WEBVTT - San Francisco Fed President Mary Daly Talks Interest Rates, Inflation, Tariff Impact

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<v Speaker 1>Bloomberg Audio Studios, podcasts, Radio News.

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<v Speaker 2>San Francisco FED. President Mary Daily, President Dady, welcome back

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<v Speaker 2>to the program. It's good to catch up with you.

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<v Speaker 2>I want to start with this data and maybe we

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<v Speaker 2>can spend some time on a palace intrigue later on

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<v Speaker 2>jobless claims, initial claims lower than expected, continuing claims higher

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<v Speaker 2>than expected, and creeping higher over the past few months.

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<v Speaker 2>From your advantage point, President DAii, how much weight would

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<v Speaker 2>you put on one versus the other and what's the

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<v Speaker 2>labor market picture look like in your point of view?

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<v Speaker 3>Your opinion, Well, the labor market shaping up to be solid,

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<v Speaker 3>and the data today confirmed that. Now continuing claims are

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<v Speaker 3>going up because it takes a little longer to find

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<v Speaker 3>a job. That's consistent with the hiring numbers just being

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<v Speaker 3>slower as the economy comes to a more sustainable pace.

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<v Speaker 3>But when I look at the labor market, there are

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<v Speaker 3>really no warning signs that it's weakening. WILL continue to

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<v Speaker 3>watch that, but right now it's progressing solidly, although more

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<v Speaker 3>slowly than before.

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<v Speaker 1>President Daily. A lot of people have said that it

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<v Speaker 1>is a data dependent federal reserve, and yet we haven't

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<v Speaker 1>seen enough data to really understand or whether inflation is

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<v Speaker 1>the primary objective or whether it really is some of

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<v Speaker 1>the weakening that we've seen in the labor market, albeit

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<v Speaker 1>from a strong place. When will you have enough data

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<v Speaker 1>to really make that determination.

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<v Speaker 3>Well, one of the challenges of central banking that you

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<v Speaker 3>just have to accept is that we never have perfect data,

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<v Speaker 3>so you're always making judgments, and you want sufficient data

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<v Speaker 3>to make a judgment that is really going to be

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<v Speaker 3>best for the American people. So right now we have

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<v Speaker 3>incoming information on the labor market which does not signal

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<v Speaker 3>real weakness, It just signals slowing, so we con needue

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<v Speaker 3>to watch that. And then on inflation, the data have

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<v Speaker 3>been good so far coming in. If we were only

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<v Speaker 3>backward looking, we would say, oh, it's time to adjust

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<v Speaker 3>the interest rate. But we have to be forward looking,

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<v Speaker 3>and then you have to make judgments about how you

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<v Speaker 3>think inflation will shape up going forward. And they always

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<v Speaker 3>really see three scenarios, and I'm leaning towards one, and

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<v Speaker 3>I'll tell you more and more. But the one scenario,

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<v Speaker 3>of course, is that it's just delayed. The tariffs are

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<v Speaker 3>going to have some impact on inflation. It is after all,

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<v Speaker 3>increasing costs, and that will be a more persistent effect.

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<v Speaker 3>The second opportunity or a possibility, is that it's delayed

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<v Speaker 3>but it will be a one off. And then the third,

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<v Speaker 3>of course, which I think is increasingly possible. It's not

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<v Speaker 3>my modal, but it's increasingly possible, is that this just

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<v Speaker 3>doesn't amount to as much as the models in history

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<v Speaker 3>would tell us, because businesses find ways to absorb the

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<v Speaker 3>costs and they split it down the production chain and

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<v Speaker 3>ultimately consumers pay less of that. So I think those

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<v Speaker 3>last two scenarios, it's delayed, but it's a one off,

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<v Speaker 3>or it doesn't materialize to the extent that the models

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<v Speaker 3>would suggest. Those are where I'm putting increasing probabilities. It

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<v Speaker 3>will just have to collect some more information to make

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<v Speaker 3>a decision. But you know, ultimately we can't wait for

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<v Speaker 3>perfect information or we'll be behind, and we can't do

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<v Speaker 3>that to the American people.

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<v Speaker 1>It sounds like President DAILI are leaning toward a sooner

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<v Speaker 1>rate cut if it is confirmed that this tariff impulse

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<v Speaker 1>is and as inflationary as people expected.

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<v Speaker 3>Is that correct, well sooner than what I mean? My

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<v Speaker 3>motal outlook has been for some time that we would

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<v Speaker 3>begin to be able to adjust the rates in the fall,

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<v Speaker 3>and I haven't really changed that view. It does seem

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<v Speaker 3>like that. Of course, if the tariffs are one off,

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<v Speaker 3>you can look through them, and if they're just not

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<v Speaker 3>going to materialize, and you have to watch both sides

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<v Speaker 3>of the mandate. And I think that's really important. It's

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<v Speaker 3>not one or the other. It's both sides of our

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<v Speaker 3>mandate that have really come into frame since we brought

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<v Speaker 3>inflation down from the really high levels to something that's

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<v Speaker 3>closer to our target. Ultimately, we have to watch both

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<v Speaker 3>sides and that's what I'm doing. And then the fall

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<v Speaker 3>looks promising for a rate cut. I don't know for sure.

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<v Speaker 3>I mean we have to be open about what we

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<v Speaker 3>don't know. Humble is I think the word that comes

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<v Speaker 3>out of the inflation run up and so but we will.

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<v Speaker 3>You know, there's a lot of differences of views on

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<v Speaker 3>the committee. I see that as real positive right now,

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<v Speaker 3>because people bring their perspectives and the data will guide

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<v Speaker 3>us to what is the one that ultimately looks like reality.

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<v Speaker 1>President daily John was talking about the Palace intrigue, and

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<v Speaker 1>I do wonder about how the increasingly political overlay to

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<v Speaker 1>the FED has complicated your messaging, given that there is

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<v Speaker 1>this debate about the dual mandate, etc. How much has

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<v Speaker 1>it affected the way that you communicate?

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<v Speaker 3>You know, not really. One of the things that I

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<v Speaker 3>recognize on a regular basis is if I go out

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<v Speaker 3>and talk to the people who live in the twelve

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<v Speaker 3>Federal Reserve districts, so that's nine states, very diverse states

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<v Speaker 3>in the West, they don't actually bring this up at all.

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<v Speaker 3>What they bring up is what do you think is

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<v Speaker 3>going to happen to inflation? Will you be able to

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<v Speaker 3>restore inflation to two percent? Will you be able to

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<v Speaker 3>restore price stability? Do you think the labor market is

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<v Speaker 3>going to be preserved during it? Because ultimately I really

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<v Speaker 3>want both jobs and lower inflation. I want to be

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<v Speaker 3>able to get ahead. And so far, the people in

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<v Speaker 3>my district are cautiously optimistic overall, thinking that the economy

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<v Speaker 3>is weathering some of the worst concerns and the uncertainties

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<v Speaker 3>but continuing to move along. So cautiously optimistic is where

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<v Speaker 3>they're where they are, and I think that reflects what's

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<v Speaker 3>on top of their mind, less about what's happening in Washington,

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<v Speaker 3>and more about what's happening in their lived experience, in

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<v Speaker 3>their communities.

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<v Speaker 1>So, President Daily, would you dismiss some of the discussions

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<v Speaker 1>around shadow fed and all of that is simply palace

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<v Speaker 1>intrigue and not necessarily affecting what would happen on the

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<v Speaker 1>feder Are you concerned about that?

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<v Speaker 3>You know, Ultimately, what I'm concerned about is the two

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<v Speaker 3>mandates Congress gave us full employment, price stability. There's work

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<v Speaker 3>to do there. That's where all of my focus is.

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<v Speaker 3>And the Federal Reserve is an institution. It weather's a

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<v Speaker 3>variety of different points in time ultimately, because we only

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<v Speaker 3>think of one thing, how our work and further the

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<v Speaker 3>American people in their lives and livelihoods, and how we

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<v Speaker 3>do that through our congressionally mandated goals. So that's what

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<v Speaker 3>we think about. We've had a durable history since nineteen thirteen,

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<v Speaker 3>and I would consider that to be continuing to do

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<v Speaker 3>our job well.

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<v Speaker 2>President Daddie. One argument we've heard to reduce interest rates

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<v Speaker 2>sooner than maybe say the fall, as you indicated, is

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<v Speaker 2>that basically the labor market right now it's no longer

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<v Speaker 2>a source for inflation. And with that in mind, there

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<v Speaker 2>is space to reduce interest rates because the fact believes

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<v Speaker 2>that the policy right is still restrictive. Does that not

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<v Speaker 2>convince you enough right now?

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<v Speaker 3>Not completely, because remember, inflation has been above our target

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<v Speaker 3>for some time, well above our target during periods of time,

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<v Speaker 3>and there's a sense where people really want us to

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<v Speaker 3>get that down. Inflation is a tax on people, and

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<v Speaker 3>every time we let people continue paying that tax, it

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<v Speaker 3>erodes their well being. So I'm very focused on getting

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<v Speaker 3>inflation down to two percent us. Being sure that we're

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<v Speaker 3>on that sustainable path as long as the labor market

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<v Speaker 3>doesn't show signs of weakening is really important. So you

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<v Speaker 3>have to make a view. You have to have a

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<v Speaker 3>view about what you think tariffs will do to inflation. Now,

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<v Speaker 3>my own view is that they will potentially raise inflation,

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<v Speaker 3>that's my motal outlook, but they should dissipate over the period.

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<v Speaker 3>It's not going to be something that builds into inflation expectations,

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<v Speaker 3>and thus we really have to against it. But we

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<v Speaker 3>can't just be assuming we know just because that's our

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<v Speaker 3>modal outlook. We have to really collect the information and understand. Remember,

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<v Speaker 3>data dependence isn't a backward looking activity, it's a forward

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<v Speaker 3>looking activity. Right now, we're looking forward by talking to

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<v Speaker 3>our contacts, and they still feel uncertain about what they

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<v Speaker 3>will do. They're going to try to pass some along,

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<v Speaker 3>but they, as a number of people you've had on

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<v Speaker 3>your show have mentioned, firms don't have all those abilities,

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<v Speaker 3>whether they're managing their brand or just they have exhausted

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<v Speaker 3>consumers who can't take anymore. That's what we're waiting to

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<v Speaker 3>find out. But I don't think we're behind in our waiting.

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<v Speaker 3>Policy in a good place. The economy is in a

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<v Speaker 3>good place, and that's what we'll continue to monitor President daily.

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<v Speaker 1>How much of a lesson was it last year when

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<v Speaker 1>the FED cut by one hundred basis points only to

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<v Speaker 1>see long term yields rise significantly in the face of

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<v Speaker 1>growth and inflation expectations. Is that something that you worry

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<v Speaker 1>about could happen now? You know what?

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<v Speaker 3>Really, financial markets are an input to our to my decisions,

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<v Speaker 3>not an output that I'm worrying about. And ultimately, you know,

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<v Speaker 3>we want to see financial conditions align with what we're

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<v Speaker 3>trying to do for the economy, and we'll adjust as

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<v Speaker 3>need it. But you know, we make policy. There's many

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<v Speaker 3>things that affect yields. We make policy that we believe

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<v Speaker 3>will be with the lags of monetary policy supportive of

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<v Speaker 3>both of our goals, and so I haven't I don't

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<v Speaker 3>spend a lot of time wondering what the bond market

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<v Speaker 3>will do, especially given there's so many things going on

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<v Speaker 3>in the bond market right now. It's been quite volatile.

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<v Speaker 3>So really it's about what did financial conditions overall do

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<v Speaker 3>and what does that do to growth and activity and inflation?

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<v Speaker 3>Does it restrain it or or support it? And that's

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<v Speaker 3>that's where my focus is as it helps on input.

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<v Speaker 2>Just co President, I just want to squeeze this in.

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<v Speaker 2>What would life be like with a permanent role in Washington,

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<v Speaker 2>d C. Compared to say San Francisco? How would that

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<v Speaker 2>feel hotter?

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<v Speaker 3>But seriously, you know, one of the things that I've

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<v Speaker 3>I've my experience with the Federal Reserve is you have

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<v Speaker 3>to contribute from wherever you sit. And that's what we

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<v Speaker 3>all do when we get around that table. There's nineteen

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<v Speaker 3>of us, and we don't think about who is in

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<v Speaker 3>what role. It's really how do we debate, discuss, bring

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<v Speaker 3>our best thinking and our best disagreement to bear so

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<v Speaker 3>we can make the right decision at the right moment

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<v Speaker 3>for the people we serve.

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<v Speaker 2>President Donnie appreciate your time, very diplomatic. As a wise