WEBVTT - Former Kansas City Fed President Esther George Talks Trump-Cook Saga

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>I'm pleased to saying that we are now joined live

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<v Speaker 2>by former Kansas City FED President Esther. George Esther, thank

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<v Speaker 2>you so much for joining us today from where you

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<v Speaker 2>sit as a former regional FED president. Do you see

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<v Speaker 2>this as a legal dispute between President Trump and Lisa Cook,

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<v Speaker 2>the private citizen who applied for mortgages before she was

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<v Speaker 2>named to the FED board? Or is this more dispute

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<v Speaker 2>between President Trump and the Federal Reserve as an institution.

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<v Speaker 3>Yeah, well, good afternoon. I think clearly this is another

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<v Speaker 3>step in an ongoing pressure and attack on the institution

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<v Speaker 3>in terms of the authorities of the Executive branch relative

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<v Speaker 3>to the Federal Reserve. And so however this plays out

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<v Speaker 3>in terms of the details of the specific case that's

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<v Speaker 3>been brought forward, I think what's at stake here for

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<v Speaker 3>the American public is really to understand who will be

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<v Speaker 3>influential in the decisions that the Federal Reserve makes in

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<v Speaker 3>the years to come.

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<v Speaker 2>And personnel determines policy, as we've heard so many times

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<v Speaker 2>from this administration, and the concern here is that the

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<v Speaker 2>President will next target the appointments or the renewal of

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<v Speaker 2>appointments of regional FED presidents in February of next year.

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<v Speaker 2>How concern are you about that, Well.

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<v Speaker 3>I think it would be very concerning, and I'll tell

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<v Speaker 3>you why, Scarlett. If you think about the origins of

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<v Speaker 3>this institution, they were firmly anchored in making sure that

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<v Speaker 3>political pressure would be as limited as possible in terms

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<v Speaker 3>of the critical decisions that the Federal Open Market Committee

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<v Speaker 3>has to make for the long run. And so the

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<v Speaker 3>idea that you would structure the institution in a way

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<v Speaker 3>that would protect that long run view and not drive

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<v Speaker 3>it in the direction of short run decisions was critical,

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<v Speaker 3>and it proved to be relatively durable over the last

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<v Speaker 3>one hundred plus years. So that's what's at stake. I

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<v Speaker 3>think as we look at how this unfolds, is how

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<v Speaker 3>will the decision making process of this institution play out

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<v Speaker 3>and really take a more long term focus as opposed

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<v Speaker 3>to shorter term interest and esther.

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<v Speaker 1>How much of a distraction is this for FED officials. Again,

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<v Speaker 1>we do have a closely watched FED decision next month.

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<v Speaker 1>Given the back and forth with President Donald Trump.

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<v Speaker 3>Yeah, so there is a lot of noise going on,

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<v Speaker 3>and I think it's most unfortunate because there is already

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<v Speaker 3>enough uncertainty that's coming at the decision they have to

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<v Speaker 3>make relative to the performance of the economy. This is

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<v Speaker 3>a time as the economy is showing shifts, whether it's

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<v Speaker 3>from policy, whether it's from cyclical factors, that you really

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<v Speaker 3>want the Committee to be able to focus on the

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<v Speaker 3>debates they will be having at their meeting and September,

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<v Speaker 3>and I suspect they are doing their best to spend

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<v Speaker 3>their time focused on those key issues so that when

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<v Speaker 3>they come to the table in a few weeks they

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<v Speaker 3>can really make those decisions in a manner that serves

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<v Speaker 3>the public, serves the economy longer term.

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<v Speaker 1>And with that in mind, how does cutting interest rates

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<v Speaker 1>next month? Again, the market's pricing in an eighty five

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<v Speaker 1>percent chance, we have inflation still hotter than people were expecting,

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<v Speaker 1>we have a jobs market that is strong, and consumer

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<v Speaker 1>spending showing no signs of slowing down. So what does

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<v Speaker 1>that signal if and when we do get a FED

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<v Speaker 1>cut next month.

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<v Speaker 3>Well, I think that's at the center of the debate.

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<v Speaker 3>And we've heard the narrative that has come out of

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<v Speaker 3>the committee talking about the balance of risk, where they

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<v Speaker 3>see upside to inflation where they see downside potentially to

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<v Speaker 3>the jobs market. And of course next week we will

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<v Speaker 3>get another piece of what I call the economic puzzle,

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<v Speaker 3>to see how is the job market faring as they

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<v Speaker 3>come into this meeting. So the economy looks to be

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<v Speaker 3>performing pretty good. The decision is do they see something

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<v Speaker 3>ahead that suggests the economy will slow in away the

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<v Speaker 3>job market will be damaged in a way that requires

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<v Speaker 3>them to ease policy at a time when inflation is

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<v Speaker 3>holding in there pretty strong.

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<v Speaker 2>You point out the jobs report that's coming out next week.

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<v Speaker 2>We know that the president fired the head of economic

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<v Speaker 2>staticis statistics over at BLS, and we don't know whether

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<v Speaker 2>that will affect the quality of the data immediately or

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<v Speaker 2>in the long term, but it does open this door

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<v Speaker 2>to doubt creeping in over the quality of that data.

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<v Speaker 2>If you are sitting fed president still, how would you

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<v Speaker 2>broaden out your reliance on other data?

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<v Speaker 3>Well? As a regional fed president, Scarlet, you know that

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<v Speaker 3>there were a lot of confirming sources of data, so

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<v Speaker 3>obviously you do rely on official statistics to guide your

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<v Speaker 3>understanding of the economy. But when you serve a regional area,

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<v Speaker 3>as I did, some seven states. You spend a lot

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<v Speaker 3>of time talking to those that are working in the economy.

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<v Speaker 3>How are they making decisions six months ahead, twelve months ahead,

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<v Speaker 3>which give you tremendous insights to things like hiring, to

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<v Speaker 3>things like pricing for their products. So that is a

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<v Speaker 3>key component. It has always been a key component, and

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<v Speaker 3>I think at a time when you're beginning to see

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<v Speaker 3>a transition around thinking about the stance of policy, it

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<v Speaker 3>becomes ever more important for this committee to lean into

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<v Speaker 3>those anecdotal as well as their official statistics.

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<v Speaker 2>Right on the ground research that keeps you close by

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<v Speaker 2>to what your region is telling you. If the President

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<v Speaker 2>successfully remakes the FED to reflect his priorities, which is

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<v Speaker 2>lower rates and a lower rate cycle overall, what would

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<v Speaker 2>that mean for debates on things like the neutral rate,

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<v Speaker 2>the two percent inflation target, the framework overall? Do they

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<v Speaker 2>just become academic discussions and not as relevant to the

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<v Speaker 2>actual policy making.

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<v Speaker 3>So Scarlett, I don't know how those conversations will unfold, obviously,

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<v Speaker 3>but I think the point you make is this is

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<v Speaker 3>an institution, as with many institutions, that we want the

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<v Speaker 3>public to trust. We want the public to believe that

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<v Speaker 3>the decisions are made in the interest of long run

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<v Speaker 3>economic stability for this country, that growth can be promoted,

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<v Speaker 3>and if people begin to see cracks in the ability

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<v Speaker 3>to trust an institution making decisions on that basis, that

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<v Speaker 3>can be problematic. So we will continue to hope that

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<v Speaker 3>people that come into these roles will carry out that tradition,

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<v Speaker 3>carry out that very important role of focusing on what

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<v Speaker 3>serves the long term interest of this country.

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<v Speaker 2>Sir, we really appreciate your joining us today. A Sir

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<v Speaker 2>George is a former Kansas City fed at President. Thank

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<v Speaker 2>you so much.