WEBVTT - Surveillance Special: Fed Speak in Jackson Hole 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.320 Bloomberg dot Com, and of course on the Bloomberg fraug 0:00:34.400 --> 0:00:36.839 Us in economics. It's a fun, fun day out in 0:00:36.920 --> 0:00:39.879 Jackson Hall with all of these interviews coming up from 0:00:39.960 --> 0:00:43.920 Mr Kaplan from Bostic of Atlanta, and here now is 0:00:43.920 --> 0:00:47.120 our Michael McKee with the Feller Reserve Bank of St. 0:00:47.200 --> 0:00:51.080 Louis FED. President. Good morning, Thank you very much. We'd 0:00:51.080 --> 0:00:53.800 like to welcome everybody listening to us on Bloomberg Radio 0:00:53.840 --> 0:00:56.200 and watching us on Bloomberg Television around the world. We'd 0:00:56.200 --> 0:00:58.440 like to welcome Jim Bullard and thank you for getting 0:00:58.480 --> 0:01:00.400 up so early to join us. Sarah, thanks are having me. 0:01:02.680 --> 0:01:04.600 You're for Minnesota, so you have to pretend you like 0:01:04.720 --> 0:01:07.240 it and it's an inforrible thing. Look a lot of 0:01:07.240 --> 0:01:10.919 Wall Street focus today on the chairman's speech. The minute 0:01:11.000 --> 0:01:14.920 suggested that the FED is locked in for September. So 0:01:15.520 --> 0:01:18.280 even if you disagree with that rate path, is there 0:01:18.319 --> 0:01:21.000 any reason to think that he's gonna see anything market 0:01:21.040 --> 0:01:24.360 moving today. I'm sure the chair will be very careful. 0:01:24.840 --> 0:01:28.040 I've not seen the speech, but he'll do a good job. 0:01:28.160 --> 0:01:31.640 He always does. He's always very very serious. You don't 0:01:31.680 --> 0:01:34.160 get the impression there's any kind of change a foot 0:01:34.280 --> 0:01:37.240 for the Open Market Committee and the rate path that 0:01:37.360 --> 0:01:40.080 there are. Well, the markets are putting a high probability 0:01:40.120 --> 0:01:42.800 on September, and I mean you can pull the other 0:01:43.400 --> 0:01:45.960 members of the Committee as well as I can, and Uh, 0:01:46.319 --> 0:01:48.680 there's certainly seems to be sentiment to go in that direction. 0:01:48.920 --> 0:01:51.360 Would you expect the forward guidance to drop out of 0:01:51.360 --> 0:01:53.720 the statement in September, the idea that the rates are 0:01:53.720 --> 0:01:58.800 accommodative and we'll stay that way. Uh, that's an interesting issue, 0:01:58.920 --> 0:02:01.240 and I think we'll have to wrestle with that one. 0:02:01.920 --> 0:02:05.040 I'm so from from my point of view, i'd, you know, 0:02:05.240 --> 0:02:08.200 rather not be calling rates accommodative right now. I think 0:02:08.240 --> 0:02:11.720 the whole structure of rates is lower, and therefore I 0:02:11.760 --> 0:02:15.079 think we're at neutral, are very close to neutral right now. 0:02:15.600 --> 0:02:20.960 Very interesting story out today on Bloomberg News. Twenty years ago. Unemployment, 0:02:21.080 --> 0:02:25.120 very low, inflation sticky and relatively low. James Stock, you 0:02:25.200 --> 0:02:29.520 normally famous economists did a paper that suggested that in 0:02:29.560 --> 0:02:33.600 those situations where you don't really know why something is happening, 0:02:34.120 --> 0:02:37.200 it is better for the FED to be aggressive than 0:02:37.520 --> 0:02:40.840 to take a step back because you don't know when 0:02:40.880 --> 0:02:43.680 inflation might show up. Now you're in the step back camp. 0:02:44.440 --> 0:02:48.400 Why is James Stock wrong and Jim Board right? Yeah, 0:02:48.440 --> 0:02:51.359 that's an older paper and there was a literature about 0:02:51.520 --> 0:02:54.320 that kind of went around the circles on this, about 0:02:54.320 --> 0:02:56.480 whether you should be more aggressive or less aggressive when 0:02:56.520 --> 0:03:00.360 you're uncertain about about key, key things like the slope 0:03:00.400 --> 0:03:04.640 of the Philip curve. Um, there are arguments on the 0:03:04.639 --> 0:03:07.760 other side. So that was just one paper in a 0:03:07.600 --> 0:03:10.120 in a kind of sea of papers on that. UM. 0:03:10.160 --> 0:03:12.760 I would say it's makes more sense probably to be 0:03:12.919 --> 0:03:19.200 a gradualist on that in the current environment. You know what, uh, 0:03:20.200 --> 0:03:22.280 what you'd like to do is just take on board 0:03:22.320 --> 0:03:24.880 the idea that inflation has been very low, it's been 0:03:25.000 --> 0:03:28.840 very stable, It really has been quite sluggish, and it 0:03:28.960 --> 0:03:31.160 just doesn't seem like you have to do too much. 0:03:31.160 --> 0:03:33.480 But if you had to, you could move pretty fast 0:03:33.520 --> 0:03:36.040 if you needed to. So so I just don't see 0:03:36.360 --> 0:03:40.280 the argument for being pre emptive in this situation in 0:03:40.320 --> 0:03:43.720 a world where the Phillips curve really hasn't been a 0:03:43.760 --> 0:03:47.640 factor in the last twenty years. Well, the Fed essentially 0:03:47.640 --> 0:03:50.240 did not take jamets. Just to show you how flat 0:03:50.240 --> 0:03:52.600 we're talking about now, this is a ratio of ten 0:03:52.680 --> 0:03:55.280 to one, So you need a hundred basis points of 0:03:55.360 --> 0:03:59.760 gap between unemployment and some natural rate of unemployment to 0:03:59.800 --> 0:04:03.640 get just ten basis points on the inflation rate. And man, 0:04:03.880 --> 0:04:08.960 that's that''s really really, that's almost nothing. The next two years. 0:04:09.200 --> 0:04:12.600 We don't see inflation. I don't see it, and more importantly, 0:04:12.720 --> 0:04:14.480 I don't think markets see it. If you look at 0:04:14.520 --> 0:04:17.960 tips space measures of inflation expectations, they're taking all of 0:04:18.040 --> 0:04:23.320 us into account. They've taken into account, uh, fiscal policy, 0:04:23.880 --> 0:04:26.520 rapid growth in the economy, low unemployment rate. They still 0:04:26.560 --> 0:04:29.600 don't see that much inflation, especially if you translate from 0:04:29.680 --> 0:04:32.760 a CPI basis to a PC basis. So they're really 0:04:32.800 --> 0:04:35.320 saying we probably won't hit our inflation target over the 0:04:35.360 --> 0:04:38.480 next five years, next ten years, or the five I'm sorry, 0:04:38.480 --> 0:04:42.000 the next ten years. Well, if they did not take 0:04:42.480 --> 0:04:45.960 James Stock's advice, it kept very slow for long and everybody, 0:04:46.160 --> 0:04:48.640 not everybody, but a lot of people suggest that maybe 0:04:48.640 --> 0:04:50.719 that was one of the proximate causes of the two 0:04:50.760 --> 0:04:53.160 thousand and eight financial crisis, that rates were too low 0:04:53.400 --> 0:04:56.200 for too long and excess is built. You know, okay, 0:04:56.360 --> 0:04:59.680 so financial stability is a is an issue. In the 0:04:59.760 --> 0:05:01.919 nine eight though, would have been the currency crisis and 0:05:02.360 --> 0:05:06.640 started in Thailand and unspread UH in Asia, ultimately not 0:05:06.720 --> 0:05:09.880 affecting the U S economy. Was a lesson from that 0:05:10.560 --> 0:05:13.400 because it drove US rates lower and that actually helped 0:05:13.520 --> 0:05:17.600 the boom in the U S. So um later you got, 0:05:17.960 --> 0:05:20.000 of course, the dot com bubble did come to an 0:05:20.080 --> 0:05:24.320 end later. Yield curve was inverted in two thousand and 0:05:24.440 --> 0:05:27.400 FED went ahead and and race rates in the face 0:05:27.440 --> 0:05:31.000 of inverted yield curve, and you could argue that that 0:05:31.080 --> 0:05:33.279 was a mistake at the time, Well, you and other 0:05:33.320 --> 0:05:35.440 members of the Open Market Committee, I said, we would 0:05:35.440 --> 0:05:40.000 not intentionally UH invert the yield curve. But are you 0:05:40.080 --> 0:05:43.040 smart enough? Do you have enough insight into the markets 0:05:43.120 --> 0:05:47.400 to know whether you would do that? Here's what I 0:05:47.440 --> 0:05:49.560 think in this issue. I was around in two thousand, 0:05:49.760 --> 0:05:51.960 we met, we did it, played it wrong. I was 0:05:51.960 --> 0:05:54.320 around in two thousand and six. Again, the old curve 0:05:54.400 --> 0:05:57.040 was inverted. We played it wrong this time. I want 0:05:57.080 --> 0:05:59.640 to take this signal seriously, even though when you look 0:05:59.640 --> 0:06:03.120 at mac economic models it doesn't really fit into the 0:06:03.160 --> 0:06:05.720 models the way we'd like. But I think you have 0:06:05.760 --> 0:06:08.320 to take it seriously as a signal. And what I 0:06:08.360 --> 0:06:11.279 think about this is there is no reason to challenge 0:06:11.520 --> 0:06:14.400 the yield curve at this time. There's no reason in 0:06:14.440 --> 0:06:18.280 other circumstances. If inflation was higher and heading higher, then 0:06:18.279 --> 0:06:21.479 I might say, well, we're taking some recession risk, but 0:06:21.520 --> 0:06:23.640 I'm willing to trade that off because it looks like 0:06:23.680 --> 0:06:25.960 inflation is getting out of control. We're not in that 0:06:26.040 --> 0:06:29.560 situation today. Inflation is low, it's stable, it's barely up 0:06:29.600 --> 0:06:32.640 to target, just barely getting to target today. So we 0:06:32.720 --> 0:06:35.640 don't need to challenge, we don't need to be preemptive 0:06:35.839 --> 0:06:39.560 on the yield curve. One of the other arguments against moving, 0:06:39.640 --> 0:06:42.160 people say is the impact that you have on emerging 0:06:42.200 --> 0:06:45.040 markets and the spillover effect that could have on the 0:06:45.120 --> 0:06:48.520 US economy. I know your mandate is the US economy, 0:06:48.560 --> 0:06:51.760 but how much of a risk do you think that is? Well, 0:06:51.880 --> 0:06:54.200 I mean, we've been going very slow at the rate 0:06:54.279 --> 0:06:58.960 increases well telegraphed I think these foreign economies have had 0:07:00.000 --> 0:07:02.880 ample opportunity and apple understanding of what was going on 0:07:02.960 --> 0:07:05.680 in the US. You do have some countries that have 0:07:05.760 --> 0:07:10.200 special situations, usually special political situations in one kind or another. 0:07:10.800 --> 0:07:14.040 They borrowed in foreign currency, that's often an issue. Not 0:07:14.160 --> 0:07:18.119 enough reserves, that's often an issue. So UM, I would 0:07:18.120 --> 0:07:22.320 take those as special cases the countries that are having trouble. Um, 0:07:22.400 --> 0:07:25.040 but I'll keep an eye on it. Also on the 0:07:25.080 --> 0:07:27.559 list of things that FEDE officials have been concerned about 0:07:27.880 --> 0:07:30.160 the decline in home sales, and not just the decline 0:07:30.160 --> 0:07:33.200 in home sales, but median prices have been falling, is 0:07:33.240 --> 0:07:37.400 the is the FED killing the housing market by raising rates? Uh? Well, 0:07:37.760 --> 0:07:40.480 housing is one of the most interest sensitive sectors, so 0:07:40.600 --> 0:07:44.720 you would think it would have some impact there. Um. 0:07:44.760 --> 0:07:47.560 If you talk to real estate people, then they say, wow, 0:07:47.640 --> 0:07:53.520 it's limited in it's because of the limited inventories and prices. Uh. 0:07:53.720 --> 0:07:57.800 You're saying medium prices went down, but uh, some of 0:07:57.800 --> 0:08:00.720 the year over year figures are still positive. So um, 0:08:00.760 --> 0:08:02.920 and they have risen quite a bit. They've been rising. 0:08:03.000 --> 0:08:05.520 The housing prices up until now, until recently have been 0:08:05.640 --> 0:08:09.160 rising at a fairly good clip. Finally, on the list tariffs. 0:08:09.640 --> 0:08:12.720 Most economists say there will be some effect, but it 0:08:12.720 --> 0:08:14.800 doesn't show up in the data. So I'm wondering what 0:08:14.920 --> 0:08:18.440 companies in your district CEOs are telling you about the 0:08:18.480 --> 0:08:21.600 impact of tariffs so far and what impact that might 0:08:21.640 --> 0:08:24.880 be having on their investments. Certainly get an airfull about 0:08:25.240 --> 0:08:28.560 tariffs from many different angles. There's a lot of concern 0:08:29.000 --> 0:08:33.640 on main street about how these tariff wars will affect 0:08:33.640 --> 0:08:36.280 them and their products. Soybeans, for instance, is a major 0:08:36.320 --> 0:08:41.120 product out of the eighth district that's UH, that's exported. Um. 0:08:41.160 --> 0:08:43.880 I hope we can get to some resolution. I hope 0:08:43.880 --> 0:08:47.559 that the strategy works, that this is UH negotiating tactic, 0:08:47.720 --> 0:08:51.760 but that ultimatelyly it leads to freer trade and better 0:08:51.800 --> 0:08:55.119 trade arrangements with our trading partner. Well, there's been uncertainty 0:08:55.160 --> 0:08:57.920 about tariffs. There was uncertainty about the impact of the 0:08:58.040 --> 0:09:00.920 tax reform law, and la time we talked to you 0:09:01.000 --> 0:09:03.920 suggested that that was leading companies to hold off on 0:09:04.040 --> 0:09:07.120 investment decisions because they weren't sure what the climate was 0:09:07.160 --> 0:09:09.680 going to be. Has that changed or company is still 0:09:09.720 --> 0:09:13.959 on hold. They are concerned about the tariff issue because 0:09:14.400 --> 0:09:16.520 they feel like well, if I if I put a 0:09:16.559 --> 0:09:19.400 plant in country acts and then there are a bunch 0:09:19.440 --> 0:09:21.720 of you know, the tariffs go way up that are 0:09:21.720 --> 0:09:24.679 going to have to move the plant to some other country. 0:09:24.800 --> 0:09:26.880 And so they want to know what the rules are 0:09:26.920 --> 0:09:30.760 before they invest, as a classic element of investing on 0:09:30.800 --> 0:09:34.480 a grand scale, And they do want certainty before they 0:09:34.480 --> 0:09:37.959 do that one of the tet but they wanted the 0:09:38.280 --> 0:09:42.199 more certain One of the topics here as we talk 0:09:42.280 --> 0:09:47.440 about changing market structure is the decline in business dynamism 0:09:47.480 --> 0:09:50.000 in the United States. Do you have a good handle 0:09:50.040 --> 0:09:53.040 on why that is and how is it in the 0:09:53.080 --> 0:09:56.560 eighth district? You know, I have I have an idea 0:09:56.600 --> 0:09:58.520 about this, and I'm going to test it out and 0:09:58.640 --> 0:10:01.080 pitch it out here to these two people here at 0:10:01.120 --> 0:10:04.560 this conference. But I think the core ideas that in 0:10:04.600 --> 0:10:06.960 the nineteen eight if you look at the data since 0:10:06.960 --> 0:10:09.440 the nineteen eighties, there are more people working for big 0:10:09.480 --> 0:10:11.400 companies today than there were. It used to be like 0:10:11.480 --> 0:10:14.480 kind of like six. Now it's like eight of all 0:10:14.520 --> 0:10:17.199 employees are working for so called big companies, depending on 0:10:17.280 --> 0:10:19.920 how you define that. So if you think about what 0:10:20.000 --> 0:10:22.920 happens since the eighties, it was all about rolling up industries. 0:10:23.400 --> 0:10:27.640 Hardware industry used to be very uh dispersed. Now you've 0:10:27.679 --> 0:10:30.880 got Lows and home depot. Uh. Coffee used to have 0:10:30.920 --> 0:10:34.160 a coffee shop on every street corner. They're independently owned. 0:10:34.320 --> 0:10:38.400 Now you've got Starbucks. That theme has rolled through the 0:10:38.480 --> 0:10:42.120 US corporate sector since the nineteen eighties, and I think 0:10:42.160 --> 0:10:45.160 that that is what has driven this idea that you know, 0:10:45.200 --> 0:10:48.640 more people are working for bigger companies. The worry about 0:10:48.640 --> 0:10:51.960 that is bigger companies that are thought to not innovate 0:10:52.120 --> 0:10:55.600 as much, and so that might hurt our economy long term. 0:10:55.760 --> 0:10:59.640 Not enough small firms and uh, you know, they tend 0:10:59.679 --> 0:11:03.240 to be you know, more sluggish and not not react 0:11:03.360 --> 0:11:06.920 enough to market events compared to smaller firms, So that 0:11:06.960 --> 0:11:09.560 would be the concern. Jim Bullard, president of the St. 0:11:09.559 --> 0:11:11.680 Louis Fan Thanks for joining us on this cold morning. 0:11:11.720 --> 0:11:14.960 We'll let you get warm and justice. Second, okay, we'll 0:11:15.000 --> 0:11:18.280 send it back to you. Michael McKee, Thank you so much. 0:11:32.000 --> 0:11:34.920 Michael McKee in front of the split rail fence at 0:11:35.040 --> 0:11:39.360 Jackson Hole. A beautiful, beautiful morning. Is the fog is 0:11:39.400 --> 0:11:42.160 burned off. Here he is with a president of the 0:11:42.240 --> 0:11:44.600 Cleveland Fed. Here he is and thank you very much, 0:11:44.600 --> 0:11:48.080 and we welcome President Mster to Bloomberg Television and Radio worldwide. 0:11:48.120 --> 0:11:50.120 Thank you for coming out in the cold here. You're 0:11:50.120 --> 0:11:53.440 not nervous, you're shivering because it is really cold out here. 0:11:52.679 --> 0:11:56.959 To the fundamental question that they just asked, was j 0:11:57.120 --> 0:12:00.520 Powell today? The minutes sort of suggest were locked in 0:12:00.559 --> 0:12:04.120 for September for a rate move. So does Chairman Poule 0:12:04.679 --> 0:12:07.760 need to say anything today or can the bond traders 0:12:07.800 --> 0:12:10.200 who are not in the Hampton's uh you know, leave 0:12:10.240 --> 0:12:14.040 by noon. Well, look, the case for raising interest rates, 0:12:14.080 --> 0:12:16.480 I think it's pretty compelling. We have an economy that's 0:12:16.520 --> 0:12:19.840 growing above trend, we have low unemployment, and we have 0:12:19.960 --> 0:12:23.480 inflation at basically our goal of two percent. So we've 0:12:23.480 --> 0:12:29.160 been trying to engineer UM calibrate our policy path to 0:12:29.360 --> 0:12:32.920 the economy, and so this gradual increase in rate seems 0:12:32.960 --> 0:12:36.040 to be a very compelling case right now, given that 0:12:36.080 --> 0:12:38.800 we are accommodative still on monetary plans. We think the 0:12:38.840 --> 0:12:41.200 market gets that the Chairman doesn't need to steer us 0:12:41.240 --> 0:12:43.559 in any direction. Well, you know, the Chairman will give 0:12:43.640 --> 0:12:45.320 his speech today and I think he's going to be 0:12:45.360 --> 0:12:48.440 talking about UM some longer own issues as well as 0:12:48.520 --> 0:12:50.920 perhaps short run issues. And I'm looking forward to hearing 0:12:50.960 --> 0:12:54.360 his speech as well. Uh, you think in September you 0:12:54.440 --> 0:12:57.880 go ahead and drop the accommodative statement from from from 0:12:57.920 --> 0:13:02.120 your statement the accommodative sentence end for guidance. So you know, UM, 0:13:02.200 --> 0:13:04.560 in the minutes mentioned that you know, we're thinking about 0:13:04.679 --> 0:13:07.360 how we want to you know, change the statement. UM. 0:13:07.440 --> 0:13:10.080 We we look at the statement every time to make 0:13:10.080 --> 0:13:13.560 sure that we're being UM transparent about our views on 0:13:13.640 --> 0:13:16.720 policy and and sort of give an indication where policy 0:13:16.800 --> 0:13:19.760 is going. Now, we're in a in a situation now 0:13:19.840 --> 0:13:23.240 where you know, we are data dependent as we've been UM, 0:13:23.280 --> 0:13:26.000 and we want to be UM as transparent so we 0:13:26.040 --> 0:13:28.760 can where we think policy is going. But we also 0:13:28.800 --> 0:13:31.960 want people to understand that we don't lock ourselves into something. 0:13:32.160 --> 0:13:34.400 We want to react to how the data comes in 0:13:34.520 --> 0:13:37.000 and where the economy is going. So again, we want 0:13:37.000 --> 0:13:40.200 our our our statements to be transparent in that sense 0:13:40.280 --> 0:13:43.199 so that people aren't misled. Well, I wonder if if 0:13:43.240 --> 0:13:45.640 the markets completely get the message. And the reason I 0:13:45.679 --> 0:13:47.719 asked that is the is the yield curve being so 0:13:47.760 --> 0:13:50.920 flat and a lot of people predicting it's going to invert. 0:13:51.679 --> 0:13:54.880 You're about a hundred basis points below where the median 0:13:55.720 --> 0:13:59.320 terminal rate would be based on your latest forecast. So 0:13:59.360 --> 0:14:01.560 if you're going to raising rates to that point and 0:14:01.600 --> 0:14:03.800 the Eel curve is this flat, does that suggest that 0:14:03.880 --> 0:14:07.320 markets aren't getting your message or that they fundamentally disagree 0:14:07.320 --> 0:14:09.719 with your assessment of the economy. Well, I think the 0:14:09.800 --> 0:14:12.000 yeld curve is certainly something we look at the slope 0:14:12.000 --> 0:14:14.320 of the young curve. I think there's reasons to think 0:14:14.400 --> 0:14:16.560 that it may not be signaling the same as it 0:14:16.600 --> 0:14:19.600 has in the past. As you know, um an inverted 0:14:19.640 --> 0:14:23.760 your curve is usually correlated with um an economy going 0:14:23.760 --> 0:14:27.360 into recession. But there's a reason too that the long 0:14:27.480 --> 0:14:31.960 end is depressed now for other reasons. In particular, there's 0:14:32.000 --> 0:14:35.360 demand for safe assets, so you know, quality flight to 0:14:35.680 --> 0:14:39.280 quality into the U S. Treasury market and also um 0:14:39.400 --> 0:14:41.720 QI around the world. You know, we've a lot of 0:14:41.800 --> 0:14:44.640 central banks have used the long end in the US. 0:14:44.760 --> 0:14:46.960 We did, we bought long term masses, and that put 0:14:47.200 --> 0:14:50.640 downward pressure on the long ended. So the signal that 0:14:50.680 --> 0:14:53.760 you take from the old curve now is different than 0:14:53.840 --> 0:14:57.160 it has been in the past. You mentioned Qui. At 0:14:57.200 --> 0:15:00.720 the less FED meating, you had a staff presentation monetary 0:15:00.760 --> 0:15:04.040 policy tools, and the conclusion of the staff was, we're 0:15:04.040 --> 0:15:06.360 going to get to the zero lower bound again sometime 0:15:06.400 --> 0:15:09.480 in the next decade, and they aren't really sure how 0:15:09.560 --> 0:15:13.120 much que or forward guidance is going to help get 0:15:13.160 --> 0:15:16.880 off zero. Does that worry Well, I think QUI was 0:15:16.920 --> 0:15:22.880 successful in terms of putting lower UM accommodation into the economy. 0:15:22.920 --> 0:15:25.160 It is one of the tools that we have. Forward 0:15:25.200 --> 0:15:27.800 guidance is another tool that we have, and I think 0:15:27.800 --> 0:15:30.320 this discussion was an important one to have so that 0:15:30.360 --> 0:15:33.360 we are prepared. There's reason to believe that longer term 0:15:33.360 --> 0:15:36.040 interest rates are going to be lower UM in the 0:15:36.080 --> 0:15:40.120 future for demographic reasons, because of demand for safe assets, 0:15:40.160 --> 0:15:42.440 and so it's very very good for the FED to 0:15:42.480 --> 0:15:44.680 have these discussions to be prepared. But we do have 0:15:44.800 --> 0:15:47.680 tools that we can use at the lower bound. Do 0:15:47.720 --> 0:15:50.120 you have enough confidence in them that they work or 0:15:50.120 --> 0:15:52.800 do you need to find another arrow for the quiverment? Well, 0:15:52.840 --> 0:15:56.119 I think we're always you know, looking at our monetary 0:15:56.160 --> 0:15:59.200 policy framework. UM that's something else that we're going to 0:15:59.280 --> 0:16:01.360 have a discussion of bound in the future, and that's 0:16:01.400 --> 0:16:05.600 part of this, you know, prudent planning for the future. Uh. 0:16:05.720 --> 0:16:09.480 The FED had maybe three main concerns, and not concerns 0:16:09.520 --> 0:16:12.080 in the sense that they were imminent problems for the economy, 0:16:12.120 --> 0:16:15.160 but things that you're watching. Emerging markets a big one, 0:16:15.600 --> 0:16:18.960 and I wonder how you approach this, what your feel 0:16:19.200 --> 0:16:23.720 is feeling is about the Fed's responsibility for what happens 0:16:23.800 --> 0:16:26.800 in emerging markets, given the dollars role as the reserve currency, 0:16:26.920 --> 0:16:29.400 and the outside effect that you have on other people. Right, 0:16:29.560 --> 0:16:32.280 So Congress has given us our mandate, and of course 0:16:32.320 --> 0:16:35.760 it's it's centered on the domestic economy, but we are 0:16:35.800 --> 0:16:40.640 in a global economy, so the feedback effects of other markets, 0:16:40.680 --> 0:16:44.040 other countries onto the US economy is something that we 0:16:44.120 --> 0:16:47.720 must take into account when we're doing US monetary policy. 0:16:47.880 --> 0:16:51.400 So again, you know, at this point, um, we don't 0:16:51.760 --> 0:16:54.920 anticipate that there will be big feedbacks, but we've seen 0:16:54.960 --> 0:16:59.400 in the past that financial markets can propagate shocks from 0:16:59.400 --> 0:17:01.760 one economy to another, and so it's certainly something that 0:17:01.760 --> 0:17:06.000 we're going to be monitoring. A nothing obviously on everybody's list, tariffs, 0:17:06.440 --> 0:17:09.520 Alan Blinder said the other day of economists agree that 0:17:09.560 --> 0:17:12.639 tariffs will have an impact on the economy, yet we 0:17:12.680 --> 0:17:14.960 don't see it in the data. So how worried are 0:17:15.000 --> 0:17:18.440 you about that? Well, it's certainly a risk. UM. If 0:17:18.480 --> 0:17:21.840 you look at just the terrorists have been announced. In 0:17:21.920 --> 0:17:25.119 terms of the macro economic effect, it's not that large, 0:17:25.240 --> 0:17:28.320 but there's uncertainty around how that will play out, and 0:17:28.359 --> 0:17:31.399 that it's in and of itself, can affect firms in 0:17:31.440 --> 0:17:34.399 our district. We've been monitoring because of course the fourth 0:17:34.400 --> 0:17:38.040 district is UM you know, has a trade with Canada 0:17:38.040 --> 0:17:39.960 as being an important part of the economy and also 0:17:40.000 --> 0:17:42.600 the auto industry, and so we're we are very much 0:17:42.920 --> 0:17:46.159 looking at firms and talking to firms, and firms have 0:17:46.600 --> 0:17:49.440 said that they are taking too account terrorists, but so 0:17:49.480 --> 0:17:53.280 far they haven't reacted strongly to them. They haven't taken 0:17:53.280 --> 0:17:56.600 off investment that they had planned, but they are considering it, 0:17:56.680 --> 0:17:59.480 and so that's something that we want to monitor very carefully. Well, 0:17:59.520 --> 0:18:02.520 you are so the center of the tariffs for the 0:18:02.600 --> 0:18:05.959 United States economy according to the President. So do you 0:18:06.000 --> 0:18:11.520 see any positive effects UM. I think that most economists 0:18:11.560 --> 0:18:16.480 and myself including think that free trade actually benefits UM countries. 0:18:16.520 --> 0:18:18.800 If you actually look at the history that you want 0:18:18.800 --> 0:18:21.440 to have free and open and fair trade, and so 0:18:21.680 --> 0:18:25.160 I would be in that camp. Well, if you if 0:18:25.200 --> 0:18:28.159 you go forward with additional tariffs, does it have a 0:18:28.200 --> 0:18:32.720 major effect on the economy or or your district or 0:18:32.840 --> 0:18:35.520 is it small enough given the size of the U. S. 0:18:35.560 --> 0:18:38.159 Economy that it doesn't really matter all that Munch. I 0:18:38.240 --> 0:18:40.040 think it depends on how it plays out. If we 0:18:40.080 --> 0:18:42.680 get into a trade war where we have one country 0:18:42.720 --> 0:18:46.400 retaliating against another, that in and of itself can affect 0:18:46.480 --> 0:18:48.800 the U. S. Economy through the direct root of the 0:18:48.800 --> 0:18:51.760 tariffs themselves, but also through the uncertainty that it causes. 0:18:52.240 --> 0:18:54.840 Do you anticipate that the tarrifts will add to any 0:18:54.880 --> 0:18:57.880 of the inflation pressures that you lore at amester Warriable? 0:18:58.400 --> 0:19:01.840 So you know that's is a consideration. If it's a 0:19:01.840 --> 0:19:04.920 one time tariff and it's a one time increase in prices, 0:19:04.960 --> 0:19:07.080 then we'll look through that. I think that's not an 0:19:07.080 --> 0:19:10.560 inflationary But if you have these retaliatory tars that come 0:19:10.560 --> 0:19:13.399 on over time and continue, then it's something that we 0:19:13.480 --> 0:19:16.840 have to take into account in terms of our inflation readings. 0:19:16.840 --> 0:19:20.840 Speaking of inflation, do you think you understand inflation dynamics 0:19:20.880 --> 0:19:24.040 these days? I mean you're worried that the lack of 0:19:24.040 --> 0:19:26.359 slack in the economy is going to push up prices, 0:19:26.400 --> 0:19:29.240 but it's not really happen. So I think it's something 0:19:29.280 --> 0:19:31.920 we watch. Um. You know, we know for a number 0:19:31.960 --> 0:19:35.280 of years that the so called Phillips curve um has 0:19:35.359 --> 0:19:38.359 not been very steep, and so it's something that we 0:19:38.400 --> 0:19:40.880 have to understand. I mean, my own view of inflation 0:19:40.960 --> 0:19:44.640 is that inflation expectations are very important determinant of dynamics. 0:19:44.960 --> 0:19:48.280 We have seen inflation move up to our two percent goal. 0:19:48.760 --> 0:19:50.920 I expect by the end of the year that I'll 0:19:50.960 --> 0:19:53.679 be able to conclude that it's sustainably a two percent 0:19:53.760 --> 0:19:56.480 I mean, we're gonna seem monthly variations in the in 0:19:56.520 --> 0:19:59.080 the data as we always do, but I think it's 0:19:59.119 --> 0:20:01.400 been moving up and think that's something that as we 0:20:01.760 --> 0:20:04.800 go forward into the next year, we're gonna have to 0:20:04.800 --> 0:20:07.720 be monitoring very carefully where we are relative to our goals. 0:20:07.760 --> 0:20:11.240 But that's typical monetary policy making. Well, the shift the 0:20:11.320 --> 0:20:14.720 argument has shifted basically for whether inflation is rising and 0:20:14.960 --> 0:20:17.680 will it hit your goal to how far above your 0:20:17.720 --> 0:20:19.919 goal do you let it go? What would you be 0:20:19.960 --> 0:20:23.760 comfortable with? So we didn't overreact when inflation was below 0:20:23.800 --> 0:20:25.840 our goal. I don't think it's right for us to 0:20:25.920 --> 0:20:28.320 overreact when inflation goes a bit above our goal. We're 0:20:28.359 --> 0:20:32.679 always aiming to keep inflation ball at our two percent 0:20:32.760 --> 0:20:36.359 goal um, and so I'm comfortable with inflation moving a 0:20:36.359 --> 0:20:38.800 little bit above two percent. But again it's got to 0:20:38.880 --> 0:20:41.280 be in the medium run forecast coming back down to 0:20:41.320 --> 0:20:43.680 two percent. Well, I mean, these guys out there on 0:20:43.720 --> 0:20:45.880 the trading guests are all wondering, what does she mean 0:20:45.920 --> 0:20:48.359 a little bit? I mean two point five percent for 0:20:48.440 --> 0:20:52.199 how long? It really depends on the forecast, right, I mean, 0:20:52.240 --> 0:20:55.480 I wouldn't be comfortable if I saw forecasts that had, 0:20:55.640 --> 0:20:58.240 you know, inflation moving up and continue to move up 0:20:58.440 --> 0:21:01.280 above two percent. If I saw it move up temporarily, 0:21:01.320 --> 0:21:04.280 but my forecast and most economists forecasts were to come 0:21:04.280 --> 0:21:07.080 back down to two percent over that media un forecast 0:21:07.520 --> 0:21:11.200 time horizon, over which policy monetary policy and effect the economy, 0:21:11.200 --> 0:21:14.000 then I'd be comfortable. And the other question everybody wants 0:21:14.000 --> 0:21:15.760 to know is if inflation is moving up, when do 0:21:15.800 --> 0:21:19.200 I get a raise? Because right now, consumer price inflation 0:21:19.280 --> 0:21:22.760 is running above average hourly earnings. Right, So if you 0:21:22.800 --> 0:21:24.880 look at the e c I data, which is one 0:21:24.880 --> 0:21:28.800 of the indicators of wage inflation. You have seen an 0:21:28.800 --> 0:21:32.960 accelerate um from where it was earlier in the expansion, 0:21:33.280 --> 0:21:35.280 which is a good thing um. And if you look 0:21:35.280 --> 0:21:39.480 at the DISAGGREGATEDDC it's the lower end um of wages 0:21:39.480 --> 0:21:41.160 that are moving up. So I think that's a very 0:21:41.160 --> 0:21:43.520 good thing. I think a lot of what's going on 0:21:43.560 --> 0:21:46.240 in the wage um picture has to do with low 0:21:46.280 --> 0:21:50.960 productivity growth, So investment being up can increase productivity growth. 0:21:51.000 --> 0:21:53.280 I think that's a good thing. I think the other aspect, 0:21:53.280 --> 0:21:56.119 of course, is an inflation has been low over most 0:21:56.119 --> 0:21:58.440 of the of the expansion, and that also explains the 0:21:58.520 --> 0:22:01.800