WEBVTT - Former Fed Governor Betsy Duke Talks September Fed Policy

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

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<v Speaker 2>The former Fed governor Bessie two writes in the following,

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<v Speaker 2>it would take something extraordinary to derail a twenty five

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<v Speaker 2>basis point cut in September, the question, we've all got

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<v Speaker 2>what it would take to make if fifty Bessie joined us.

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<v Speaker 2>Now for more, Betsy, wonderful to see you once again.

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<v Speaker 2>Let's start with Friday and that speech on Friday, Lisa,

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<v Speaker 2>and I've got a similar question, and I think he

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<v Speaker 2>might have the answer. Was the chairman speaking for the

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<v Speaker 2>committee on Friday or speaking for himself?

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<v Speaker 3>So for the entire speech, he was speaking for the

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<v Speaker 3>committee except for the one line when he said, my

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<v Speaker 3>confidence has grown that inflation is on a sustainable path.

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<v Speaker 3>And there he said my and that's very unusual for

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<v Speaker 3>this chairman. And I think what he was doing there

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<v Speaker 3>was he was expressing his own opinion, but giving the

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<v Speaker 3>committee room, not frontrunning the committee, but giving the committee

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<v Speaker 3>room in September through the sep to all put out

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<v Speaker 3>their own estimates of both where the various indicators are

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<v Speaker 3>going to be and their confidence in their forecasts.

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<v Speaker 2>Bessie, how big do you think the range will be?

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<v Speaker 2>In the summary of economic projections come September eighteenth. How

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<v Speaker 2>wide is that range going to be?

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<v Speaker 3>The range of the projections themselves are the confidence. So

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<v Speaker 3>the projections themselves I don't think are going to be

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<v Speaker 3>a terribly wide range, or not more than usual wide range.

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<v Speaker 3>But what I'm really watching for is the confidence, and

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<v Speaker 3>particularly the confidence in the inflation forecast. So in the

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<v Speaker 3>June projections there were just one or two participants who

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<v Speaker 3>had more than actually normal confidence in their projections. All

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<v Speaker 3>the rest of them said more uncertainty than usual. So

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<v Speaker 3>that's the confidence piece that I'll be looking for.

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<v Speaker 1>Betsy, do you think that it's appropriate for this federal

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<v Speaker 1>reserve to be so disproportionately weighted to cutting rates at

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<v Speaker 1>a time or we're not seeing true weakness in a

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<v Speaker 1>labor market?

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<v Speaker 3>Well, cutting rates is right now only reducing the amount

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<v Speaker 3>of tightness. It's not in any way becoming stimulative, and

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<v Speaker 3>so I think it is appropriate to begin that, But

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<v Speaker 3>I think they'll go fairly slowly and feel their way along.

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<v Speaker 3>The one piece that I don't think there's consensus on

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<v Speaker 3>is what is the level of neutral What is the

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<v Speaker 3>neutral level of interest rates? Those that are neither stimulative

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<v Speaker 3>nor restrictive, and I think they'd be feeling that went

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<v Speaker 3>along to that point.

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<v Speaker 1>They also didn't really resolve the other issue, which was

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<v Speaker 1>the theme of the whole conference, which was how much

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<v Speaker 1>was monetary policy responsible for bringing down inflation and how

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<v Speaker 1>much could it be responsible for preventing some sort of

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<v Speaker 1>downside to the labor market in general. I mean, did

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<v Speaker 1>we get any answers to some of the bigger questions

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<v Speaker 1>other than simply a FED show came out and said, yes,

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<v Speaker 1>we're going to cut rates, We're going to start the process,

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<v Speaker 1>and we could potentially cut a lot.

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<v Speaker 3>So actually, I think he did address that question. The

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<v Speaker 3>piece that he talked about is the importance of inflation expectations,

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<v Speaker 3>and what I heard him say was, yes, you know,

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<v Speaker 3>we were wrong on transitory. Once we realized we were wrong,

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<v Speaker 3>we acted. And so what I heard from that is

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<v Speaker 3>so the FED might get the individual settings wrong from

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<v Speaker 3>time to time, but its commitment to its mandate and

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<v Speaker 3>willingness to act in furtherance of that mandate is most

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<v Speaker 3>important for the confidence and anchoring inflation expectations, And that

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<v Speaker 3>piece I think he declared victory on not necessarily inflation,

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<v Speaker 3>but inflation expectations. Remaining anchored through this cycle of inflation.

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<v Speaker 2>Can we deal with inflation that contribution to actually bringing

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<v Speaker 2>inflation down from eight down towards three. Let's see what's

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<v Speaker 2>your impression of things, because in that speech on Friday,

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<v Speaker 2>I think we certainly walked away with this idea that

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<v Speaker 2>the Federal Reserve chair was acknowledging that a lot of

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<v Speaker 2>the work came from elsewhere.

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<v Speaker 3>Well, the problem this was a supply side driven inflation anyway,

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<v Speaker 3>So a lot all of the work was on the

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<v Speaker 3>supply side, which effect can't really effect. All the VET

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<v Speaker 3>could do was whole demand in check as best it

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<v Speaker 3>could while supply caught up. And that's true for the

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<v Speaker 3>labor market as well as the goods market. And I

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<v Speaker 3>think they did that. But I heard in this speech

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<v Speaker 3>he recognized that the reduction inflation has come entirely from supply,

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<v Speaker 3>including on the labor side. So when you look at labor,

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<v Speaker 3>I don't think we have a weak labor market. It's

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<v Speaker 3>coming into balance, but it's coming into balance because of

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<v Speaker 3>improvements and participation and increases in immigration, both of which

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<v Speaker 3>have a limit to how much they can continue to contribute.

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<v Speaker 2>Bessie Joke, appreciate it. Thank you. Former Fed governor Bessie

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<v Speaker 2>Joke found the latest