Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Making the case for a rake cut. FED Governor Chris
Speaker 2: Waller sounding an audience here in New York, looking across
Speaker 2: the selfton hot data, I get a picture of a
Speaker 2: labor market on the edge joining us now here in
Speaker 2: New York City, the Federals f Governor Chris Waller.
Speaker 1: Governor Walla, good morning, Oh, good morning from Jonathan Lisa Henry.
Speaker 1: Nice to be here.
Speaker 2: It's good to see you, sir. Let's talk about why
Speaker 2: we're losing the luxury of white sink.
Speaker 1: Have we lost that already? No? I think we have.
Speaker 3: Like I said last night, the headline numbers for the
Speaker 3: lay remark what we're seeing are okay, but it's like
Speaker 3: when you get underneath and start looking at the data,
Speaker 3: the private sector is not doing as well as everybody thinks.
Speaker 3: It is like most of the half of the employment
Speaker 3: growth we saw last month was in the public sector,
Speaker 3: and that means the private.
Speaker 1: Sector is not doing particularly well.
Speaker 3: So I was just joking that, you know, if you're
Speaker 3: walking on a lake and the ice is frozen and
Speaker 3: sound safe, but when you start hearing cracks, and that's
Speaker 3: what I feel like, it's too late once you go
Speaker 3: through the ice, so you've got to start prepping in
Speaker 3: advance before you have that happen.
Speaker 2: How do you scan that with what we've had from
Speaker 2: Coporate America so far? What Coporate America has tolled Lisa
Speaker 2: sitting down with Skull cub if United aadlines talking about
Speaker 2: a rebound in the second half, what we've had from
Speaker 2: the big banks so far this week? How do you
Speaker 2: sclam what you're seeing the data with what way hearing
Speaker 2: from CEOs?
Speaker 3: Yeah, I mean when I talk to CEOs, I get
Speaker 3: the same thing, wearing just hole pattern in terms of
Speaker 3: certainly the labor market. They're not hiring, they're not firing,
Speaker 3: they're just watching. And that's kind of what you see
Speaker 3: in this underlying.
Speaker 1: Private sector data.
Speaker 3: There's not much happening, So it wouldn't take much sort
Speaker 3: of tippet.
Speaker 1: Now, could I be wrong? Absolutely?
Speaker 3: I mean last year we got a couple of week
Speaker 3: labor market reports allowed us to cut in September and
Speaker 3: then everything kind of reversed went back up.
Speaker 1: So I'm not saying that couldn't happen again.
Speaker 3: But it's just we've constantly seen little bits of day
Speaker 3: continually coming down the page book yesterday came out some
Speaker 3: other stuff.
Speaker 1: When you get out of the Joels quits rates.
Speaker 3: Hiring rates, these things are not indicating our super healthy
Speaker 3: private sector of labor market.
Speaker 2: As you know, you're facing potentially and I stress, potentially
Speaker 2: negative supply shelks on both sides of the mandate. I
Speaker 2: want to say on the labor market, just for one
Speaker 2: further note, immigration, how are you thinking about that when
Speaker 2: you look at a labor market at the moment when
Speaker 2: we have people coming on the program on Blimbeck Savanans
Speaker 2: on Bloomback TV every single morning six till nine, coming
Speaker 2: on here and saying, look at the data, unemployment could
Speaker 2: stand these levels even with job gains of fifty to
Speaker 2: one hundred thousand because of tighter immigration. How does that
Speaker 2: factor into your thinking as you look at the US
Speaker 2: labor market.
Speaker 3: Well, yeah, the labor market doesn't necessarily have to be
Speaker 3: affected by it because if workers flow in and they
Speaker 3: get jobs at roughly the same rate as the existing workers,
Speaker 3: the unmployment rate doesn't change even though the labor force
Speaker 3: is higher. And when they go back out, the same
Speaker 3: thing happens. If they leave the employment and leave the
Speaker 3: labor force, you don't see a big change. The inflationing
Speaker 3: now ken potentially affect the break even rate that you
Speaker 3: would need to have the market going well. And that's
Speaker 3: what we're still trying to kind of get a sense
Speaker 3: of because you basically brought five years of immigration forward,
Speaker 3: and you know, of that eight or nine million, most
Speaker 3: of them haven't disappeared. So they're still here somewhere, whether
Speaker 3: they're going to work, they're not going to work, but
Speaker 3: they're still here. I don't where I think the immigration stuff.
Speaker 3: If immigration was a big factory, you'd be seeing shortages,
Speaker 3: and you might see some in you know, some industries.
Speaker 3: But like I pointed out that if you look at
Speaker 3: the new college graduate unemployment rate, it's seven percent. It's
Speaker 3: much higher than it has These are not jobs are
Speaker 3: being opened up because immigrants are not coming in.
Speaker 1: It should be just the opposite.
Speaker 3: If immigrants are leaving and these jobs are open and
Speaker 3: then the unemployment right should go the other way. So
Speaker 3: that unemployment rate, to me, is telling me immigration.
Speaker 1: Is not the source of the problem.
Speaker 3: Firms are just holding off on hiring decisions even if
Speaker 3: their earnings are doing well.
Speaker 1: That's that's just what I'm saying. They're doing on the
Speaker 1: labor side.
Speaker 2: I wanted to sign as a mutual friend of us.
Speaker 2: That feels like he's missing out this morning, so I
Speaker 2: wanted to cat show with you as well.
Speaker 3: He's outing Victor idoh, always having a good time, isn't it.
Speaker 1: My McKay joined us now. Good morning Mike, Good.
Speaker 4: Morning John, and good morning Governor. While I would say
Speaker 4: I'm sorry I'm not there with you, but I bet
Speaker 4: you're sorry you're not here with me, I know.
Speaker 1: You got it. I've been there before. It's a nice place.
Speaker 4: You've made the case now a couple of times for
Speaker 4: a July rate cut.
Speaker 1: But how committed are you?
Speaker 4: Are you willing to dissent at this meeting if the
Speaker 4: majority votes the other way?
Speaker 3: Well, I never want to commit to an action before
Speaker 3: the meeting. That's otherwise. If everybody committed before, you don't
Speaker 3: even need to have the meeting have a discussion. So
Speaker 3: the goal is to always go to the meeting, sit down,
Speaker 3: listen to all sides.
Speaker 1: People will try to convince me of their view.
Speaker 3: I'll try to convince some of my views, and then
Speaker 3: the end of the day you make decisions on what
Speaker 3: you think is the right outcome and the right data,
Speaker 3: how the data is coming and right now. I laid
Speaker 3: out my case last I don't think I could be
Speaker 3: any more clear, I hope, as to what my position
Speaker 3: is and why.
Speaker 1: I think we need to do this.
Speaker 3: It's just how I read the data and how I
Speaker 3: think about going forward. How you respond to anything that
Speaker 3: involves tariffs.
Speaker 4: There's a lot of politics in this decision coming up,
Speaker 4: more than usual, and I'm wondering. Governor Bowman has also
Speaker 4: suggested she would prefer a rate cut in July. If
Speaker 4: two of you vote for a rate cut, if two
Speaker 4: of you were to descend, would you worry about the
Speaker 4: market reaction to that?
Speaker 1: You know.
Speaker 3: One of the things that has always bothered me since
Speaker 3: I took this job is the criticism.
Speaker 1: That we are nothing but group think.
Speaker 3: All the meanings are the same, nobody does sense, nobody
Speaker 3: does anything.
Speaker 1: And I think this is healthy.
Speaker 3: I think this is a turning point in the way
Speaker 3: we want to think about policy. Some people don't want
Speaker 3: to cut, some do want to cut, but coming out
Speaker 3: and making the case either side's good healthy debate. Otherwise,
Speaker 3: if we're always going to do the same, the joke is,
Speaker 3: why don't you just have one person set policy and
Speaker 3: some of the other eighteen FMC members home.
Speaker 1: So this is healthy. I think this is what you
Speaker 1: want to see in a democracy. You want to see.
Speaker 3: Policymakers have serious, open discussion about where policies should go.
Speaker 3: It doesn't mean anything about politics or anything else. It's
Speaker 3: make the economic argument and then see if you can
Speaker 3: convince others to go along with you.
Speaker 1: And that's all I'm trying to do.
Speaker 2: We totally agree with you. For the record, we would
Speaker 2: sack of the great thinking. It's good to have dissent,
Speaker 2: you know, Mike essentially is asking if you will dissent
Speaker 2: at the end of this month. Is the value and
Speaker 2: dissentic on the f web site.
Speaker 3: Well, I mean it's often the case that you dissent
Speaker 3: if you make it very clear you think at this
Speaker 3: moment in time, this is an important thing to do.
Speaker 3: If you were to go in and do kind of
Speaker 3: a jihadist I'm going to dissent at every single meeting
Speaker 3: no matter what happens. Then you don't even have to
Speaker 3: show up. Everybody knows what you're going to do. So
Speaker 3: it is important to make sure that if you dissent,
Speaker 3: you do it carefully and you have the right reasons,
Speaker 3: and it's not going to turn into a serial dissenting
Speaker 3: potential case. I mean, that's how I take my job
Speaker 3: seriously and responsibly, so I only would think about doing this.
Speaker 3: I dissented on the balance sheet slowed down earlier this
Speaker 3: year because I felt like that was not needed. And
Speaker 3: that's kind of the situation we're.
Speaker 1: In now, Chris.
Speaker 4: If you do cut, the markets will go one way.
Speaker 4: If you don't, they'll go another. Perhaps, are how critical
Speaker 4: is it to get to a rate cut fairly quickly?
Speaker 4: You've mentioned the danger to the labor market, But if
Speaker 4: you do wait till September, is that going to be
Speaker 4: too late?
Speaker 3: Well that's kind of the debate. What does it mean
Speaker 3: to wait six weeks? Is it that critical? And the
Speaker 3: answer is probably not. It could be, but it's also
Speaker 3: the reverse. Why wait till September? If it's just six weeks,
Speaker 3: that's exactly the thing. It doesn't kind of matter. Just
Speaker 3: start the thinking about do I want to wait and
Speaker 3: risk something happening.
Speaker 1: This is what we saw last summer. By the way we.
Speaker 3: Left July, we left rates and then boom, we got
Speaker 3: a very weak, bad labor market reports and unemployment rate
Speaker 3: jumped two tens, payrolls went way down from where they were,
Speaker 3: and people were screaming at us last August, you guys
Speaker 3: should have cut in July. So one month? Can it
Speaker 3: always is one month? Just remember that it's just one month.
Speaker 3: But we live in a world in which we have
Speaker 3: to respond to real time data to kind of sense
Speaker 3: of where the economy is going. And I've always said
Speaker 3: if you worry about long and variable lags, which everybody
Speaker 3: always talks about, the whole point of.
Speaker 1: That is to get ahead of it, not wait for
Speaker 1: it to happen.
Speaker 3: And then hike a policy action that takes quarters or
Speaker 3: months down the road to actually.
Speaker 1: Have any impact.
Speaker 2: The new Wiries tariffs, We've just had a six minute
Speaker 2: conversation with you at that month, at your policy You've
Speaker 2: built a case for a lot of interest rights, and
Speaker 2: no one's talked about trite or inflation. Two assumptions in
Speaker 2: your speech yesterday, and I think they're important assumptions. A
Speaker 2: large share of tariff increases one bepostreets can see us
Speaker 2: any increase would fight over the next YEARO cybe what
Speaker 2: data underpins that conclusion?
Speaker 3: Well, one, it's just first, it's just economic theory. So
Speaker 3: you put on a tear cari iff as long as
Speaker 3: it's a one time tariff, and that's it. That's a
Speaker 3: one time price effect. I mean, this is economic theory.
Speaker 3: You could not get in any serious economic model persistent
Speaker 3: inflation from that. You would have to cook up some
Speaker 3: other amplification mechanisms.
Speaker 1: And that's what people talk about wages. They'll start going
Speaker 1: up and everything will get out of control. You're not
Speaker 1: seeing that at all.
Speaker 3: This is just not those kind of amplification mechanism or
Speaker 3: wage price spirals aren't happening. Tariffs are attacks, and in
Speaker 3: public finance you learn that you may levy attacks on
Speaker 3: a firm, but who bears the incidents of the burden
Speaker 3: of that tax can be a group of people or
Speaker 3: one person not of the firm.
Speaker 1: So this is what I've heard from a lot of firms.
Speaker 3: If there's a ten percent tax, they'll force their suppliers.
Speaker 1: To eat some of that cost.
Speaker 3: Workers meet some of that costs in terms of less
Speaker 3: hiring and things like that.
Speaker 1: The firm will take it.
Speaker 3: Out of their profit margins, and then lastly some of
Speaker 3: it will get passed on. And as I mentioned last night,
Speaker 3: I've heard this for months now, like the rule is
Speaker 3: ten percent, it's sorefully rule. If I'm as a third
Speaker 3: to third a third suppliers of later to third firms
Speaker 3: lead to third consumer is going to eat a third
Speaker 3: of that tariff. So if you eat a third of
Speaker 3: it and it's ten percent, like I've been arguing, this
Speaker 3: is like three tenths of a three basic three tenths
Speaker 3: on the inflation rate for a few months, and that's it,
Speaker 3: and it'll persist. If you do twelve month over twelve month,
Speaker 3: that base effect will not go away for a while
Speaker 3: and then it'll just drop off a cliff. So that's
Speaker 3: why I've been arguing, you want to look at like
Speaker 3: three months and six months to see if these tariff
Speaker 3: effects pop up and then go away. And so that's
Speaker 3: more critical looking at twelve month.
Speaker 4: Yes, but the way the President is putting these tariffs
Speaker 4: on might not match up with theory. Chris, the smooth
Speaker 4: hol attacks was passed and came into it on a
Speaker 4: certain date. The President is not yet put on most
Speaker 4: of these tafts they're in. Theory is still coming and
Speaker 4: we still haven't seen the Section two.
Speaker 1: Thirty two tariffs.
Speaker 4: For the most part, the National Defense tariffs that he
Speaker 4: wants to put on semiconductors and pharmaceuticals, et cetera. So
Speaker 4: if the process is stretched out, consumers could be hit
Speaker 4: by a series an ongoing series of tariff increases. And
Speaker 4: given what they've just been through, isn't there danger that
Speaker 4: inflation psychology starts to seep in?
Speaker 1: Well, that's exactly the point.
Speaker 3: All my example has been is if you put the
Speaker 3: ten percent uniform tariff on and keep it roughly in
Speaker 3: that range, than what I've described as will happen. If
Speaker 3: there's constantly a sequence of higher and higher and higher tariffs,
Speaker 3: then you are going at this rolling potential impact on prices.
Speaker 1: That's true.
Speaker 3: If it's still just a question of delaying it, that
Speaker 3: doesn't change my argument. Whether you see the spike in
Speaker 3: July or it happens in June, or Army, August or September.
Speaker 3: When it happens, is there for the economics that's.
Speaker 1: A non starter an argument.
Speaker 3: Firms could also just spread it out in smaller increments
Speaker 3: over several months. The total effects stillins of being the same.
Speaker 3: They just get there in a later fashion and it'll
Speaker 3: be smaller amounts. So the bigger thing is if we
Speaker 3: just continually get another wave of tariffs, another wave of tariffs,
Speaker 3: and another waves of tariffs. That's when things become more
Speaker 3: problematic thinking about what's going to happen with inflation.
Speaker 2: You don't think the feder was a should Wait, I
Speaker 2: just want to talk about the experience of last year.
Speaker 2: I think Lisa's done a fantastic job of covering this
Speaker 2: over the last six seven eight months. The move we
Speaker 2: saw last year one hundred basis point reduction in interest
Speaker 2: rates on Fed funds, and then we saw a corresponding
Speaker 2: move one hundred basis points higher at the long end
Speaker 2: of the yield curve. Yields down did not happen. It
Speaker 2: was yields up and mortgage costs up as well. How
Speaker 2: do you think one informed the other and how might
Speaker 2: that shape your approach to kind of interest rates this
Speaker 2: time around?
Speaker 3: Well, I think last September there was a lot of
Speaker 3: rumor the long term rates were going down through Artist
Speaker 3: and early September, and this was not any contradiction of
Speaker 3: what we were doing. It's just after the September meeting
Speaker 3: that data just came back and the opposite way growth
Speaker 3: was productivity was employment suddenly took back off. And then
Speaker 3: you have real growth expectations being much higher. We were
Speaker 3: seeing productivity growth in GDP growth are close to three percent,
Speaker 3: So in that case, long rates go up anyway, So
Speaker 3: it's not necessarily there was some counter reaction to what
Speaker 3: we were doing. I never saw inflation expectations adjust.
Speaker 1: It caused all that.
Speaker 2: You didn't think it was a market questioning. Youal commitments
Speaker 2: to the inflation mandate.
Speaker 3: If it would have been, you've seen it inflation expectations
Speaker 3: in the market, not the Michigan thing, But we didn't
Speaker 3: see it. I mean, inflation expectations stayed fairly anchored all
Speaker 3: through this rise. So I think the increase of long
Speaker 3: rate was just all the data was coming in for
Speaker 3: a better, stronger economy. Then we thought it was going
Speaker 3: to be in September. That's fine with me, you know.
Speaker 3: I sometimes you're going to do these things taking a
Speaker 3: shot that I want to make sure we don't have
Speaker 3: a hard landing. And as I said, with any kind
Speaker 3: of an insurance cut, sometimes you don't need the insurance.
Speaker 1: It didn't work.
Speaker 3: Out, but that doesn't mean you go back and say, oh,
Speaker 3: that was a stupid decision.
Speaker 2: To make market based expectations of inflation. Let's sit on this.
Speaker 2: There are clear and obvious threats to the central banks
Speaker 2: independence right now. Every single down this program, we're quoting
Speaker 2: the President, quoting the chairman too late, and going after
Speaker 2: lower interest rates. And I think a way that you
Speaker 2: and I can have this conversation without addressing those those
Speaker 2: cools directly is to think about what's happening with inflation expectations.
Speaker 2: Did these threats threats into d anchor market based inflation expectations?
Speaker 2: And it's not something you and the Committee might become
Speaker 2: increasingly sensitive too in the months to come.
Speaker 1: Well, Like I.
Speaker 3: Said, I look at the after the tariffs coming on,
Speaker 3: everybody was worried about the anchoring expectations, particularly after some
Speaker 3: of these Michigan surveys came out. When I always look
Speaker 3: at the market based expectation because money, people have money
Speaker 3: in the game.
Speaker 1: Firms are making.
Speaker 3: Decisions or what they're cheap economists are saying, and if
Speaker 3: those things are wrong, they're gonna lose a lot of money.
Speaker 1: Always paid more attention.
Speaker 3: I haven't seen much in the way of market expectations
Speaker 3: being unanchored in any ways you want to measure them
Speaker 3: any forwarder now in the near term.
Speaker 1: Of course they might go on because you would.
Speaker 3: See inflation in the short term, but in the longer
Speaker 3: term ones I'm not seeing it. So either the market
Speaker 3: is just dismissing all of this as chattering noise, or
Speaker 3: at some point if something happens such that it becomes
Speaker 3: much more serious than you might see a discrete jump, and.
Speaker 1: Then you know that's that's gonna be a problem for everybody.
Speaker 4: One of the questions that we get all the time, Chris,
Speaker 4: from people on Wall Street is or one of the
Speaker 4: posits they make is that all this criticism of the
Speaker 4: FED is hurting FED credibility and that the next chairman
Speaker 4: is going to have a tough job because there are
Speaker 4: going to be expectations for the next chairman set by
Speaker 4: the White House rather than by the economy. Do you
Speaker 4: feel that inside the building.
Speaker 1: Now, To be absolutely honest, we just do our job.
Speaker 3: Every day I go in, I just focus on my
Speaker 3: work on monetary policy, payments.
Speaker 1: And oversight of the reserve banks. That's what I do.
Speaker 3: I let this stuff go and then just try to
Speaker 3: focus on my job. And I think that's how all
Speaker 3: of us are proceeding with this. I mean, at the
Speaker 3: end of the day, the president, when whoever they choose,
Speaker 3: you're going to have to have somebody has credibility with
Speaker 3: the markets, or you will see, as Jonathan is talking about,
Speaker 3: you're going to see inflation expectations bike.
Speaker 1: You will not get lower interest rates, you will get
Speaker 1: higher interest rates. This is well known.
Speaker 3: We've seen this everywhere around the world when this happens.
Speaker 3: And I know Scott Deson knows this, So this is
Speaker 3: not something that is lost on anybody.
Speaker 2: You've been nominated by this president for the seat on
Speaker 2: the board. Yes, you were a previously director of research
Speaker 2: for Jim Pillot White back then is it a position
Speaker 2: you would like? Is it something you would like to
Speaker 2: do or in the future.
Speaker 1: Look in twenty nineteen, the President contact me and say
Speaker 1: would you serve? And I said yes. If the President
Speaker 1: contacted me and so I want you to serve, I
Speaker 1: would do it.
Speaker 3: But he's not contact What say if he does, If
Speaker 3: he says, Chris, I want you to do the job,
Speaker 3: I'll say yes.
Speaker 1: But he's not talking to me.
Speaker 3: So that's it that much hypothetical that.
Speaker 2: That might change. So it's good to see you. We
Speaker 2: appreciate your time, all right, been very generous with it.
Speaker 2: Thank you very much. The Federal Reserve governor there, Christopher Waller,
Speaker 2: Mike McKay, thanks as well to you, sir,