WEBVTT - Atlanta Fed President Raphael Bostic Talks Fed Policy, Tariffs

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We'd like to thank Graphael Bostik for joining us here

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<v Speaker 2>on Bloomberg Television and Radio worldwide. They were just talking

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<v Speaker 2>about how the President came out a short time ago

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<v Speaker 2>and said the Fed should lower interest rates when he talks,

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<v Speaker 2>do you listen.

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<v Speaker 1>Well, we hear lots of voices.

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<v Speaker 3>I would say, my job is really to talk within

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<v Speaker 3>the sixth district and see where policies should go based

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<v Speaker 3>on what I'm hearing. In terms of the momentum of

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<v Speaker 3>the economy and today, what I would say is there's

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<v Speaker 3>a lot of uncertainty. Forecasting is maybe a bit more

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

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<v Speaker 3>state on my job to just talk to the business

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<v Speaker 3>folks that we see and hear from them to understand

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

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<v Speaker 1>Is the thing that it informs me very much.

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<v Speaker 2>Well, this is the part where I'm normally going to

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<v Speaker 2>try to pry out of you some sort of guidance

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<v Speaker 2>on future interest rate moves. But when you look at

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<v Speaker 2>the summary of economic projections, the dot plot from last week,

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<v Speaker 2>one gets the impression that you don't really have a

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<v Speaker 2>clue at this point.

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<v Speaker 3>Well, you know, what we've heard, and what I've heard

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<v Speaker 3>is that we don't really know where the economy is

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<v Speaker 3>going to go. Business leaders don't know, families don't know,

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<v Speaker 3>and local policymakers don't know either. So one of the

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<v Speaker 3>things that really has impressed upon me is the idea

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<v Speaker 3>that people are taking on board information as it occurs.

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<v Speaker 3>What they're hearing or things that are leading to expectations

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<v Speaker 3>that there'll be upward pressure on prices so that inflation

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<v Speaker 3>will happen longer.

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<v Speaker 1>And I've taken that on board.

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<v Speaker 3>So my projection of where inflation is going to go

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<v Speaker 3>this year is pretty much sideways, and we won't get

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<v Speaker 3>back to a more neutral level of inflation or two

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<v Speaker 3>percent target. I don't project until sometime early in twenty

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<v Speaker 3>twenty seven, but it is very much hearing people taking

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<v Speaker 3>the latest news figure out what that means for them,

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<v Speaker 3>and then I will respond to that in terms of

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<v Speaker 3>how I think about the economy's trajectory and policy.

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<v Speaker 1>Last month, you.

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<v Speaker 2>Said you thought we would have two rate cuts this year.

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

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<v Speaker 2>but a number of people move their dots up to say,

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<v Speaker 2>maybe we get fewer than that.

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<v Speaker 1>Were you one of those?

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<v Speaker 3>I was one of those, So I was at two.

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<v Speaker 3>I moved to one mainly because I think we're going

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<v Speaker 3>to see inflation be very bumpy and not moved dramatically

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<v Speaker 3>and in a clear way to the two percent target,

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<v Speaker 3>because that's being pushed back. I think the appropriate path

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<v Speaker 3>for policy is also going to have to be pushed

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<v Speaker 3>back and getting us to that neutral level.

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<v Speaker 2>Well, some of your colleagues also move their dots down,

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<v Speaker 2>suggesting that we might see more rate cuts, probably because

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<v Speaker 2>they think the economy will weaken. What do you think

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<v Speaker 2>the odds of a economy weakening because of fiscal policies are?

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<v Speaker 3>Well, what I would say is I am hearing more

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<v Speaker 3>concerns about the trajector of the economy.

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<v Speaker 1>That's undoubted.

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<v Speaker 3>But what I also will say is the data that's

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<v Speaker 3>come in today has not actually shown that, and we've

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<v Speaker 3>still seen a resilient economy. I do know that consumer

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<v Speaker 3>sentiment has started to take a dip. And the question

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<v Speaker 3>that we face right now is is consumer sentiment going

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<v Speaker 3>to be a leading indicator like it was pre pandemic,

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<v Speaker 3>or is it going to be something that doesn't really

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<v Speaker 3>translate into actual observed behavior in the economy. That is

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<v Speaker 3>how it played out for most of the pandemic. Right now,

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<v Speaker 3>it's an open question and it's one of the things

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<v Speaker 3>I'm going to be watching very closely in the months

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<v Speaker 3>to come.

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<v Speaker 2>Well, it's hard to know for sure what consumers are

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<v Speaker 2>going to do, but you talk to business leaders all

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<v Speaker 2>the time. What's a general attitude of CEOs right now

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<v Speaker 2>about business outlook and about their plans for say, hiring

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<v Speaker 2>or even raising prices.

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<v Speaker 3>So we actually have started to ask our business leaders

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<v Speaker 3>exactly this question, where do you think pricing pressures are

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<v Speaker 3>going to go higher or lower? What we've heard consistently

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<v Speaker 3>is they think they're going to go higher. Then we

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<v Speaker 3>ask what do they think is going to happen in

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<v Speaker 3>terms of their sales, And they're also quite bullish.

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<v Speaker 1>On the sales rising as well, well, which.

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<v Speaker 3>Says to me they think that consumers are going to

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<v Speaker 3>be able to manage these higher levels of prices and

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<v Speaker 3>whatever changes in prices that happen moving forward.

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<v Speaker 1>We'll have to see if that actually plays out.

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<v Speaker 3>I think that'd be one of the big questions and

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<v Speaker 3>stories that emerges through the course of twenty twenty five,

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<v Speaker 3>namely how the consumer manages in the face of these

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<v Speaker 3>elevated price levels.

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<v Speaker 2>Well, if companies are saying prices are going to go up,

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<v Speaker 2>are they going to pass that along if tariffs come

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<v Speaker 2>on and add to the cost of their materials.

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<v Speaker 3>Well, we've done survey question as well, and what we've

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<v Speaker 3>gotten in survey responses is yes, they're expecting to try

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<v Speaker 3>to pass these through. The expectations about unit price costs

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<v Speaker 3>going up is clear. But if you look at in

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<v Speaker 3>our surveys about what they're expecting for price changes, the

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<v Speaker 3>amount of price change they're expecting almost matches the cost

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<v Speaker 3>change one for one, which says a complete pass through

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<v Speaker 3>is the expectation. And then again we'll have to see

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<v Speaker 3>what happens in terms of whether consumers take that on board.

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<v Speaker 2>What are they tell you about the labor market and

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<v Speaker 2>their plans for employment going forward.

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<v Speaker 3>Well, labor markets they're still tight, not as tight as

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<v Speaker 3>they were two years ago. But what we hear from

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

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<v Speaker 3>I feel like if they can get if they need workers,

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<v Speaker 3>they'll be able to get them, and that wage pressures

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<v Speaker 3>are not really outsized relative to where they're pre pandemic.

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<v Speaker 3>So folks are feeling pretty good about the prospects in

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<v Speaker 3>terms of workers.

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<v Speaker 2>Border crossings are way down, and deportations are supposedly ramping up.

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<v Speaker 1>What do you hear from the service.

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<v Speaker 2>Industries about their abilities or even construction to find workers.

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

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<v Speaker 3>but we are hearing from particular sectors that there is

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<v Speaker 3>a shortage that's starting to emerge in terms of work

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<v Speaker 3>crews on housing, construction sites and a like.

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<v Speaker 1>We're just have to watch to see if.

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<v Speaker 3>That remains isolated or whether it becomes something that is

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<v Speaker 3>more widespread, which then will have implications for the ability

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<v Speaker 3>of the economy to meet the demand that's out there.

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<v Speaker 2>You were talking about the consumers set. What do you

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<v Speaker 2>make of the rise in inflation expectations, which, at least

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<v Speaker 2>in the Michigan survey has been fairly dramatic.

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<v Speaker 3>Well, as you know, for many, many years, short run

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<v Speaker 3>inflation expectations that really matched where people are. And I

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<v Speaker 3>think seeing the elevated prices, hearing the talk about the tariffs,

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<v Speaker 3>and hear the idea that tariffs push up prices, I

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<v Speaker 3>think has shaped people's expectations in the short run. It's

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<v Speaker 3>the medium in the longer term that I'm trying to

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<v Speaker 3>focus on much more. They're the reaction has been far

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<v Speaker 3>less dramatic. But to the extent that that starts creeping up,

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<v Speaker 3>that'll be something that I'll have to worry about.

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<v Speaker 2>Well, there was a lot of pearl clutching on Wall

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<v Speaker 2>Street when Chairman Powell suggested that the impact of tariffs

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<v Speaker 2>on inflation would be transitory.

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<v Speaker 1>Would you use that characterization? Well, I try not to

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<v Speaker 1>use that word anymore.

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<v Speaker 3>I will just say that, but I do think, Look,

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<v Speaker 3>we have to acknowledge that historically, when tariffs have played out,

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<v Speaker 3>there's been a one time jump in prices and then

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<v Speaker 3>the economy's return to its usual trajectory, so just that

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<v Speaker 3>policy doesn't have to respond to it. For me, I

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<v Speaker 3>think there is a question about whether that's going to

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<v Speaker 3>happen this time.

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<v Speaker 1>We've just gone through a.

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<v Speaker 3>Period of elevated inflation, so it is very much on

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<v Speaker 3>the consumer's mind, and I fear that they might be

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<v Speaker 3>more sensitive to higher prices today than they have been

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<v Speaker 3>in the past, but they might not, and we'll just

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<v Speaker 3>have to see how that plays out.

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<v Speaker 2>Well, this whole question of seeing how it plays out.

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<v Speaker 2>Given how we're getting government by tweeting, things change all

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<v Speaker 2>the time. Are you sort of foreclosed from acting preemptively?

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<v Speaker 2>Are you going to be necessarily behind the curve?

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

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<v Speaker 3>mainly because we know we're waiting, and so from my perspective,

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<v Speaker 3>the longer you have to wait, that means your actions,

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

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<v Speaker 3>are going to have to be larger than they would

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

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<v Speaker 3>make it's not in our interest to move in one direction,

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<v Speaker 3>find out that the economy is going in a different way,

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<v Speaker 3>and then have.

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<v Speaker 1>To undo that.

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<v Speaker 3>I'd much rather take the time make sure that when

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<v Speaker 3>we act, it's acting appropriately to where the economy is,

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<v Speaker 3>and we can make sure that we stay close to

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<v Speaker 3>our dual mandate objectives.

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<v Speaker 2>Now you produce the GDP now number from the Atlanta Fed.

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<v Speaker 2>It's gotten a lot of publicity lately, Yes, it has

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<v Speaker 2>not for its cheery news, but even adjusted for gold,

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<v Speaker 2>it's sort of unchanged, which is a big drop from

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<v Speaker 2>the growth rates we've seen. Do you think we're in

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<v Speaker 2>the midst of a real slowdown or was this just

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<v Speaker 2>sort of a temporary dip at the beginning of the

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<v Speaker 2>first quarter.

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<v Speaker 1>Well, we'll have to see.

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<v Speaker 3>You know, GDP now is a now cast, so it

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<v Speaker 3>takes data as it comes in through the course of

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<v Speaker 3>the quarter. What I would say is the drop from

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<v Speaker 3>the two point two percent down to anywhere from zero

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<v Speaker 3>to a half of percent is a sign that that

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<v Speaker 3>suite of data that set a data that came in

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<v Speaker 3>is suggesting slowdown. We'll have to see what that looks

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<v Speaker 3>like for the end of the quarter. I will say

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<v Speaker 3>most businesses I'm talking to aren't reporting to me that

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

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<v Speaker 3>have to wait and see what happens.

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<v Speaker 2>Well, if the economy slows a lot, which would suggest

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<v Speaker 2>maybe that lower rates are needed, but inflation hasn't come

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<v Speaker 2>down to two percent, and you want to have higher

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<v Speaker 2>rates to quell inflation. If you have that sort of stagflation,

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<v Speaker 2>which do you choose to act on.

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<v Speaker 3>Well, I'm not jumping to stagflation yet, so I'm just

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<v Speaker 3>going to say that. But I've been saying for a

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<v Speaker 3>long time it is paramount that we get inflation back

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

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<v Speaker 3>laser focused on to the extent that the labor market

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<v Speaker 3>and the economy does weaken and we're not seeing that now.

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<v Speaker 3>I'll have to manage that when that happens, but right

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<v Speaker 3>now it is let's get inflation back to two percent.

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<v Speaker 3>That's one of the reasons why I've been comfortable keeping

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<v Speaker 3>our policy in a restrictive stance to make sure that

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<v Speaker 3>we are trying to push that target and that measure

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<v Speaker 3>to the number that we're trying to get it to.

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<v Speaker 2>If I could say this politely, one of the constants

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<v Speaker 2>with the Fed's forecast about inflation is that you keep

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<v Speaker 2>pushing out the time frame for getting to two percent.

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<v Speaker 2>What's keeping inflation sticky at this point and what should

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<v Speaker 2>we look for to see a sign that it is

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<v Speaker 2>actually going to come down because PCE is expected to

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<v Speaker 2>come in up.

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

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<v Speaker 3>like though the SEP and disambrac forward a bit because

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<v Speaker 3>the economy was progressing in a nice way. But what

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<v Speaker 3>I would say is this, we know housing numbers have

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<v Speaker 3>not come in is not normalized as fast as others have,

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<v Speaker 3>as well, we know the goods prices in the most

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<v Speaker 3>recent period have risen a bit, and we're going to

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<v Speaker 3>have to keep.

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<v Speaker 1>An eye on that.

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<v Speaker 3>You know, I hear a lot about eggs and the like,

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<v Speaker 3>And then we also know that service prices have seemed

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<v Speaker 3>to have leveled off. So one of the questions that

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<v Speaker 3>I have in my head is are we seeing a

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<v Speaker 3>fundamental change from the trends that we had been seeing

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

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<v Speaker 3>but it's a possibility and it's one of the things

0:10:57.360 --> 0:10:59.640
<v Speaker 3>that me and my team will be watching closely in

0:10:59.640 --> 0:11:02.320
<v Speaker 3>the next six to eight weeks.

0:11:02.480 --> 0:11:05.280
<v Speaker 2>Well, suppose inflation stays about where it is and remain

0:11:05.360 --> 0:11:08.640
<v Speaker 2>sticky but doesn't go up, is the Fed funds rate

0:11:09.200 --> 0:11:11.640
<v Speaker 2>properly calibrated for that level of inflation.

0:11:12.559 --> 0:11:15.760
<v Speaker 3>Everyone I've talked to has given me information to suggest

0:11:15.800 --> 0:11:19.480
<v Speaker 3>that it is. We will just have to see, with

0:11:19.640 --> 0:11:22.720
<v Speaker 3>all the other pressures that are going on, whether we

0:11:22.880 --> 0:11:26.160
<v Speaker 3>have to adjust and adapt based on new realities. So

0:11:26.240 --> 0:11:28.640
<v Speaker 3>I think it will be an interesting question the extent

0:11:28.679 --> 0:11:31.800
<v Speaker 3>to which we do see upward pressure on prices as

0:11:31.840 --> 0:11:35.480
<v Speaker 3>these teriffs come in, And it depends really on the

0:11:35.480 --> 0:11:39.040
<v Speaker 3>suite of terrifs that we see. It'll be interesting to

0:11:39.080 --> 0:11:41.520
<v Speaker 3>see how consumers take this on board. I think it'll

0:11:41.520 --> 0:11:44.880
<v Speaker 3>be the intersection of multiple factors and forces that will

0:11:44.920 --> 0:11:48.280
<v Speaker 3>determine really what level of policy we need.

0:11:48.160 --> 0:11:48.600
<v Speaker 1>To be at.

0:11:48.800 --> 0:11:51.280
<v Speaker 2>Well, do you think at this point you have a

0:11:51.320 --> 0:11:54.199
<v Speaker 2>problem with monetary policy transmission in the sense that you've

0:11:54.200 --> 0:11:58.199
<v Speaker 2>been cutting rates since September, but market rates have basically

0:11:58.280 --> 0:12:00.800
<v Speaker 2>stayed range bound and followed you down.

0:12:01.320 --> 0:12:03.839
<v Speaker 3>I don't think it's a transmission issue. I actually think

0:12:03.880 --> 0:12:07.360
<v Speaker 3>it's a collective, dynamic issue. As you know, the longer

0:12:07.480 --> 0:12:10.480
<v Speaker 3>rates are our function of things other than just what

0:12:10.520 --> 0:12:12.880
<v Speaker 3>we set our policy rate as, and there's been a

0:12:12.880 --> 0:12:14.960
<v Speaker 3>lot of change in there. To the extent that there's

0:12:15.120 --> 0:12:17.760
<v Speaker 3>uncertainty has gone up, you might expect rates to be

0:12:17.840 --> 0:12:20.440
<v Speaker 3>stubborn on the high side, and so I look at

0:12:20.480 --> 0:12:23.000
<v Speaker 3>it as a much more meta picture and really try

0:12:23.040 --> 0:12:25.920
<v Speaker 3>to keep in mind that we don't control the whole economy.

0:12:25.960 --> 0:12:28.560
<v Speaker 3>We control our policy rate, and that's not really what

0:12:28.600 --> 0:12:29.880
<v Speaker 3>we have to stay focused on.

0:12:30.400 --> 0:12:32.600
<v Speaker 2>Let me go back to the beginning of our conversation

0:12:32.920 --> 0:12:38.200
<v Speaker 2>and ask if you or the system have heard from

0:12:38.240 --> 0:12:43.520
<v Speaker 2>the administration besides these tweets or random comments the President makes.

0:12:44.160 --> 0:12:48.760
<v Speaker 3>I've not heard anything, and I will just keep reaching

0:12:48.840 --> 0:12:51.840
<v Speaker 3>out doing my job the way I have and hopefully

0:12:51.840 --> 0:12:53.560
<v Speaker 3>we will get to a place where the economy is

0:12:53.559 --> 0:12:57.360
<v Speaker 3>stabilized and both of our mandates are at target.

0:12:57.760 --> 0:13:00.120
<v Speaker 2>Well, you and your colleagues talk a lot about the

0:13:00.240 --> 0:13:02.839
<v Speaker 2>FED having no role in fiscal policy. Do you think

0:13:02.880 --> 0:13:05.439
<v Speaker 2>the administration should have any role in monetary policy?

0:13:06.080 --> 0:13:08.880
<v Speaker 1>Well, there is an opinion, and then this role.

0:13:09.120 --> 0:13:12.080
<v Speaker 3>To me, I would say, we are going to make

0:13:12.120 --> 0:13:14.959
<v Speaker 3>our decision based on the task that we have at hand.

0:13:15.320 --> 0:13:18.640
<v Speaker 3>We have an FMC, we have nineteen mention members, we

0:13:18.640 --> 0:13:20.800
<v Speaker 3>have the Federal Reserve Deck which guides us in terms

0:13:20.840 --> 0:13:22.840
<v Speaker 3>of doing that, and as long as that's the law

0:13:22.840 --> 0:13:25.040
<v Speaker 3>of the land, that's what I'm going to focus on doing.

0:13:25.360 --> 0:13:28.560
<v Speaker 2>Do you find any issue with the Fed's credibility from

0:13:28.640 --> 0:13:30.480
<v Speaker 2>all this outside chirping at you?

0:13:31.360 --> 0:13:33.160
<v Speaker 3>So, I'll just say, from the time I've been in

0:13:33.200 --> 0:13:35.680
<v Speaker 3>this job, folks have had comments on what the FEDS

0:13:35.679 --> 0:13:38.800
<v Speaker 3>should do, so that in and of itself has not

0:13:38.880 --> 0:13:39.760
<v Speaker 3>really been a factor.

0:13:40.440 --> 0:13:42.720
<v Speaker 1>I do think that we have a lot.

0:13:42.600 --> 0:13:45.199
<v Speaker 3>Of credibility, and I talk to lots of folks that

0:13:45.280 --> 0:13:48.400
<v Speaker 3>almost at the end of almost every meeting, I get

0:13:48.440 --> 0:13:51.440
<v Speaker 3>thanked for what we're doing as a collective, and to me,

0:13:52.040 --> 0:13:54.760
<v Speaker 3>that's the true measure whether when folks that are out

0:13:54.760 --> 0:13:57.840
<v Speaker 3>there in the economy doing real things talk to me

0:13:57.920 --> 0:14:02.360
<v Speaker 3>and provide feedback, the feedback has appreciation about how we've

0:14:02.400 --> 0:14:05.319
<v Speaker 3>approached a job and the desire for us to keep

0:14:05.320 --> 0:14:05.719
<v Speaker 3>doing it.

0:14:05.920 --> 0:14:08.080
<v Speaker 2>One last question for our friends on the money market

0:14:08.080 --> 0:14:13.199
<v Speaker 2>desks around Wall Street. You're cutting down on QT to

0:14:13.520 --> 0:14:17.280
<v Speaker 2>five billion a month for treasuries. Do you anticipate ramping

0:14:17.320 --> 0:14:20.560
<v Speaker 2>that up again or is this basically it until you

0:14:20.680 --> 0:14:21.440
<v Speaker 2>decide to stop.

0:14:22.320 --> 0:14:25.960
<v Speaker 3>So my preference would be to stay at this rate

0:14:26.120 --> 0:14:29.560
<v Speaker 3>for a while until we stop. As you know, and

0:14:29.600 --> 0:14:32.920
<v Speaker 3>as your friends on the desk, no, it's not clear

0:14:33.000 --> 0:14:36.320
<v Speaker 3>exactly what the threshold level of reserves is, at which

0:14:36.360 --> 0:14:40.200
<v Speaker 3>point money markets might start to function less smoothly.

0:14:41.000 --> 0:14:42.880
<v Speaker 1>I don't want to get to that level.

0:14:43.080 --> 0:14:45.320
<v Speaker 3>We're closer to it now than we were a year ago,

0:14:45.600 --> 0:14:47.760
<v Speaker 3>so for me slowing down to make sure we don't

0:14:47.760 --> 0:14:49.520
<v Speaker 3>go too far, it's fully appropriate.

0:14:49.640 --> 0:14:50.960
<v Speaker 2>Would you ever sell mortgages?

0:14:52.160 --> 0:14:53.080
<v Speaker 1>I would think about it.

0:14:53.120 --> 0:14:56.600
<v Speaker 3>You know, the Committee definitely has as a goal moving

0:14:56.680 --> 0:15:01.360
<v Speaker 3>out of the mortgage backed security space into tread. But

0:15:01.520 --> 0:15:04.000
<v Speaker 3>now we just have to make sure that if we're

0:15:04.040 --> 0:15:05.600
<v Speaker 3>going to go that route, and I'd say we've not

0:15:05.640 --> 0:15:08.120
<v Speaker 3>had any conversations on that, we do it in a

0:15:08.160 --> 0:15:12.400
<v Speaker 3>way that doesn't disrupt either the mortgage market or money

0:15:12.400 --> 0:15:13.200
<v Speaker 3>marguts more broadly.

0:15:13.360 --> 0:15:15.720
<v Speaker 2>All right, well, thank you very much, Rafael for joining

0:15:15.760 --> 0:15:19.160
<v Speaker 2>us today. Rafael Bastik, the President of the Federal Reserve

0:15:19.240 --> 0:15:20.400
<v Speaker 2>Bank of Atlanta,