speaker 3: namely how the consumer manages in the face of these

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Speaker 3: elevated price levels.

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Speaker 2: Well, if companies are saying prices are going to go up,

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Speaker 2: are they going to pass that along if tariffs come

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Speaker 2: on and add to the cost of their materials.

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Speaker 3: Well, we've done survey question as well, and what we've

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Speaker 3: gotten in survey responses is yes, they're expecting to try

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Speaker 3: to pass these through. The expectations about unit price costs

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Speaker 3: going up is clear. But if you look at in

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Speaker 3: our surveys about what they're expecting for price changes, the

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Speaker 3: amount of price change they're expecting almost matches the cost

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Speaker 3: change one for one, which says a complete pass through

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Speaker 3: is the expectation. And then again we'll have to see

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Speaker 3: what happens in terms of whether consumers take that on board.

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Speaker 2: What are they tell you about the labor market and

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Speaker 2: their plans for employment going forward.

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Speaker 3: Well, labor markets they're still tight, not as tight as

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Speaker 3: they were two years ago. But what we hear from

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Speaker 3: most businesses is that's not a source of worry for them.

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Speaker 3: I feel like if they can get if they need workers,

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Speaker 3: they'll be able to get them, and that wage pressures

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Speaker 3: are not really outsized relative to where they're pre pandemic.

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Speaker 3: So folks are feeling pretty good about the prospects in

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Speaker 3: terms of workers.

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Speaker 2: Border crossings are way down, and deportations are supposedly ramping up.

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Speaker 1: What do you hear from the service.

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Speaker 2: Industries about their abilities or even construction to find workers.

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Speaker 3: Well, we haven't been hearing this as across the board thing,

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Speaker 3: but we are hearing from particular sectors that there is

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Speaker 3: a shortage that's starting to emerge in terms of work

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Speaker 3: crews on housing, construction sites and a like.

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Speaker 1: We're just have to watch to see if.

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Speaker 3: That remains isolated or whether it becomes something that is

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Speaker 3: more widespread, which then will have implications for the ability

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Speaker 3: of the economy to meet the demand that's out there.

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Speaker 2: You were talking about the consumers set. What do you

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Speaker 2: make of the rise in inflation expectations, which, at least

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Speaker 2: in the Michigan survey has been fairly dramatic.

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Speaker 3: Well, as you know, for many, many years, short run

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Speaker 3: inflation expectations that really matched where people are. And I

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Speaker 3: think seeing the elevated prices, hearing the talk about the tariffs,

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Speaker 3: and hear the idea that tariffs push up prices, I

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Speaker 3: think has shaped people's expectations in the short run. It's

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Speaker 3: the medium in the longer term that I'm trying to

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Speaker 3: focus on much more. They're the reaction has been far

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Speaker 3: less dramatic. But to the extent that that starts creeping up,

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Speaker 3: that'll be something that I'll have to worry about.

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Speaker 2: Well, there was a lot of pearl clutching on Wall

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Speaker 2: Street when Chairman Powell suggested that the impact of tariffs

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Speaker 2: on inflation would be transitory.

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Speaker 1: Would you use that characterization? Well, I try not to

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Speaker 1: use that word anymore.

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Speaker 3: I will just say that, but I do think, Look,

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Speaker 3: we have to acknowledge that historically, when tariffs have played out,

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Speaker 3: there's been a one time jump in prices and then

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Speaker 3: the economy's return to its usual trajectory, so just that

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Speaker 3: policy doesn't have to respond to it. For me, I

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Speaker 3: think there is a question about whether that's going to

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Speaker 3: happen this time.

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Speaker 1: We've just gone through a.

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Speaker 3: Period of elevated inflation, so it is very much on

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Speaker 3: the consumer's mind, and I fear that they might be

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Speaker 3: more sensitive to higher prices today than they have been

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Speaker 3: in the past, but they might not, and we'll just

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Speaker 3: have to see how that plays out.

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Speaker 2: Well, this whole question of seeing how it plays out.

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Speaker 2: Given how we're getting government by tweeting, things change all

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Speaker 2: the time. Are you sort of foreclosed from acting preemptively?

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Speaker 2: Are you going to be necessarily behind the curve?

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Speaker 3: I don't think we're going to be behind the curve,

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Speaker 3: mainly because we know we're waiting, and so from my perspective,

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Speaker 3: the longer you have to wait, that means your actions,

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Speaker 3: when you decide that it's clear where the economy is going,

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Speaker 3: are going to have to be larger than they would

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Speaker 3: be otherwise. So I would say, we don't want to

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Speaker 3: make it's not in our interest to move in one direction,

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Speaker 3: find out that the economy is going in a different way,

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Speaker 3: and then have.

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Speaker 1: To undo that.

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Speaker 3: I'd much rather take the time make sure that when

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Speaker 3: we act, it's acting appropriately to where the economy is,

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Speaker 3: and we can make sure that we stay close to

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Speaker 3: our dual mandate objectives.

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Speaker 2: Now you produce the GDP now number from the Atlanta Fed.

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Speaker 2: It's gotten a lot of publicity lately, Yes, it has

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Speaker 2: not for its cheery news, but even adjusted for gold,

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Speaker 2: it's sort of unchanged, which is a big drop from

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Speaker 2: the growth rates we've seen. Do you think we're in

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Speaker 2: the midst of a real slowdown or was this just

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Speaker 2: sort of a temporary dip at the beginning of the

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Speaker 2: first quarter.

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Speaker 1: Well, we'll have to see.

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Speaker 3: You know, GDP now is a now cast, so it

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Speaker 3: takes data as it comes in through the course of

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Speaker 3: the quarter. What I would say is the drop from

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Speaker 3: the two point two percent down to anywhere from zero

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Speaker 3: to a half of percent is a sign that that

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Speaker 3: suite of data that set a data that came in

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Speaker 3: is suggesting slowdown. We'll have to see what that looks

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Speaker 3: like for the end of the quarter. I will say

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Speaker 3: most businesses I'm talking to aren't reporting to me that

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Speaker 3: they're seeing that kind of a slowdown, So we'll just

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Speaker 3: have to wait and see what happens.

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Speaker 2: Well, if the economy slows a lot, which would suggest

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Speaker 2: maybe that lower rates are needed, but inflation hasn't come

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Speaker 2: down to two percent, and you want to have higher

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Speaker 2: rates to quell inflation. If you have that sort of stagflation,

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Speaker 2: which do you choose to act on.

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Speaker 3: Well, I'm not jumping to stagflation yet, so I'm just

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Speaker 3: going to say that. But I've been saying for a

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Speaker 3: long time it is paramount that we get inflation back

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Speaker 3: to our two percent target. That's the thing that I'm

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Speaker 3: laser focused on to the extent that the labor market

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Speaker 3: and the economy does weaken and we're not seeing that now.

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Speaker 3: I'll have to manage that when that happens, but right

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Speaker 3: now it is let's get inflation back to two percent.

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Speaker 3: That's one of the reasons why I've been comfortable keeping

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Speaker 3: our policy in a restrictive stance to make sure that

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Speaker 3: we are trying to push that target and that measure

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Speaker 3: to the number that we're trying to get it to.

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Speaker 2: If I could say this politely, one of the constants

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Speaker 2: with the Fed's forecast about inflation is that you keep

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Speaker 2: pushing out the time frame for getting to two percent.

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Speaker 2: What's keeping inflation sticky at this point and what should

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Speaker 2: we look for to see a sign that it is

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Speaker 2: actually going to come down because PCE is expected to

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Speaker 2: come in up.

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Speaker 3: So I'll just say I haven't always been pushing it out,

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Speaker 3: like though the SEP and disambrac forward a bit because

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Speaker 3: the economy was progressing in a nice way. But what

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Speaker 3: I would say is this, we know housing numbers have

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Speaker 3: not come in is not normalized as fast as others have,

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Speaker 3: as well, we know the goods prices in the most

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Speaker 3: recent period have risen a bit, and we're going to

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Speaker 3: have to keep.

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Speaker 1: An eye on that.

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Speaker 3: You know, I hear a lot about eggs and the like,

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Speaker 3: And then we also know that service prices have seemed

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Speaker 3: to have leveled off. So one of the questions that

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Speaker 3: I have in my head is are we seeing a

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Speaker 3: fundamental change from the trends that we had been seeing

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Speaker 3: over the last two years. That's not my baseline outlook,

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Speaker 3: but it's a possibility and it's one of the things

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Speaker 3: that me and my team will be watching closely in

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Speaker 3: the next six to eight weeks.

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Speaker 2: Well, suppose inflation stays about where it is and remain

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Speaker 2: sticky but doesn't go up, is the Fed funds rate

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Speaker 2: properly calibrated for that level of inflation.

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Speaker 3: Everyone I've talked to has given me information to suggest

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Speaker 3: that it is. We will just have to see, with

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Speaker 3: all the other pressures that are going on, whether we

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Speaker 3: have to adjust and adapt based on new realities. So

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Speaker 3: I think it will be an interesting question the extent

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Speaker 3: to which we do see upward pressure on prices as

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Speaker 3: these teriffs come in, And it depends really on the

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Speaker 3: suite of terrifs that we see. It'll be interesting to

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Speaker 3: see how consumers take this on board. I think it'll

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Speaker 3: be the intersection of multiple factors and forces that will

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Speaker 3: determine really what level of policy we need.

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Speaker 1: To be at.

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Speaker 2: Well, do you think at this point you have a

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Speaker 2: problem with monetary policy transmission in the sense that you've

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Speaker 2: been cutting rates since September, but market rates have basically

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Speaker 2: stayed range bound and followed you down.

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Speaker 3: I don't think it's a transmission issue. I actually think

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Speaker 3: it's a collective, dynamic issue. As you know, the longer

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Speaker 3: rates are our function of things other than just what

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Speaker 3: we set our policy rate as, and there's been a

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Speaker 3: lot of change in there. To the extent that there's

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Speaker 3: uncertainty has gone up, you might expect rates to be

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Speaker 3: stubborn on the high side, and so I look at

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Speaker 3: it as a much more meta picture and really try

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Speaker 3: to keep in mind that we don't control the whole economy.

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Speaker 3: We control our policy rate, and that's not really what

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Speaker 3: we have to stay focused on.

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Speaker 2: Let me go back to the beginning of our conversation

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Speaker 2: and ask if you or the system have heard from

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Speaker 2: the administration besides these tweets or random comments the President makes.

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Speaker 3: I've not heard anything, and I will just keep reaching

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Speaker 3: out doing my job the way I have and hopefully

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Speaker 3: we will get to a place where the economy is

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Speaker 3: stabilized and both of our mandates are at target.

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Speaker 2: Well, you and your colleagues talk a lot about the

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Speaker 2: FED having no role in fiscal policy. Do you think

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Speaker 2: the administration should have any role in monetary policy?

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Speaker 1: Well, there is an opinion, and then this role.

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Speaker 3: To me, I would say, we are going to make

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Speaker 3: our decision based on the task that we have at hand.

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Speaker 3: We have an FMC, we have nineteen mention members, we

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Speaker 3: have the Federal Reserve Deck which guides us in terms

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Speaker 3: of doing that, and as long as that's the law

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Speaker 3: of the land, that's what I'm going to focus on doing.

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Speaker 2: Do you find any issue with the Fed's credibility from

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Speaker 2: all this outside chirping at you?

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Speaker 3: So, I'll just say, from the time I've been in

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Speaker 3: this job, folks have had comments on what the FEDS

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Speaker 3: should do, so that in and of itself has not

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Speaker 3: really been a factor.

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Speaker 1: I do think that we have a lot.

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Speaker 3: Of credibility, and I talk to lots of folks that

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Speaker 3: almost at the end of almost every meeting, I get

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Speaker 3: thanked for what we're doing as a collective, and to me,

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Speaker 3: that's the true measure whether when folks that are out

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Speaker 3: there in the economy doing real things talk to me

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Speaker 3: and provide feedback, the feedback has appreciation about how we've

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Speaker 3: approached a job and the desire for us to keep

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Speaker 3: doing it.

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Speaker 2: One last question for our friends on the money market

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Speaker 2: desks around Wall Street. You're cutting down on QT to

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Speaker 2: five billion a month for treasuries. Do you anticipate ramping

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Speaker 2: that up again or is this basically it until you

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Speaker 2: decide to stop.

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Speaker 3: So my preference would be to stay at this rate

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Speaker 3: for a while until we stop. As you know, and

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Speaker 3: as your friends on the desk, no, it's not clear

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Speaker 3: exactly what the threshold level of reserves is, at which

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Speaker 3: point money markets might start to function less smoothly.

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Speaker 1: I don't want to get to that level.

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Speaker 3: We're closer to it now than we were a year ago,

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Speaker 3: so for me slowing down to make sure we don't

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Speaker 3: go too far, it's fully appropriate.

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Speaker 2: Would you ever sell mortgages?

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Speaker 1: I would think about it.

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Speaker 3: You know, the Committee definitely has as a goal moving

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Speaker 3: out of the mortgage backed security space into tread. But

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Speaker 3: now we just have to make sure that if we're

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Speaker 3: going to go that route, and I'd say we've not

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Speaker 3: had any conversations on that, we do it in a

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Speaker 3: way that doesn't disrupt either the mortgage market or money

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Speaker 3: marguts more broadly.

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Speaker 2: All right, well, thank you very much, Rafael for joining

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Speaker 2: us today. Rafael Bastik, the President of the Federal Reserve

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Speaker 2: Bank of Atlanta,