WEBVTT - Minneapolis Fed President Neel Kashkari Talks Inflation Data

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio.

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<v Speaker 2>News, GRAMMT inflation data out just moments ago, in line

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<v Speaker 2>with expectations, CPI month over month coming in at zero

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<v Speaker 2>point two, stripping out food and energy that came in

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<v Speaker 2>at zero point three as expected. The media estimate in

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<v Speaker 2>our survey was zero point three. The equy price sanction

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<v Speaker 2>off the back of it on the S and P

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<v Speaker 2>up by two tenths of one percent. On the NASSNE

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<v Speaker 2>one hundred up by a tenth of one percent, the

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<v Speaker 2>outperformance on a russor of small caps up by eight

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<v Speaker 2>tenths of one percent, as you'd expect with this move

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<v Speaker 2>in the bond market, on a two year tenure and

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<v Speaker 2>thirty year yields lower across the board, the two year

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<v Speaker 2>down by eight basis points, the ten year down by

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<v Speaker 2>about five basis points. On a thirty year with down

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<v Speaker 2>by about three. If you check out foreign exchange switch

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<v Speaker 2>on the board and get to FX, we can look

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<v Speaker 2>at whether the euro is right now. We are training

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<v Speaker 2>just a little bit more positive off the back of

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<v Speaker 2>that data one oh six forty three, and police to

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<v Speaker 2>say that responding to this economic data now is the

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<v Speaker 2>Minneapolis Fed President Neil Kashgari President, Kashgary, good morning.

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<v Speaker 1>Going to see you again. Good morning, good to see you.

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<v Speaker 2>Right to cant sho Up. I saw some comments from

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<v Speaker 2>yesterday and for our audience that might have missed them,

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<v Speaker 2>I'll share them with our audience now we can pick

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<v Speaker 2>up on them. That have to be a surprise on

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<v Speaker 2>the inflation front to change the outlook so dramatically. If

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<v Speaker 2>we saw inflation surprises to the upside between now and then,

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<v Speaker 2>that might give us pause for December. It'd be hard

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<v Speaker 2>to imagine the labor market really heats up between now

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<v Speaker 2>and December. That's just not that much time. Inflation dates

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<v Speaker 2>around just moments ago, and I think in that to

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<v Speaker 2>disrupt this easing bias that seems to have gripped the

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<v Speaker 2>FED over the last few months.

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<v Speaker 3>Well, first of all, it's very fresh data, so I

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<v Speaker 3>haven't had time to go through it in a lot

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<v Speaker 3>of detail, but at least on the headline level, it

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<v Speaker 3>seems to be confirming the path that we're on. We've

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<v Speaker 3>made a lot of progress in the last year or

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<v Speaker 3>so bringing inflation down. I need to go through the

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<v Speaker 3>component of that release, which I have not done yet,

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<v Speaker 3>but generally speaking, goods inflation is back down to where

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<v Speaker 3>we want it to be where it was pre pandemic.

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<v Speaker 3>Services inflation, which is tied to wages, is gently trending down.

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<v Speaker 3>And then finally, housing inflation, we know is a lagon

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<v Speaker 3>the indicator. We know that it takes a couple of

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<v Speaker 3>years for the new least is to turn over. New

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<v Speaker 3>leases are showing that we're heading in the right direction.

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<v Speaker 3>So right now I think that inflation is head in

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<v Speaker 3>the right direction. I've got confidence about that.

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<v Speaker 1>But we need to wait.

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<v Speaker 3>We've got another month or six weeks of data to

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<v Speaker 3>analyze before we make any decisions.

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<v Speaker 4>One of the things that has been very noticeable over

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<v Speaker 4>the last week is the change in investors' views about

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<v Speaker 4>where you're.

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<v Speaker 1>Going to end up.

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<v Speaker 4>If you're looking at SO for futures right now, the

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<v Speaker 4>only price in about seventy five basis point cuts between

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<v Speaker 4>now and the end of twenty twenty five. Are we

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<v Speaker 4>entering a period because we don't know what Donald Trump's

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<v Speaker 4>policies are actually going to be where the dot plot

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<v Speaker 4>the summary of economic projections are kind of off the table,

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<v Speaker 4>can't really put a lot of faith in them, and

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<v Speaker 4>that maybe you're in the lail brainer attenuation phase where

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<v Speaker 4>you slow down everything and people should expect not a

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<v Speaker 4>lot of guidance from the Fed.

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<v Speaker 3>Well, you know, the dot plot is something that I

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<v Speaker 3>at times I'm glad we have it, and in times

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<v Speaker 3>it's more of a frustrat that we have to fill

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<v Speaker 3>it out.

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<v Speaker 1>Because there's so much uncertainty about the economic outlook. Over

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<v Speaker 1>the past year or.

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<v Speaker 3>Two, I've been surprised at the resilience of the US

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<v Speaker 3>economy in the face of seemingly quite high policy rates.

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<v Speaker 3>Yet the labor market has stayed strong and the economic

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<v Speaker 3>growth continues to surprise us. So for me, I've been

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<v Speaker 3>asking questions about where's the neutral rate for the.

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<v Speaker 1>Last year or two. That's not about the election.

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<v Speaker 3>That's just about how the economy has been performing over

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<v Speaker 3>the past year or two. And so you know, for example,

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<v Speaker 3>there's been revisions that suggests that productivity is now higher

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<v Speaker 3>than it had been in prior years. If that higher

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<v Speaker 3>productivity environment is maintained, that would tell me we're probably

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<v Speaker 3>in a somewhat higher neutral rate environment. Again, that's not

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<v Speaker 3>about the election. That's just about how the economy has

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<v Speaker 3>actually been performing. And so for me as a policymaker,

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<v Speaker 3>that's what's leading to my own uncertainty about where's our

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<v Speaker 3>ultimate destination. And I think that people are raising questions

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<v Speaker 3>about what is the new administration going to do, what

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<v Speaker 3>is the new Congress going to do? I think that's

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<v Speaker 3>also adding uncertainty about ultimately what's the growth trajectory of

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<v Speaker 3>the US economy.

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<v Speaker 4>Well, Tom Barkin said yesterday your colleague from the Richmond

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<v Speaker 4>Fed that right now, there's no way to know, so

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<v Speaker 4>one has to just kind of assume that things are

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<v Speaker 4>going to be maybe stuck inflation stuck above two percent.

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<v Speaker 1>Would you join in that sentiment.

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<v Speaker 3>I'm not sure that I'm ready to say that inflation

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<v Speaker 3>is stuck above two percent. I think it's right now

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<v Speaker 3>running in the mid twes on a PCE basis. And

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<v Speaker 3>as I said earlier, goods inflation is backed down. Services

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<v Speaker 3>inflation is tied to wages, and wages are gently trending down.

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<v Speaker 3>And housing inflation, we know, is going to take a

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<v Speaker 3>couple of years before completely before the new leases roll

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<v Speaker 3>all the way through the housing inflation. So I have

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<v Speaker 3>confidence that inflation is headed in the right direction.

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<v Speaker 1>Is it headed there fast enough? Do we want it

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<v Speaker 1>to get there more quickly? You know?

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<v Speaker 3>We will see, but ultimately that and the labor market

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<v Speaker 3>are going to guide our policy decisions.

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<v Speaker 5>Well. Back in September, on the labor market, you said

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<v Speaker 5>that the balance of risks had shifted towards a more

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<v Speaker 5>weakening labor market. Do you think we've backed off that risk?

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<v Speaker 5>Not as acute as it was since we've had the

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<v Speaker 5>data since September.

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<v Speaker 3>Yeah, we had seen some data piling up up until

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<v Speaker 3>that September meeting which was pretty much pointed in one direction,

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<v Speaker 3>which was a softening labor market. We then had a

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<v Speaker 3>surprise and the other way. The labor market looks stronger,

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<v Speaker 3>but then a reversal in the subsequent job report, and

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<v Speaker 3>so I still think the labor market is softening. A

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<v Speaker 3>four point one percent unemployment rate is a good unemployment rate.

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<v Speaker 3>It's a good labor market. It's not as tight as

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<v Speaker 3>it was a year ago or two years ago.

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<v Speaker 1>So it's unquestioned that it has been softening.

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<v Speaker 3>And right now we're in a good place in the

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<v Speaker 3>labor market and we want to keep it there. You know,

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<v Speaker 3>I do a lot of outreach to businesses large and

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<v Speaker 3>small around my region, as well as labor unions around

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<v Speaker 3>my region. Generally, what I hear is costious optimism. People

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<v Speaker 3>feel good about the outlook, but there are some trends

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<v Speaker 3>that it's slowly softening, and we just want to watch

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<v Speaker 3>that carefully.

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<v Speaker 2>Know the election, We've got to talk about the election.

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<v Speaker 2>And I know it's a difficult moment for the Federal Reserve.

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<v Speaker 2>I think it's a difficult moment for munating policy makers

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<v Speaker 2>worldwide for that matter. The chairman down with it in

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<v Speaker 2>the news conference.

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<v Speaker 1>It's pretty clear.

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<v Speaker 2>We don't speculate, we can't make assumptions. But you're at

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<v Speaker 2>the risk management business, and you've been in the risk

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<v Speaker 2>management business for a long time. It predates your experience

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<v Speaker 2>at the Federal Reserve. Do you think we've introduced two

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<v Speaker 2>way risk in twenty twenty five, and when you think

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<v Speaker 2>about the bounce of risk, does that call for slow

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<v Speaker 2>approach to any movement monetary policy one way or the other?

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<v Speaker 1>Well, two way risk, I think we've already had two

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<v Speaker 1>way risks.

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<v Speaker 3>So we've got risks of the labor market continuing to

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<v Speaker 3>soften and over softening, and then we've got risks of

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<v Speaker 3>inflation potentially getting stuck. I'm not seeing a lot of

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<v Speaker 3>upside risks yet, we don't know what's going to get

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<v Speaker 3>it acted. I'm not seeing a lot of upside risk

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<v Speaker 3>that inflation is going to take off from here. The

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<v Speaker 3>bigger risk that I'd be concerned about in the inflation

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<v Speaker 3>front is just if we're landing it around a two

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<v Speaker 3>and a half percent level instead of back down to

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<v Speaker 3>two percent level. I think that those risks existed before

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<v Speaker 3>the election, and I think that there continues to be

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<v Speaker 3>uncertainty now and we need to just be take our time,

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<v Speaker 3>let the data come to us, and let that guide us. Ultimately,

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<v Speaker 3>for me, this goes back to the discussion we had

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<v Speaker 3>a moment ago about where's the neutral rate. There's this

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<v Speaker 3>uncertainty in my mind about where the neutral rate is,

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<v Speaker 3>and the longer the economy continues to exceed expectations, the

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<v Speaker 3>more signal I take that we must not be as

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<v Speaker 3>restrictive as I would have assumed.

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<v Speaker 6>FED staff analyzed though, during the first iteration of Trump,

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<v Speaker 6>the impact of the tariffs, and everyone coalesce around this

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<v Speaker 6>idea that there is a one off increase in inflation.

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<v Speaker 6>You can look through it. It wasn't going to be

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<v Speaker 6>this vicious cycle and ongoing inflation threat. Did you agree

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<v Speaker 6>with that assessment at the time, and do you still

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<v Speaker 6>think that that's what tariffs could do.

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<v Speaker 1>In terms of inflation. I agree with that assessment at

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<v Speaker 1>the time.

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<v Speaker 3>I still agree with that, but I think your prior

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<v Speaker 3>guest touched on it, which is it really depends on

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<v Speaker 3>what the other countries end up doing. If there ends

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<v Speaker 3>up being a tip for tat and one country raises tariffs,

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<v Speaker 3>they respond and you go.

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<v Speaker 1>Back and forth.

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<v Speaker 3>In definitely that could lead to a longer term imprint

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<v Speaker 3>on inflation and potentially inflation expectations. And of course we

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<v Speaker 3>don't know what our own tariffs are going to be,

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<v Speaker 3>let alone what other countries are going to respond with,

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<v Speaker 3>and so we just need to be patient.

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<v Speaker 4>And see I had a note come in from one

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<v Speaker 4>of the Wall Street analysts that had a line that

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<v Speaker 4>I thought was really valid, and that is that if

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<v Speaker 4>you're going to forecast inflation, you have to have a

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<v Speaker 4>theory of inflation and what's causing inflation. We've got relatively

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<v Speaker 4>strong labor markets right now, and we've got concern about inflation.

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<v Speaker 4>Real interest rates just keep rising and they're working in

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<v Speaker 4>opposition to your rate cuts. What's your theory of inflation

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<v Speaker 4>and how come we're seeing this kind of real rate reaction.

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<v Speaker 3>Well, I've done a lot of soul searching on why

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<v Speaker 3>I missed the inflation run up in the first place.

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<v Speaker 3>I was surprised on the run up. I was also

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<v Speaker 3>surprised on the disinflation that followed it. And the one

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<v Speaker 3>thing that's been constant is it was not the labor market.

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<v Speaker 1>On the run up or the disinflation.

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<v Speaker 3>It was mostly supply factors, and so supply chains got

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<v Speaker 3>gummed up that took a lot longer to resolve.

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<v Speaker 1>The inflation took off.

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<v Speaker 3>You the war in Ukraine also pushing inflation up, and

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<v Speaker 3>then many of those factors unwound or didn't get worse,

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<v Speaker 3>bringing inflation back down. So monetary policies role, in my

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<v Speaker 3>judgment in this episode has been to keep in long

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<v Speaker 3>run inflation expectations anchored, and it has provided some gentle

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<v Speaker 3>cooling to the labor market. I don't think the supply

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<v Speaker 3>factors are what have caused the labor market to gently cool.

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<v Speaker 3>I do think monetary policy has been doing that. And

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<v Speaker 3>so you put all that together, it says that when

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<v Speaker 3>I thought we were applying two feet on the brakes

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<v Speaker 3>of the economy with monetary policy, we might only have

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<v Speaker 3>been applying one foot on the brake, and so this

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<v Speaker 3>goes back to where ultimately are we going to settle.

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<v Speaker 3>We're going to have to let the economy guide us.

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<v Speaker 4>We are now paying as much attention to CPI again

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<v Speaker 4>as we are to the labor market. But the labor

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<v Speaker 4>market comes up in early December. We had a really

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<v Speaker 4>really strong September and a really really weak October. You

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<v Speaker 4>where is the labor market as far as you're concerned,

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<v Speaker 4>I think.

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<v Speaker 3>The labor market is in a good place right now. Again,

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<v Speaker 3>the anecdotes that I get, I look at the data,

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<v Speaker 3>the official statistics, which always have uncertainty. There's even more

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<v Speaker 3>uncertainty about the labor market statistics, not just because of

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<v Speaker 3>the hurricane and the Boeing strike, but because of the

0:10:02.559 --> 0:10:06.040
<v Speaker 3>large immigration flows, which are we're not exactly sure how

0:10:06.040 --> 0:10:09.920
<v Speaker 3>big they are and their time varying. So what is

0:10:10.000 --> 0:10:12.640
<v Speaker 3>this month's break even level of job growth? You know,

0:10:12.720 --> 0:10:14.720
<v Speaker 3>your guest is as good as mine. So I look

0:10:14.760 --> 0:10:16.880
<v Speaker 3>at the official statistics, and then I marry it to

0:10:16.920 --> 0:10:19.480
<v Speaker 3>what we're all here in my colleagues and I from

0:10:19.520 --> 0:10:22.120
<v Speaker 3>all of our contacts around the country. The labor market

0:10:22.200 --> 0:10:24.600
<v Speaker 3>right now is strong it's a healthy labor market. Jobs

0:10:24.600 --> 0:10:28.280
<v Speaker 3>are available, businesses are feeling good. We want to keep

0:10:28.320 --> 0:10:28.959
<v Speaker 3>it that way, and.

0:10:28.920 --> 0:10:30.640
<v Speaker 1>So as we get the data in, I'm going to

0:10:30.640 --> 0:10:31.400
<v Speaker 1>continue to do.

0:10:31.400 --> 0:10:33.680
<v Speaker 3>My own outreach, and all of the other presidents are

0:10:33.720 --> 0:10:36.400
<v Speaker 3>going to do their outreach to the businesses large and small,

0:10:36.440 --> 0:10:38.640
<v Speaker 3>and labor groups to get a sense of is the

0:10:38.720 --> 0:10:42.040
<v Speaker 3>labor market cooling slowly, is it heating up, or is

0:10:42.040 --> 0:10:44.520
<v Speaker 3>it cooling quickly? And that will those will be important

0:10:44.600 --> 0:10:47.040
<v Speaker 3>judgments into our policy deliberations.

0:10:47.320 --> 0:10:50.240
<v Speaker 5>Your former colleague Bill Dudley wrote a Bloomberg opinion piece

0:10:50.240 --> 0:10:53.240
<v Speaker 5>earlier this week basically saying that there's this possibility that

0:10:53.280 --> 0:10:55.880
<v Speaker 5>Trump enacts policy quickly and forced lye in a way

0:10:56.200 --> 0:10:58.560
<v Speaker 5>that doesn't give the Fed enough time to respond and

0:10:58.600 --> 0:11:01.120
<v Speaker 5>without the proper tools to respect. Is that a concern

0:11:01.160 --> 0:11:01.839
<v Speaker 5>you also share.

0:11:02.240 --> 0:11:05.120
<v Speaker 3>I think fiscal policy is always an input into our

0:11:05.679 --> 0:11:08.360
<v Speaker 3>deliberations and into our analysis and assessment of the economy.

0:11:08.360 --> 0:11:10.640
<v Speaker 3>I don't think that's new now, And it's not just

0:11:10.760 --> 0:11:13.240
<v Speaker 3>US fiscal policy. It's what happens with other countries, what

0:11:13.240 --> 0:11:15.599
<v Speaker 3>happens with our trading partners, and so that type of

0:11:15.720 --> 0:11:18.839
<v Speaker 3>uncertainty we're used to dealing with it. Obviously, we would

0:11:18.840 --> 0:11:20.800
<v Speaker 3>like to have less uncertainty. That'd be great, but it's

0:11:20.840 --> 0:11:23.440
<v Speaker 3>the world that we live in, and we will take

0:11:23.480 --> 0:11:25.680
<v Speaker 3>all the information we can as we get it and

0:11:25.840 --> 0:11:27.120
<v Speaker 3>incorporate it into our thinking.

0:11:27.240 --> 0:11:29.680
<v Speaker 6>Speaking of uncertainty, there's been a lot of concern about

0:11:29.720 --> 0:11:31.640
<v Speaker 6>what Trump two point zer would mean in tern of

0:11:31.720 --> 0:11:33.880
<v Speaker 6>job voting the FED and how he felt about j.

0:11:34.080 --> 0:11:34.440
<v Speaker 3>Powell.

0:11:34.480 --> 0:11:38.120
<v Speaker 6>The FOMC had this plan during the first iteration of

0:11:38.160 --> 0:11:41.320
<v Speaker 6>Trump that maybe they even move Powell to chair of

0:11:41.320 --> 0:11:44.160
<v Speaker 6>the FOMC if he was going to take over the

0:11:44.240 --> 0:11:47.600
<v Speaker 6>chairmanship of the actual FED. Would you basically all act

0:11:47.600 --> 0:11:50.160
<v Speaker 6>as a group to potentially thwart anything that was coming

0:11:50.200 --> 0:11:52.679
<v Speaker 6>at you that would negate the FED independence.

0:11:53.640 --> 0:11:54.200
<v Speaker 1>We are all.

0:11:54.040 --> 0:11:56.760
<v Speaker 3>Committed to our dual mandate goals, everybody around the table,

0:11:56.840 --> 0:12:01.240
<v Speaker 3>all of my colleagues, stable prices and maximum deployment. So

0:12:01.480 --> 0:12:03.840
<v Speaker 3>number one, we're all committed to those goals. Number two,

0:12:04.320 --> 0:12:07.160
<v Speaker 3>I don't think those goals are controversial. I think everybody

0:12:07.200 --> 0:12:10.600
<v Speaker 3>across the political spectrum wants us to get inflation all

0:12:10.600 --> 0:12:12.679
<v Speaker 3>the way back down to two percent and wants to

0:12:12.760 --> 0:12:14.959
<v Speaker 3>keep a strong labor market. So I think that also

0:12:15.000 --> 0:12:17.360
<v Speaker 3>provides us a lot of support. And then there's built

0:12:17.360 --> 0:12:19.960
<v Speaker 3>in continuity into the structure of the FED that Congress

0:12:19.960 --> 0:12:24.200
<v Speaker 3>designed governors serve up to fourteen year terms. The presidents

0:12:24.200 --> 0:12:26.880
<v Speaker 3>are independent, the presidents of the twelve reserve banks. These

0:12:26.880 --> 0:12:30.440
<v Speaker 3>structures help us provide continuity. I'm confident that between the

0:12:30.480 --> 0:12:33.080
<v Speaker 3>people who are there are commitment to our dual mandate

0:12:33.120 --> 0:12:36.880
<v Speaker 3>goals and the structures that are in place, I'm confident

0:12:36.880 --> 0:12:38.720
<v Speaker 3>that we will do the right thing and focus on

0:12:38.760 --> 0:12:39.920
<v Speaker 3>the economy.

0:12:41.280 --> 0:12:45.160
<v Speaker 4>The housing market. How do you explain what's going on

0:12:45.280 --> 0:12:48.520
<v Speaker 4>the fact that prices aren't coming down and if you

0:12:48.640 --> 0:12:52.520
<v Speaker 4>keep rates higher than anticipated, We've already seen mortgage rates

0:12:52.520 --> 0:12:57.840
<v Speaker 4>go up since you started cutting the housing market dead well, the.

0:12:57.840 --> 0:12:59.880
<v Speaker 3>Housing market as I've studied it, and this is a

0:13:00.120 --> 0:13:03.679
<v Speaker 3>you all around the country, the lack of affordability not

0:13:03.800 --> 0:13:06.199
<v Speaker 3>just for low income workers, but for middle class families

0:13:06.840 --> 0:13:09.680
<v Speaker 3>and more. It's really one that we've underbuilt housing for

0:13:09.720 --> 0:13:12.120
<v Speaker 3>the last decade following the Great Financial Crisis. We just

0:13:12.160 --> 0:13:15.800
<v Speaker 3>structurally underbuild housing. So there's a sense a shortage. And

0:13:15.840 --> 0:13:17.560
<v Speaker 3>as I think about back to the notion of a

0:13:17.600 --> 0:13:20.560
<v Speaker 3>neutral interest rate, think about a neutral mortgage rate. If

0:13:20.559 --> 0:13:23.520
<v Speaker 3>we have structurally underbuilt housing, and there's a lot of

0:13:23.520 --> 0:13:26.760
<v Speaker 3>demand for housing. What interest rate is going to clear

0:13:26.840 --> 0:13:29.959
<v Speaker 3>that market? All else being equal, you would think a higher.

0:13:29.720 --> 0:13:31.160
<v Speaker 1>Interest rate will clear that market.

0:13:31.200 --> 0:13:33.439
<v Speaker 3>And so I think the housing market has its own

0:13:33.520 --> 0:13:35.880
<v Speaker 3>unique dynamics that are going on that are driving these

0:13:36.200 --> 0:13:38.840
<v Speaker 3>more than just a macroeconomic landscape and more than just

0:13:38.920 --> 0:13:39.800
<v Speaker 3>monetary policy.

0:13:40.000 --> 0:13:42.600
<v Speaker 4>So the FED raises its hands and says, it's not

0:13:42.640 --> 0:13:43.520
<v Speaker 4>something we can fix.

0:13:43.679 --> 0:13:44.480
<v Speaker 1>Yeah, we can't fix it.

0:13:44.520 --> 0:13:46.640
<v Speaker 3>I mean if we said we're going to cut interest

0:13:46.720 --> 0:13:50.840
<v Speaker 3>rates to try to support housing affordability, setting aside the

0:13:50.840 --> 0:13:53.160
<v Speaker 3>rest of our goals, what would that probably do? That

0:13:53.160 --> 0:13:55.640
<v Speaker 3>would probably push up the price of housing, and so

0:13:55.640 --> 0:13:58.160
<v Speaker 3>would that actually improve affordability? And so I don't think

0:13:58.200 --> 0:14:02.120
<v Speaker 3>monetary policy is well suited to address the structural issues

0:14:02.120 --> 0:14:03.280
<v Speaker 3>that are going on in the housing market.

0:14:03.400 --> 0:14:06.360
<v Speaker 2>We've touched on absolutely everything. Can we finish on financial markets?

0:14:06.440 --> 0:14:06.720
<v Speaker 1>Sure?

0:14:06.760 --> 0:14:07.199
<v Speaker 2>You know them?

0:14:07.200 --> 0:14:07.480
<v Speaker 4>Well?

0:14:07.600 --> 0:14:09.560
<v Speaker 2>Are you worried about coming into an asset bubble?

0:14:10.640 --> 0:14:10.800
<v Speaker 1>You know?

0:14:12.480 --> 0:14:15.120
<v Speaker 3>I always go back to when chair then Chairman Green

0:14:15.200 --> 0:14:17.839
<v Speaker 3>spent in nineteen ninety five declared irrational and xuberant. So

0:14:18.160 --> 0:14:20.240
<v Speaker 3>nineteen ninety five you declared it, and the stock market

0:14:20.240 --> 0:14:22.560
<v Speaker 3>went out for the next four years. I look at

0:14:22.560 --> 0:14:24.520
<v Speaker 3>that episode and think if the FED had tried to

0:14:24.560 --> 0:14:27.760
<v Speaker 3>use monetary policy to address that bubble, it would have

0:14:27.840 --> 0:14:30.880
<v Speaker 3>done more harm to the economy than the fairly mild

0:14:30.960 --> 0:14:33.440
<v Speaker 3>recession that followed when the tech bubble burst. And so

0:14:33.480 --> 0:14:36.080
<v Speaker 3>I just think monetary policy is the wrong tool to

0:14:36.120 --> 0:14:37.520
<v Speaker 3>try to address asset bubbles.

0:14:37.560 --> 0:14:39.720
<v Speaker 2>Do you think there's something that needs to be addressed.

0:14:40.240 --> 0:14:44.640
<v Speaker 3>Well, you know, bubbles are easy to spot in hindsight.

0:14:44.720 --> 0:14:47.520
<v Speaker 3>If we really are in a higher productivity environment, if

0:14:47.560 --> 0:14:51.000
<v Speaker 3>we're in a higher growth environment and corporate earnings are

0:14:51.000 --> 0:14:53.920
<v Speaker 3>going to continue to climb, one might look back and say, hey,

0:14:53.960 --> 0:14:57.080
<v Speaker 3>these asset prices are not irrational. So it's hard to

0:14:57.160 --> 0:14:59.680
<v Speaker 3>judge right now if I knew where productivity was going

0:15:00.000 --> 0:15:01.800
<v Speaker 3>to be able to give you a more definitive answer.

0:15:01.520 --> 0:15:03.080
<v Speaker 2>Just look at the markets right now. Equity is very

0:15:03.080 --> 0:15:05.320
<v Speaker 2>close to old time highs. We've got credit spreads that

0:15:05.400 --> 0:15:09.000
<v Speaker 2>are at incredibly tight levels for investment grade, tight to

0:15:09.080 --> 0:15:11.640
<v Speaker 2>than anything we've seen so far this century. For high yield,

0:15:11.640 --> 0:15:14.160
<v Speaker 2>I think you've got to go back to PREGFC and

0:15:14.200 --> 0:15:16.640
<v Speaker 2>you know what happened next. We kind of interest rates

0:15:16.680 --> 0:15:20.080
<v Speaker 2>into that we have authorities down in Washington, d C.

0:15:20.200 --> 0:15:23.800
<v Speaker 2>It's some second administration that could be cutting taxes going

0:15:23.880 --> 0:15:26.040
<v Speaker 2>into that as well. What is on your rate down

0:15:26.040 --> 0:15:27.880
<v Speaker 2>with regards to that, What would you watch to say,

0:15:27.920 --> 0:15:30.680
<v Speaker 2>actually something coming on here that maybe we need to

0:15:30.680 --> 0:15:32.240
<v Speaker 2>pay a little bit more attention to well.

0:15:32.240 --> 0:15:36.560
<v Speaker 3>From a financial stability perspective, traditionally, the biggest sources of

0:15:36.600 --> 0:15:41.240
<v Speaker 3>financial instability are leverage and maturity transformation, and the intersection

0:15:41.320 --> 0:15:41.840
<v Speaker 3>of those two.

0:15:41.880 --> 0:15:44.640
<v Speaker 1>That's why banks are inherently risky. Leverage tend to want

0:15:44.720 --> 0:15:45.040
<v Speaker 1>or more.

0:15:45.360 --> 0:15:47.960
<v Speaker 3>They take overnight money and then they lend long into it.

0:15:48.120 --> 0:15:48.920
<v Speaker 1>So, for example, a.

0:15:48.880 --> 0:15:50.760
<v Speaker 3>Lot of people have looked at private credit and said,

0:15:50.920 --> 0:15:52.680
<v Speaker 3>this is a huge growing asset class.

0:15:52.760 --> 0:15:55.240
<v Speaker 1>Isn't as scary as I've looked into it.

0:15:55.280 --> 0:15:57.760
<v Speaker 3>They seem to be much less levered than banks, and

0:15:57.800 --> 0:16:01.320
<v Speaker 3>they generally have longer term funding. On those two primary

0:16:01.360 --> 0:16:05.640
<v Speaker 3>dimension of financial instability, leverage and maturity transformation, it doesn't

0:16:05.640 --> 0:16:09.240
<v Speaker 3>seem to be riskier than banks, probably less risky than banks.

0:16:09.240 --> 0:16:11.760
<v Speaker 3>So we continue to look for leverage, we continue to

0:16:11.760 --> 0:16:13.000
<v Speaker 3>look for maturity transformation.

0:16:13.160 --> 0:16:15.240
<v Speaker 2>No smile as always, good to see you, Good to

0:16:15.280 --> 0:16:17.360
<v Speaker 2>see you, Thanks for tim Thank you sir, Neil Kashcaneri

0:16:17.400 --> 0:16:19.320
<v Speaker 2>there the Minneapolis Fed president