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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberger St.

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Speaker 1: Louis five. President James Bullard is in Jackson Hall, Wyoming

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Speaker 1: for the Kansas City Feeds Annual Symposium. He's sitting down

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Speaker 1: with Bloomberg's Michael McKee, and he's facing a really complicated

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Speaker 1: situation at a time when China is now going to

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Speaker 1: issue retaliatory tariffs. Let's head over to Mike McKee. We

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Speaker 1: would like to welcome all of our viewers and listeners

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Speaker 1: on Bloomberg Television and at radio worldwide to Jackson Hall,

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Speaker 1: where the Kansas City fat is holding its annual symposium. Yesterday,

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Speaker 1: the Hawks were in control random selection of who got interviewed.

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Speaker 1: But we're bringing in a dove now, Jim Bullard. He

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Speaker 1: was one of the first to call for rate cuts,

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Speaker 1: and you're still calling for rate cuts. Although you want

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Speaker 1: basis points, you're not ready to do fifty This next time,

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Speaker 1: I think there will be a robust debate about fifties.

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Speaker 1: So I think it's uh, it's creeping onto the table here.

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Speaker 1: But um, obviously the markets have it as a base

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Speaker 1: case of twenty five basis points. J Pole characterized the

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Speaker 1: rate cut on July thirty one is a mid course correction,

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Speaker 1: but the markets are basically pricing it as the start

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Speaker 1: of a rate cut cycle. How do you see it?

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Speaker 1: How much accommodation does the economy need? I like to

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Speaker 1: think about the mid nineties examples, the example and the example,

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Speaker 1: And I know some of your viewers weren't around paying

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Speaker 1: attention to financial markets at that time, but if you

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Speaker 1: look at that, the feed adjust it was worried about

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Speaker 1: let's say the Asian currency crisis, very similar to today,

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Speaker 1: lowered the policy rate by about seventy five basis points.

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Speaker 1: The US economy actually powered through that whole episode, and

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Speaker 1: then the committee took took those insurance cuts away later.

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Speaker 1: I think that's a great baseline idea about what we're

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Speaker 1: looking at now, with a global trade war, global manufacturing

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Speaker 1: and contraction and possible spillovers to the US. You want

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Speaker 1: to ensure the economy against that and stay out of trouble.

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Speaker 1: So you think maybe seventy basis points where you would

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Speaker 1: see us stopping at this point, I'm saying that's what

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Speaker 1: they did in the nineties. I don't know where we'll

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Speaker 1: end up, but uh uh, you know, I do think

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Speaker 1: that you've got this yield curve that's massively inverted here,

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Speaker 1: and you got the funds rate as the very highest

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Speaker 1: point on the whole yield curve. That doesn't make a

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Speaker 1: lot of sense. So we have to react to the

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Speaker 1: fact that there's been a down draft in global yield.

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Speaker 1: What is it that you're ensuring against. There doesn't seem

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Speaker 1: to be a demand problem in the US, it doesn't

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Speaker 1: see to be a cost of credit problem. Now this

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Speaker 1: is a This is a global slowdown, and and there's

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Speaker 1: a trade war going on. I don't think there's resolution

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Speaker 1: likely anytime soon, um. And this trade war is triggering

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Speaker 1: other actions around the world, other countries thinking about reevaluating

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Speaker 1: their own trade relationships. So this could um easily get

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Speaker 1: out of control and easily feed back to the US.

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Speaker 1: That's not my base case, but it is something that

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Speaker 1: could happen. I think we should protect against. But how

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Speaker 1: does monetary policy to do that? Well, lower rates will

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Speaker 1: will stimulate our economy somewhat compared to what they would

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Speaker 1: be otherwise, and that would help us power through the waters,

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Speaker 1: the churning waters here of the trade war. A lot

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Speaker 1: of people say lower rates won't help because the problem

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Speaker 1: that we're having is companies cutting back because of trade

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Speaker 1: war uncertainty. Not because they think that the economy, but

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Speaker 1: it's the big economy. There are lots of other aspects

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Speaker 1: to the economy. Uh, you know, intersensitive sectors that are

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Speaker 1: gonna it's gonna matter for them. How much additional growth

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Speaker 1: do you think you can provide to the economy. Well,

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Speaker 1: that's a great question, and there's a long literature, much

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Speaker 1: of it's been presented here at Jackson Hole over the

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Speaker 1: years about you know, what the real effects of monetary

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Speaker 1: policy are and how much the economy reacts. But if

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Speaker 1: you think about the nineties Asian currency crisis, example, we

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Speaker 1: actually argued in St. Louis during that period that because

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Speaker 1: rates were lower because of the flight to safety, that

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Speaker 1: that helped the economy get through that episode with kind

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Speaker 1: of unscathed and so, uh, you know, maybe we can

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Speaker 1: get an outcome like that this time around. Well, how

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Speaker 1: much of it is the fact the idea that somebody

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Speaker 1: will see lower interest rates and go buy a car.

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Speaker 1: And how much of it is just reassuring people that

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Speaker 1: somebody's watching out in the economy. Well, we do want

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Speaker 1: to continue the expand, shin, and we're certainly willing to

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Speaker 1: take all actions that we need to to continue the

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Speaker 1: expansion as best we can. How much do you worry

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Speaker 1: about the way Wall Street sees it, the idea that

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Speaker 1: they think there's a recession imminent and they're looking at

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Speaker 1: four additional rate cuts. Do you think they're reading the

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Speaker 1: economy the outlook wrong? Well, if you look at the

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Speaker 1: look at the yield curve, it's been a good predictor

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Speaker 1: of slowdowns and recessions. And so if you have a

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Speaker 1: recession prediction model, it's going to use the yield curve

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Speaker 1: to try to predict that. So our job is to

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Speaker 1: get the yield curve to be uninverted so that those

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Speaker 1: recession probability models don't work anymore. That would be a

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Speaker 1: great uh, that would be a great thing to do.

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Speaker 1: I'm not interested in testing somebody's theory about this time

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Speaker 1: is different about the yelk curve. Well, do you think

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Speaker 1: that with the haven trade these days you might not

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Speaker 1: be able to get long rates up because so much

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Speaker 1: money is coming into the US because rates are negative elsewhere. Right.

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Speaker 1: But there's a silver lining to that because that's driving

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Speaker 1: longer term yields low, and that should be helpful to

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Speaker 1: the U s economy. That's what happened during the Asian

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Speaker 1: currency crisis. What are CEOs in your district telling you

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Speaker 1: about what's happening What they see happening, um depends who

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Speaker 1: you talk to. Uh. I would say in manufacturing, they're

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Speaker 1: very much scrambling to reorient supply chains, think about new

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Speaker 1: strategies that will work even in a more uncertain world. Uh. There.

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Speaker 1: If you look at agriculture, that's very much a UM

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Speaker 1: down industry, I would say for now, they've and they're

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Speaker 1: very much affected by the trade war. So but on

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Speaker 1: the other hand, consumer goods or something more closely tied

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Speaker 1: to US consumer they're doing pretty well. Walmart reported out

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Speaker 1: of our district last week that, you know, very strong sales.

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Speaker 1: So I think there are um good things going on

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Speaker 1: on the consumer side and the household side, which makes

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Speaker 1: perfect sense. You've got, you know, a great labor market,

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Speaker 1: unemployment near fifty year lows a lot of good things

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Speaker 1: going on in that dimension, well, business has been helding,

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Speaker 1: holding back on spending. Do C e O s tell

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Speaker 1: you that they think there will be demand out there,

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Speaker 1: there will be a reason to invest if they get

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Speaker 1: past the uncertainty of trade wars go away. I think

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Speaker 1: they'd be willing to invest, but they're kind of wondering,

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Speaker 1: Oh wait a minute, now, how should I do this

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Speaker 1: given the uncertainty that's out there? Uh? Do you worry

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Speaker 1: that the fit is the only game in town and

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Speaker 1: that people are putting too much responsibility for keeping the

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Speaker 1: economy afloat on you? I do think uh, all eyes

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Speaker 1: have turned to central banking, but that's that's over the

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Speaker 1: last decade. And uh, I think a whole people are

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Speaker 1: coming to the realization that you need other types of

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Speaker 1: policies to help you. There are many, many policies pursued

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Speaker 1: by federal and state governments, and it's the sum total

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Speaker 1: of all those that help your economy. Would you think

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Speaker 1: that the economic situation in the US now calls for

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Speaker 1: a significant fiscal response. You know, we just got a

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Speaker 1: budget deal through and it you know, it is more spending.

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Speaker 1: So I'd like to see an analysis of that on

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Speaker 1: the economy before I go to another spending bill on

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Speaker 1: top of that. Inflation it was BIPARTISANSI you know, I think,

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Speaker 1: you know, people say, well, there's never bipartisanship, but actually

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Speaker 1: you got that through, So I thought that was pretty good.

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Speaker 1: The minute showed that there was division on the committee

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Speaker 1: in terms of inflation and some people thinking that cutting

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Speaker 1: rates is. One of the reasons for cutting rates is

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Speaker 1: that inflation expectations have slipped in that too low. I

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Speaker 1: presume you're in that camp. Now. I'm very I'm very concerned.

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Speaker 1: Excuse me about the five year tips break even, which

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Speaker 1: is I'm not sure where it's trading today, but it's

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Speaker 1: been trading very low. And if you subtract our thirty

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Speaker 1: basis points to translate between CPI inflation and pc inflation,

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Speaker 1: it says that markets are only expecting about one percent

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Speaker 1: or maybe one point one percent inflation over the next

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Speaker 1: five years, and we're supposed to hit two percent inflation.

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Speaker 1: So I think we can afford to be kind of

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Speaker 1: duvish here and get those inflation expectations up and hopefully

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Speaker 1: hit our inflation target over the next five years. Well,

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Speaker 1: again a question about what you can accomplish. Do you

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Speaker 1: think you actually can move inflation expectations. Given that you

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Speaker 1: had rates at zero for seven years and inflation couldn't

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Speaker 1: hit two percent, Well, uh, we have to try while

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Speaker 1: we can, and while we've got the what we're in

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Speaker 1: the position to do so. I definitely think inflation expectations

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Speaker 1: will move up if we if we uh, player cards

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Speaker 1: right here. How long do you think we need to

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Speaker 1: be in a rate cutting cycle as long as the

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Speaker 1: trade wars are on? You know, I think the trade

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Speaker 1: wars have been priced into markets, uh, in a way

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Speaker 1: that they weren't earlier. I think as of May or

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Speaker 1: April May time frame this year, markets were kind of putting,

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Speaker 1: you know, making up numbers, but like probability on the

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Speaker 1: idea that there would be a deal with China was

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Speaker 1: just around the corner, just two weeks away, something like that.

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Speaker 1: Now I think that it's shifted the other way, where

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Speaker 1: Wall Street is putting probably a no deal anytime soon,

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Speaker 1: the kind of the notion that that maybe the Chinese

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Speaker 1: will just wait for the election and see if they

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Speaker 1: can get a new president to negotiate with. So I

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Speaker 1: think the all of that's now been priced in and

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Speaker 1: so there's probably no more kind of downside to that

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Speaker 1: at least. All right, Jim Bullard, St. Louis Fed President,

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Speaker 1: thank you for joining us on Bloomberg Television and radio work.

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Speaker 1: All right, Thanks a lot, Mike, we'll send it back

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Speaker 1: to you in New York. That was Bloomberg's Michael McKee

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Speaker 1: speaking with St. Louis Fed President James Bullard. We're gonna

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Speaker 1: be hearing right now from Dallas Fed President Robert Kaplan.

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Speaker 1: He is in Jackson Hole at the Kansas City FEDS

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Speaker 1: Annual Symposey. I'm sitting down with Bloomberg's very own Michael McKee. Mike,

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Speaker 1: thank you very much, and welcome to all of our

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Speaker 1: viewers and listeners on Bloomberg Television and radio worldwide. We

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Speaker 1: are with Robert Kaplan, the Dallas Fed President. Thanks for

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Speaker 1: joining us again here on Bloomberg. A lot of people

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Speaker 1: yesterday you took the comments of the Fed presidents who

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Speaker 1: were interviewed as a sort of hawkish rebellion. But there

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Speaker 1: are doves out there as well. And since you got here,

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Speaker 1: we've been basically telling people you're sympathetic to the rate

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Speaker 1: cut cause yeah, and you know, the disagreement within within

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Speaker 1: the Fed, I think is much more about how to

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Speaker 1: manage the risks. And the way I see the US

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Speaker 1: economy is the U S consumers strong, and as long

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Speaker 1: as the US consumers stay strong, we're not going to

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Speaker 1: have a downturn or severe downturn. We're going to have

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Speaker 1: solid growth. The issue is manufacturing. This week, global growth

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Speaker 1: is decelerating, and if those intensify, that's going to seep

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Speaker 1: into the rest of the economy. The consumer will be

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Speaker 1: the last thing to go. H. And what what I'm

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Speaker 1: concerned about is if those negatives intensify, you could have

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Speaker 1: a negative jobs report UH in the next X number

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Speaker 1: of months, and then you're gonna see weakness in the consumer.

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Speaker 1: And if we wait to see that, I think we've

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Speaker 1: waited too long. So I'm very open minded and constructive

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Speaker 1: that we may need to make a policy adjustment here

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Speaker 1: in the next X number of months. UH. And but

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Speaker 1: I'm keeping an open mind, and I haven't made a

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Speaker 1: decision yet, and I'll decide before the September meeting. How

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Speaker 1: big a policy adjustment in the long run do you

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Speaker 1: think we need? There was J Polla his July thirty

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Speaker 1: first Press convert saying mid course correction and yet Wall

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Speaker 1: Street pricing in right now, beginning of a red cut cycle. Yeah,

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Speaker 1: so I've been I've been very open about saying unless

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Speaker 1: I see meaningful further weakness, I view the the adjustments

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Speaker 1: needed as tactical. They should be limited, restrain, modest. Uh.

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Speaker 1: And I don't see this is the beginning of a

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Speaker 1: rate cunning cycle. But we may need to make some adjustment.

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Speaker 1: And for me, the reality check on that is when

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Speaker 1: I look at the Fed Funds rate, I don't I

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Speaker 1: don't worry as much about the debate between once and

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Speaker 1: tens twos intends and how that's moving. I look at

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Speaker 1: the Fed Funds rate versus the entire treasury curve, and

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Speaker 1: the whole treasury curve has moved down in the last

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Speaker 1: three or four months. The Fed Funds rate is now

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Speaker 1: above every rate along the treasury curve, including the thirty year.

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Speaker 1: That for me is a reality check that says, maybe

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Speaker 1: policy is tighter than I might have thought three or

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Speaker 1: four months ago, and we may need to make an adjustment.

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Speaker 1: And I think that's a good, uh, good second check

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Speaker 1: for me, which I am cognizant enough so they December

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Speaker 1: a rate increase might have been a mistake, you know.

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Speaker 1: Um uh, my own view is if you ask me

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Speaker 1: on a what my forecast was for the economy, I

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Speaker 1: would have said two and a half percent growth, and

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Speaker 1: if I was wrong, the risks were to the upside.

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Speaker 1: So in April I would have said I had my concerns,

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Speaker 1: but no, I think policy setting is about right. We

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Speaker 1: then had the China issue. We then had the threat

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Speaker 1: against Mexico, which might have been more significant to number

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Speaker 1: of businesses I talked to. We've had recent intensification, and

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Speaker 1: now in light of these events since May one, now

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Speaker 1: I think, uh, there's a there's an argument in improving argument,

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Speaker 1: increasing argument that maybe the policy setting needs to be adjusted,

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Speaker 1: but it's as a result of other policies away from

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Speaker 1: monetary policy. Why was the Mexico threat worse than the

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Speaker 1: China threat? So it's interesting the China threat clearly affected

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Speaker 1: businesses here if you had a market you sold to China,

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Speaker 1: like agricultural, or if you had logistics and supply chains

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Speaker 1: that Mexico is central the so many companies in this

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Speaker 1: country in terms of logistics and supply chains. When that

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Speaker 1: threat occurred, even though we had a trade agreement not ratified,

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Speaker 1: but a trade agreement that really for the businesses I

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Speaker 1: talked to, Even though it didn't actually happen, it was

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Speaker 1: so significant to their business that after that, most of

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Speaker 1: them I talked to tell me they've now internalized that

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Speaker 1: trade uncertainty is sort of a fact of life now.

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Speaker 1: I think before that threat, they had thought, if we

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Speaker 1: can resolve some of these agreements, maybe we'll settle down.

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Speaker 1: I think the Mexico threat help business internalize. I think

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Speaker 1: trade uncertainty is gonna be with us. And what I

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Speaker 1: saw businesses do is become more cautious in terms of

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Speaker 1: capex expansion plans. And I think that caution is still

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Speaker 1: here today. Well that's not a cost of credit issue,

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Speaker 1: nor is it a demand issue. So tell me how

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Speaker 1: monetary policy, you guys making a rate cut is going

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Speaker 1: to help any of this. Yeah, So to your to

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Speaker 1: that point, if I talk to businesses today, every one

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Speaker 1: of them says to me, probably without exception, listen, availability

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Speaker 1: and cost the capital is not my problem. You know.

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Speaker 1: Monetary policy, you guys, are not my problem. My problem

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Speaker 1: is trade uncertainty and other issues related to that that

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Speaker 1: are having challenging impacts on my business. Uh, here's the issue.

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Speaker 1: If you look out over the horizon, and the job

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Speaker 1: of a central banker is not to look at what

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Speaker 1: the situation is today, is to look at what it's

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Speaker 1: going to be over the next X number of months.

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Speaker 1: If the policy setting is too tight, um then eventually

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Speaker 1: you're going to see credit tighten. You'll see that, ultimately,

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Speaker 1: I believe, tighten financial conditions, which will impact the economy.

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Speaker 1: I think my job is to look ahead and balance

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Speaker 1: these risks and to try to make risk management decisions

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Speaker 1: so that the policy setting is more appropriate, because I

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Speaker 1: know if it's too tight, it may seem innocuous for

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Speaker 1: a number of months, but eventually I think that will

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Speaker 1: lead my own years that will lead to a tightening

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Speaker 1: and financial conditions down the road, even though we don't

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Speaker 1: see attorny. But are you a hammer in search of

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Speaker 1: a nail here? In this instant people expect the FED

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Speaker 1: rate cut to solve the economy's problems, and it's not

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Speaker 1: going to do that. So quite the contrary, And you've

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Speaker 1: probably heard me say, I've been very vocal in saying

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Speaker 1: the full crimer the center of gravity and US economic policy.

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Speaker 1: They do not monetary policy. Uh, it's trade uncertainty, it's

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Speaker 1: probably immigration policy to some extent, it's policies that relate

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Speaker 1: to improve skill training, UH, infrastructure spending, but particularly for

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Speaker 1: the insuring, trade policy and immigration policy, policies that could

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Speaker 1: help us grow the workforce. That's the center of gravity

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Speaker 1: and US economic policy. It's not that monetary policy doesn't

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Speaker 1: have a key role to play, but it's not the

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Speaker 1: full crimb of economic policy. And I regularly call that

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Speaker 1: out because no, I don't believe monetary policy is causing

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Speaker 1: if we have a slowdown, I don't think it's causing

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Speaker 1: the slowdown. And if we have a severe slowdown, I

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Speaker 1: don't think monetary policy See isn't going to be enough

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Speaker 1: to arrest it either, But it still has a key

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Speaker 1: role to play, and so we've got to make good

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Speaker 1: decisions about it to play that key role. You probably

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Speaker 1: know more about Wall Street than anybody else. I'm a

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Speaker 1: fed given your background at Goldban Sacks. UH. Do you

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Speaker 1: worry that by cutting rates you're going to just encourage

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Speaker 1: financial shall we say, misallocations? So, um, you always worry,

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Speaker 1: And this is one of the reasons why I've said,

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Speaker 1: even though I'm open to an adjustment, UH, either in

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Speaker 1: September over the next few meetings, I'd prefer not to

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Speaker 1: have to make any adjustment because if you lower the

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Speaker 1: Fed Funds rate, it reduced save, it reduce the rate

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Speaker 1: for savers, it encourages risk taking. UM. Now, I will

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Speaker 1: also acknowledge if you look ahole along the whole treasury

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Speaker 1: curve to some extent, that horse has already left the bar.

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Speaker 1: And I mean for investors, Uh, your fixed income alternatives

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Speaker 1: have all declines substantially. The only rate that hasn't declined

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Speaker 1: with it is the Fed Funds rate. So I think, uh,

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Speaker 1: to some extent, the incentive to increase debt or leverage,

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Speaker 1: which I've called out, that's already there because the treasury

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Speaker 1: curve is where most businesses borrow. A number of them

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Speaker 1: borrow on floating rate basis, but but a lot of

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Speaker 1: them to fund share repurchase or mergers use the treasury curve.

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Speaker 1: So I'm balancing that and I'm concerned about it. But

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Speaker 1: I think most importantly, my my foremost in my mind

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Speaker 1: right now is can we take steps that will help

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Speaker 1: moderate this sloaning we're seeing, or help with the global

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Speaker 1: slowing which might transmit to the United States and manufacturing

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Speaker 1: weakness that that that appears could seep into the rest

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Speaker 1: of the economy. That's those are the issues I'm trying

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Speaker 1: to balance. But can't you be seen as if you're

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Speaker 1: trying to bring FED funds down to the treasury curve

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Speaker 1: being led around by Wall Street. I'm not trying to

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Speaker 1: bring it down to the treasury curve, but I think

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Speaker 1: the treasury curve being low is a signal that maybe

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Speaker 1: a monetary policy is two tight. So no, we're not

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Speaker 1: going to be led around by Wall Street. I think

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Speaker 1: the curve is far more driven, not by monetary policy. Again,

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Speaker 1: but if I watched the curve extremely carefully, been watching

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Speaker 1: markets carefully for my whole adult life, the big moves

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Speaker 1: in the treasure curve haven't been, to my eye, haven't

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Speaker 1: been response to monetary policy. Action or rhetoric have been

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Speaker 1: in response to trade uncertainty and other economic policies away

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Speaker 1: from monetary policy. Last question, do you think we can

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Speaker 1: talk ourselves into recession? Well? Yes, Psychology is a critical

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Speaker 1: part of the economy, and I noticed that the August

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Speaker 1: consumer sentiment numbers were a little bit weaker. And I

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Speaker 1: think if you have continued uncertainty, um, if you have

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Speaker 1: intensification of trade uncertainty or trade and not just with China,

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Speaker 1: I mean more broadly with other countries globally uh visa

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Speaker 1: the United States. Consumers pay attention to that and and

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Speaker 1: this chain of events I mentioned earlier about weakness and

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Speaker 1: manufacturing seeping to other parts of the economy eventually affecting

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Speaker 1: the jobs market. Consumers are watching that chain of events too,

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Speaker 1: and a very cognizant of in their own industry. And

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Speaker 1: so sure, yet the psychology con turned negative and affect

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Speaker 1: the economy, and we have to be cognizant of that.

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Speaker 1: Robert Caplan, Dallas FED, thank you very much for joining us.

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Speaker 1: Thank this morning. We'll send it back to you in

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Speaker 1: New York. That was Bloomberg's Michael McKee speaking with Dallas

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Speaker 1: FED President Robert Kaplan. We're gonna be hearing from Cleveland

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Speaker 1: FED President Laretta Muster in just a few moments. She's

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Speaker 1: in Jackson Hole, Wyoming for the Kansas City FEDS Annual Symposium.

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Speaker 1: She's sitting down with Michael McKee a lot of questions

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Speaker 1: about what the FED can do to counter the uncertainty

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Speaker 1: and markets, as well as what they are willing to do.

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Speaker 1: So let us head over now to Bloomberg's very own

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Speaker 1: Michael McKee, Thank you very much, and we'd like to

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Speaker 1: welcome Lorettamester, the President of the Federal Reserve Bank of Cleveland,

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Speaker 1: to Bloomberg Television and Radio worldwide. Good morning to you,

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Speaker 1: and thank you for coming out on a chilly morning

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Speaker 1: here in the mountains of Wyoming. Uh. You have said

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Speaker 1: that if the economy the data come in about as

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Speaker 1: they have been, you don't necessarily see a need for

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Speaker 1: another rate cut in September. But monetary policy works with

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Speaker 1: long and variable lags, as we know, and now it

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Speaker 1: appears with these additional tariffs from China coming on this morning,

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Speaker 1: the trade wars aren't going to be going away anytime soon.

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Speaker 1: So when you look at the economy six eight months

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Speaker 1: from now, are you still confident that you don't need accommodation. Well,

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Speaker 1: that's the key question, right is is we know trade

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Speaker 1: policy uncertainty has been weighing on the outlook. You know,

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Speaker 1: we talked to our business contacts. We've seen already business

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Speaker 1: spending the weekend because of that tariff situation and the

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Speaker 1: uncertainty around the tariff situation. And as this continues, we

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Speaker 1: have to keep monitoring whether firms are going to continue

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Speaker 1: to react the way they have and with caution whether

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Speaker 1: it will begin to spill over in their hiring plans

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Speaker 1: as well as they're spending plans, and whether that will

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Speaker 1: then spill over to the consumer sector. And so I'm

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Speaker 1: very focused on those risks to the outlook. So again,

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Speaker 1: you do have to be forward looking, and that's a

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Speaker 1: key risk, a downside risk of the outlook going forward,

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Speaker 1: and I'm very attuned to that. And you know, when

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Speaker 1: I talk to my contact, that's one of the key

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Speaker 1: things that I'm asking, Are you changing investment plans? Are

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Speaker 1: you continue on your hiring plans? Wages are moving up,

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Speaker 1: which is a good thing. Consumers have been very robust

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Speaker 1: in terms of their spending over this period of uncertainty,

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Speaker 1: and that's the kind of thing that we need to

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Speaker 1: keep watching. But again, I want to take the time

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Speaker 1: that we have until the next steff I'm seeing in

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Speaker 1: and beyond to continue with the assessings. And if it

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Speaker 1: does turn out that those risks are manifesting themselves in

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Speaker 1: a wider um across the wider part of the economy

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Speaker 1: and things are stepping down, then right, that's an argument

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Speaker 1: for why we might need to recalivate our policy downward

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Speaker 1: because you by doing nothing in that scenario, you in

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Speaker 1: a sense or tightening policy. And so that's the key

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Speaker 1: question again. I think it's very important and we watch

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Speaker 1: the data. Um if we were ever data dependent before,

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Speaker 1: we have to be uber data dependant now and really

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Speaker 1: be reacting to what's happening in the economy, not just

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Speaker 1: as changes in sentiment, because uncertainty causes people to be

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Speaker 1: sort of like, oh, I'm a little bit concerned about

429
00:24:29,280 --> 00:24:32,159
Speaker 1: what's going forward, but are they actually making decisions based

430
00:24:32,200 --> 00:24:35,120
Speaker 1: on that uncertainty And in that case then we might

431
00:24:35,160 --> 00:24:37,200
Speaker 1: have to move things. What a business leaders telling you

432
00:24:37,280 --> 00:24:41,040
Speaker 1: do they say things have gotten worse than they might

433
00:24:41,080 --> 00:24:43,320
Speaker 1: be seeing a step down because of the impact of

434
00:24:43,320 --> 00:24:46,000
Speaker 1: what's going on. So every business contact I talked to

435
00:24:46,040 --> 00:24:50,560
Speaker 1: across a wad Strath always mentioned trade policy, uncertainty, UM

436
00:24:50,640 --> 00:24:52,960
Speaker 1: and the teariffs as being something that there is a

437
00:24:53,000 --> 00:24:55,879
Speaker 1: concern of theirs. The majority of the firms that I

438
00:24:55,920 --> 00:24:59,240
Speaker 1: talked to still say they're on their plan for investment

439
00:24:59,280 --> 00:25:02,240
Speaker 1: for the year. They're certainly still seeing tight labor markets.

440
00:25:02,240 --> 00:25:06,040
Speaker 1: They're still trying to hire um and they're increasing wages

441
00:25:06,119 --> 00:25:10,240
Speaker 1: to retain and to attract workers. The larger firms that

442
00:25:10,280 --> 00:25:14,080
Speaker 1: have more multinational connections are affected by both the slow

443
00:25:14,119 --> 00:25:17,159
Speaker 1: down and global growth and the trade policy and certain

444
00:25:17,240 --> 00:25:20,480
Speaker 1: and they're reassessing their plans. So again it's sort of

445
00:25:20,520 --> 00:25:23,320
Speaker 1: a mixed picture. But I would say that our firms,

446
00:25:23,440 --> 00:25:25,520
Speaker 1: at least in the fourth district, and we have you know,

447
00:25:25,560 --> 00:25:29,360
Speaker 1: exposure to manufacturing entiree, have been more robust and been

448
00:25:29,440 --> 00:25:34,160
Speaker 1: able to actually respond pretty well to this uncertainty. They're

449
00:25:34,280 --> 00:25:36,199
Speaker 1: very concerned about it. And you know, we have the

450
00:25:36,280 --> 00:25:39,879
Speaker 1: next potential leg here of the expansion of the terrorists

451
00:25:39,920 --> 00:25:43,399
Speaker 1: to the consumer side. I think that could be a

452
00:25:43,480 --> 00:25:46,640
Speaker 1: catalyst for for changes and plans, but we haven't seen

453
00:25:46,680 --> 00:25:48,639
Speaker 1: it yet, and I'd like to wait until we actually

454
00:25:48,680 --> 00:25:51,720
Speaker 1: get some more information on how firms are reacting to

455
00:25:51,760 --> 00:25:54,720
Speaker 1: that before responding in advance to it. Suppose you have

456
00:25:54,800 --> 00:25:57,480
Speaker 1: to respond, Suppose you cut rates. This isn't a demand

457
00:25:57,520 --> 00:25:59,879
Speaker 1: issue or a cost of credit issue. So how does

458
00:26:00,000 --> 00:26:02,520
Speaker 1: monetary policy help. Well, it would be a demand issue

459
00:26:02,560 --> 00:26:05,560
Speaker 1: at that point if firms stopped spending, right and then

460
00:26:05,600 --> 00:26:08,600
Speaker 1: they stop hiring. You know, we're weak in their hiring

461
00:26:08,960 --> 00:26:12,000
Speaker 1: and we see consumers pulling back because of the caution

462
00:26:12,440 --> 00:26:14,639
Speaker 1: that is a demand issue, and in that case, lower

463
00:26:14,720 --> 00:26:17,520
Speaker 1: interest rates as the equilibrium rate and the economy goes

464
00:26:17,560 --> 00:26:20,159
Speaker 1: down as the appropriate thing to do. But again, we

465
00:26:20,200 --> 00:26:22,880
Speaker 1: need to be looking at that hard data, looking at

466
00:26:22,920 --> 00:26:25,520
Speaker 1: the information we gained from our business context. I think

467
00:26:25,520 --> 00:26:27,800
Speaker 1: this information that we're gaining from Main Street, when we're

468
00:26:27,840 --> 00:26:30,200
Speaker 1: going on and talking to businesses and talking to consumers

469
00:26:30,200 --> 00:26:33,479
Speaker 1: and talking to labor market participants is going to be

470
00:26:33,600 --> 00:26:36,080
Speaker 1: very important to us as we evaluate how we go

471
00:26:36,200 --> 00:26:39,120
Speaker 1: forward here. When you look at what's happened on global

472
00:26:39,119 --> 00:26:43,000
Speaker 1: Wall Street and the pricing in of many rate cuts

473
00:26:43,040 --> 00:26:46,280
Speaker 1: going forward, do you worry that if too much burden

474
00:26:46,359 --> 00:26:49,200
Speaker 1: is being placed on you and the FED to save

475
00:26:49,280 --> 00:26:53,560
Speaker 1: the economy. So there's no doubt that bond investors have

476
00:26:53,640 --> 00:26:56,199
Speaker 1: a more pessimistic view of the U S economy than

477
00:26:56,240 --> 00:26:59,600
Speaker 1: perhaps some of the economists students and I do UM

478
00:26:59,680 --> 00:27:02,120
Speaker 1: and have to take a signal from that. We can't

479
00:27:02,160 --> 00:27:05,840
Speaker 1: just ignore what's happening there. Um. But there's also other

480
00:27:05,920 --> 00:27:08,359
Speaker 1: reasons that those bond yields are down. One is that

481
00:27:08,400 --> 00:27:11,640
Speaker 1: the US is a safe haven flow and that relatively speaking,

482
00:27:11,800 --> 00:27:14,480
Speaker 1: our economy is doing better than other places and in

483
00:27:14,480 --> 00:27:17,840
Speaker 1: the global economy. UM. I think the you know, the FED.

484
00:27:18,920 --> 00:27:22,040
Speaker 1: My my main focus always when I'm sending policy is

485
00:27:22,280 --> 00:27:24,919
Speaker 1: where are we where is the economy relative to our

486
00:27:25,000 --> 00:27:27,560
Speaker 1: dual mandate goals. They're the beacons that we try to

487
00:27:27,640 --> 00:27:30,359
Speaker 1: strive for, and we set our policy in order to

488
00:27:30,560 --> 00:27:33,080
Speaker 1: hit those goals. And that's how we can do monetary policy,

489
00:27:33,080 --> 00:27:36,200
Speaker 1: I think in the best way, systematically focusing on those goals,

490
00:27:36,600 --> 00:27:39,440
Speaker 1: looking at the data, doing the best evaluation we kind

491
00:27:39,440 --> 00:27:41,720
Speaker 1: of where the economy is going, and making sure that

492
00:27:41,760 --> 00:27:46,040
Speaker 1: our monetary policy is appropriate for hitting those goals and

493
00:27:46,080 --> 00:27:49,080
Speaker 1: maintaining those goals. There's other policies that can be brought

494
00:27:49,119 --> 00:27:51,760
Speaker 1: to bear um in the economy. We know, work force

495
00:27:51,760 --> 00:27:54,800
Speaker 1: development issues are something very relevant in the fourth district

496
00:27:54,920 --> 00:27:56,720
Speaker 1: of course, you know, making sure that people have the

497
00:27:56,760 --> 00:27:59,440
Speaker 1: skill sets to actually take the jobs that are available

498
00:27:59,640 --> 00:28:02,280
Speaker 1: and to train for the future jobs. So there's other

499
00:28:02,359 --> 00:28:05,080
Speaker 1: policies that can be you know, brought to bear to

500
00:28:05,200 --> 00:28:07,240
Speaker 1: make sure that in the long run, our economy is

501
00:28:07,280 --> 00:28:10,680
Speaker 1: healthy and that everyone can participate in a healthy economy.

502
00:28:10,720 --> 00:28:14,119
Speaker 1: But again, monetary policy, dual mandate goals, that's got to

503
00:28:14,160 --> 00:28:16,800
Speaker 1: be our focus. You work for a long time concerned

504
00:28:16,800 --> 00:28:20,439
Speaker 1: that inflation would break out as the economy expanded, have

505
00:28:20,560 --> 00:28:24,600
Speaker 1: you given up on that idea? So I think inflation

506
00:28:24,720 --> 00:28:28,080
Speaker 1: actually is in a pretty good spot. We're clearly, you know,

507
00:28:28,200 --> 00:28:31,120
Speaker 1: below our mandate, but you know, we've been pretty stable

508
00:28:31,160 --> 00:28:34,320
Speaker 1: on the price front. And new research actually coming out

509
00:28:34,320 --> 00:28:37,000
Speaker 1: of the Cleveland fin which looked at a cyclical fact

510
00:28:37,080 --> 00:28:41,440
Speaker 1: parts of the inflation prices, and the cyclical part actually

511
00:28:41,480 --> 00:28:44,320
Speaker 1: shows that as a labor markets have gotten tighter, those

512
00:28:44,320 --> 00:28:47,880
Speaker 1: cyclical prices have been moving up. So I'm more confident

513
00:28:47,920 --> 00:28:50,400
Speaker 1: that we're going to see this gradual increase of inflation

514
00:28:50,440 --> 00:28:53,880
Speaker 1: back to our goal um because it does seem to

515
00:28:53,880 --> 00:28:55,480
Speaker 1: be behaving the way we do. We may have to

516
00:28:55,520 --> 00:28:57,640
Speaker 1: wait a little longer because there is a large part

517
00:28:57,680 --> 00:29:00,800
Speaker 1: of inflation that is real a cycle well doesn't move

518
00:29:00,800 --> 00:29:03,880
Speaker 1: with the labor market because of other factors that affect prices.

519
00:29:04,000 --> 00:29:06,960
Speaker 1: So again, I think patient is called for. I'm not

520
00:29:07,040 --> 00:29:09,960
Speaker 1: that concerned that we've been below target for quite a while.

521
00:29:10,120 --> 00:29:12,360
Speaker 1: I think there's ways to explain that in terms of

522
00:29:12,560 --> 00:29:15,440
Speaker 1: how deep the recession wasn't going forward, and I think

523
00:29:15,520 --> 00:29:19,520
Speaker 1: inflation is pretty much moving up back along path well.

524
00:29:19,560 --> 00:29:21,760
Speaker 1: As one of the bigger inflation hawks on the open

525
00:29:21,800 --> 00:29:24,640
Speaker 1: market committee. What do you think of the idea of

526
00:29:24,760 --> 00:29:28,320
Speaker 1: letting the economy run a little hot and asymmetric higher

527
00:29:28,360 --> 00:29:31,720
Speaker 1: inflation rate for a while. There are various strategies to

528
00:29:31,800 --> 00:29:34,520
Speaker 1: do that, but it all comes down to letting inflation

529
00:29:34,600 --> 00:29:37,040
Speaker 1: run above your target, right. So I don't character myself

530
00:29:37,440 --> 00:29:40,440
Speaker 1: characterize myself as a hawk. I'm trying to always balance

531
00:29:40,440 --> 00:29:43,239
Speaker 1: our dual mandate goals in terms of price stability and

532
00:29:43,280 --> 00:29:46,240
Speaker 1: full employment, and trying to calorate policy to hit those

533
00:29:46,360 --> 00:29:49,920
Speaker 1: in a balanced way. Um So again, I do think

534
00:29:49,960 --> 00:29:52,360
Speaker 1: that it's important that we always focus on those goals

535
00:29:52,360 --> 00:29:55,080
Speaker 1: and take a balanced approach when we approach those. I

536
00:29:55,200 --> 00:29:57,000
Speaker 1: always want to strive. If I had to pick an

537
00:29:57,000 --> 00:30:02,120
Speaker 1: animal to be an owl, wh hopefully the question here

538
00:30:02,160 --> 00:30:04,480
Speaker 1: is always whether you're a hawkr Adef. So I'm the

539
00:30:04,560 --> 00:30:07,600
Speaker 1: ornithologist here trying to figure these things out. Do you

540
00:30:07,640 --> 00:30:10,360
Speaker 1: worry though, that people are getting too used to the

541
00:30:10,400 --> 00:30:13,200
Speaker 1: idea that there is no inflation in the economy? Obviously

542
00:30:13,200 --> 00:30:16,160
Speaker 1: the FED keeps a very close eye on inflation expectations

543
00:30:16,160 --> 00:30:20,600
Speaker 1: both consumers and markets. Have you lost control of inflation?

544
00:30:20,880 --> 00:30:22,720
Speaker 1: So I don't believe we have. I think in the

545
00:30:22,800 --> 00:30:25,840
Speaker 1: long run, inflation is a monetary phenomenon. I do think

546
00:30:25,880 --> 00:30:28,360
Speaker 1: that some of the dynamics and inflation have changed, and

547
00:30:28,400 --> 00:30:30,800
Speaker 1: in fact that Cleveland Fed has established a Center for

548
00:30:30,840 --> 00:30:35,080
Speaker 1: Inflation research precisely because there's a lot about the dynamics

549
00:30:35,120 --> 00:30:39,120
Speaker 1: that we still need to know about. I'm confident that,

550
00:30:39,240 --> 00:30:42,000
Speaker 1: you know, inflation will move back up to target, and

551
00:30:42,040 --> 00:30:44,080
Speaker 1: I'm confident that the Federal Reserve is going to set

552
00:30:44,120 --> 00:30:47,080
Speaker 1: our policy rate to try to hit those dual mandate

553
00:30:47,080 --> 00:30:49,760
Speaker 1: goals and maintain them. Do you leave the policy rate

554
00:30:49,800 --> 00:30:52,880
Speaker 1: as low as it is or even lower for as

555
00:30:52,920 --> 00:30:55,600
Speaker 1: far as the eye can see. So, you know, there's

556
00:30:55,600 --> 00:30:58,720
Speaker 1: a lot of research that's gone into what we're the

557
00:30:58,800 --> 00:31:01,880
Speaker 1: actual interests ad in the economy, the equaliment interest rate

558
00:31:01,920 --> 00:31:04,600
Speaker 1: in the economy is, and there is real good reasons

559
00:31:04,680 --> 00:31:06,800
Speaker 1: to think that it's lower now than it was in

560
00:31:06,880 --> 00:31:11,120
Speaker 1: the past. Demographic reasons, uh, demand for safe haven assets

561
00:31:11,200 --> 00:31:14,160
Speaker 1: or safe assets, and so there's a reason to think

562
00:31:14,200 --> 00:31:16,440
Speaker 1: that interest rates are going to be lower going forward

563
00:31:16,800 --> 00:31:19,880
Speaker 1: than they were in the past. And so, yes, interest

564
00:31:19,920 --> 00:31:22,440
Speaker 1: rates likely will be lower than in the past. And

565
00:31:22,480 --> 00:31:24,680
Speaker 1: then the question is, well, how do you manage monetary

566
00:31:24,680 --> 00:31:27,479
Speaker 1: policy around then That's part of what the Framework Study

567
00:31:27,840 --> 00:31:30,320
Speaker 1: of the FED is all about that we've been doing

568
00:31:30,360 --> 00:31:33,160
Speaker 1: for the last year or so. Really is okay if

569
00:31:33,200 --> 00:31:35,680
Speaker 1: we're in a low interest rate environment, what's the best

570
00:31:35,680 --> 00:31:38,200
Speaker 1: way for the FED to actually set policy to hit

571
00:31:38,240 --> 00:31:41,160
Speaker 1: our domandate goals? And do you have an answer yet?

572
00:31:41,680 --> 00:31:43,640
Speaker 1: I think there's certain things you can do. I mean,

573
00:31:43,800 --> 00:31:45,800
Speaker 1: I think you know, when you think about the inflation

574
00:31:46,120 --> 00:31:49,280
Speaker 1: UH rate, and you know the conversation we've been having

575
00:31:49,320 --> 00:31:51,240
Speaker 1: about you know, how we hit the goal where we go,

576
00:31:51,560 --> 00:31:53,560
Speaker 1: you know, just thinking about it in terms of instead

577
00:31:53,600 --> 00:31:56,360
Speaker 1: of a point estimate like two percent, maybe think about

578
00:31:56,400 --> 00:31:59,360
Speaker 1: it as a range, not necessarily making up for past

579
00:31:59,600 --> 00:32:01,680
Speaker 1: d v A ations, but thinking about it in terms

580
00:32:01,680 --> 00:32:03,520
Speaker 1: of a range, and that may actually be a better

581
00:32:03,600 --> 00:32:06,480
Speaker 1: way to communicate where we are relative to our goal

582
00:32:06,680 --> 00:32:09,880
Speaker 1: and going forward, given the precision with which right the

583
00:32:09,960 --> 00:32:12,240
Speaker 1: measurements are, and how we can hit that and maintain

584
00:32:12,280 --> 00:32:15,680
Speaker 1: it over time. One of the questions that's come up

585
00:32:15,720 --> 00:32:18,720
Speaker 1: is whether or not we can talk ourselves into recession.

586
00:32:18,800 --> 00:32:20,760
Speaker 1: You have a lot of tweets coming out of Washington,

587
00:32:21,200 --> 00:32:24,920
Speaker 1: you have negative comments coming out of companies with earning season,

588
00:32:24,960 --> 00:32:28,080
Speaker 1: and of course you have Wall Street UH absent that

589
00:32:28,240 --> 00:32:31,760
Speaker 1: would we be in trouble. We're at a very lengthy

590
00:32:32,480 --> 00:32:37,280
Speaker 1: recession recovery now. So it's an interesting thing that you

591
00:32:37,360 --> 00:32:39,760
Speaker 1: bring that up because I've had a number of business

592
00:32:39,800 --> 00:32:43,280
Speaker 1: contexts use that exact same thing. I think we're talking

593
00:32:43,280 --> 00:32:46,080
Speaker 1: ourselves into a recession, and they're basing that on the

594
00:32:46,120 --> 00:32:48,479
Speaker 1: fact that they look at their order book and they

595
00:32:48,520 --> 00:32:50,560
Speaker 1: look at their loan demand, and they look at you know,

596
00:32:50,640 --> 00:32:52,680
Speaker 1: depending on what sect that they're in, and they say, look,

597
00:32:52,680 --> 00:32:54,400
Speaker 1: I look at things and I think, you know, we're

598
00:32:54,400 --> 00:32:56,640
Speaker 1: about on trend. I think the growth is on trend.

599
00:32:56,760 --> 00:32:58,840
Speaker 1: And yet they turn on the television and they read

600
00:32:59,200 --> 00:33:01,480
Speaker 1: what's happening in the financial markings. They're saying, wow, you know,

601
00:33:01,600 --> 00:33:05,280
Speaker 1: people are really cautious. So there is this difference between

602
00:33:05,360 --> 00:33:10,280
Speaker 1: perceptions and sentiment and the reality on the ground so far.

603
00:33:10,760 --> 00:33:13,240
Speaker 1: But I do think that, you know, if firms do

604
00:33:13,440 --> 00:33:17,680
Speaker 1: take into account, oh things are more you know, uncertain

605
00:33:17,720 --> 00:33:19,720
Speaker 1: than I've seen in the past, that can have a

606
00:33:19,800 --> 00:33:23,320
Speaker 1: real impact on investment, spending, hiring, etcetera. Going forward. And

607
00:33:23,360 --> 00:33:24,800
Speaker 1: that's a key rosk that we need to be a

608
00:33:24,880 --> 00:33:27,400
Speaker 1: tuned to be going forward. Laretta Ester, thank you very

609
00:33:27,480 --> 00:33:29,760
Speaker 1: much from the Cleveland Federal Reserve. Thanks for joining us,

610
00:33:29,760 --> 00:33:33,320
Speaker 1: Thank you very much. How's Bloomberg Michael mckeeb sitting down

611
00:33:33,360 --> 00:33:50,520
Speaker 1: with Cleveland Fed President Loretta Mester. We are now going

612
00:33:50,600 --> 00:33:54,200
Speaker 1: to hear from Philadelphia Fed President Patrick Harker. He's in

613
00:33:54,320 --> 00:33:57,840
Speaker 1: Jackson Hole, Wyoming for Kansas Cities Annual Kids at Kansas

614
00:33:57,880 --> 00:34:01,440
Speaker 1: City FEDS Annual SYMPOSI. I'm sitting down with Bloomberg's own

615
00:34:01,680 --> 00:34:04,600
Speaker 1: Michael McKee, talking about some of these issues, the FEDS

616
00:34:04,640 --> 00:34:07,840
Speaker 1: reaction function in light of trade tensions. Let's hid to

617
00:34:07,880 --> 00:34:10,040
Speaker 1: Mike McKee. Thank you very much, and again welcome to

618
00:34:10,080 --> 00:34:12,400
Speaker 1: all of our viewers and listeners on Bloomberg Television and

619
00:34:12,560 --> 00:34:15,560
Speaker 1: radio worldwide. And thank you to Patrick Harker for joining

620
00:34:15,640 --> 00:34:19,080
Speaker 1: us this morning on a chilly morning here, we're only

621
00:34:19,160 --> 00:34:21,719
Speaker 1: a few minutes away from j Pal's speech and we

622
00:34:21,800 --> 00:34:25,479
Speaker 1: can't preempt him. But yesterday you said you'd be happy

623
00:34:25,560 --> 00:34:29,240
Speaker 1: to leave rates where they are if the economy stays

624
00:34:29,280 --> 00:34:32,920
Speaker 1: about where it is. But this morning we had further

625
00:34:32,960 --> 00:34:36,000
Speaker 1: evidence from China that we may see the trade war

626
00:34:36,120 --> 00:34:39,239
Speaker 1: extend for quite some time. Policy works with long and

627
00:34:39,320 --> 00:34:41,879
Speaker 1: variable lags, as they always say, so when you look

628
00:34:41,880 --> 00:34:44,799
Speaker 1: out eight months to a year, can you say you

629
00:34:44,840 --> 00:34:47,279
Speaker 1: would be you would want to stay on hold, or

630
00:34:47,320 --> 00:34:49,319
Speaker 1: do you need to act now to get ahead of

631
00:34:49,320 --> 00:34:51,799
Speaker 1: something now? I think right now we are where we

632
00:34:51,840 --> 00:34:54,640
Speaker 1: need to be. That said, there are clearly these downside

633
00:34:54,680 --> 00:34:56,880
Speaker 1: rest of the economy, and I think we would have

634
00:34:56,920 --> 00:35:00,600
Speaker 1: to act as appropriate if those come to fruition or

635
00:35:00,640 --> 00:35:03,200
Speaker 1: even look like they're coming to fruition. The biggest concern

636
00:35:03,280 --> 00:35:06,040
Speaker 1: I have right now is when you talk to business leaders.

637
00:35:06,360 --> 00:35:09,920
Speaker 1: Nobody I talked to says that the cost of capital

638
00:35:10,040 --> 00:35:12,839
Speaker 1: is inhibiting business investment, and that has been the drag

639
00:35:12,880 --> 00:35:15,680
Speaker 1: on the economy right now. Is business investment not the consumer?

640
00:35:15,719 --> 00:35:17,920
Speaker 1: The consumer has been the hero of the American economy.

641
00:35:18,200 --> 00:35:21,440
Speaker 1: So if that's true, right the business investment is not

642
00:35:21,560 --> 00:35:24,840
Speaker 1: being held back by the cost of capital, US reducing

643
00:35:25,160 --> 00:35:28,319
Speaker 1: interest rates will have no effect. What's holding it back

644
00:35:28,640 --> 00:35:32,080
Speaker 1: is uncertainty around policy, particularly trade policy. So is there

645
00:35:32,120 --> 00:35:35,000
Speaker 1: anything for the FED to do at this moment? Are

646
00:35:35,040 --> 00:35:38,960
Speaker 1: you feeling pressured to be the savior of the economy

647
00:35:39,080 --> 00:35:41,520
Speaker 1: because you're the only game in town? So I think

648
00:35:41,520 --> 00:35:44,160
Speaker 1: we have to act as appropriate when we see the

649
00:35:44,200 --> 00:35:47,960
Speaker 1: economy having a shock. I don't see that right now,

650
00:35:48,040 --> 00:35:49,560
Speaker 1: So I don't think we need to act right now.

651
00:35:50,040 --> 00:35:53,759
Speaker 1: Do you anticipate from what your business contacts are telling

652
00:35:53,760 --> 00:35:56,600
Speaker 1: you that the economy is going to deteriorate or are

653
00:35:56,640 --> 00:35:58,759
Speaker 1: they kind of on hold too? A lot of them

654
00:35:58,760 --> 00:36:01,759
Speaker 1: are on hold. I mean perfectly reasonable. If you're sitting

655
00:36:01,760 --> 00:36:04,239
Speaker 1: in a board right now, a corporate board, not to

656
00:36:04,280 --> 00:36:07,160
Speaker 1: make a big bet until some of this uncertainty resolves itself.

657
00:36:07,200 --> 00:36:10,719
Speaker 1: It's an absolutely reasonable thing to do. What are they

658
00:36:10,760 --> 00:36:14,040
Speaker 1: telling you about their economic outlook in the absence of

659
00:36:14,080 --> 00:36:17,960
Speaker 1: trade wars? Would they be expanding? Yeah? What we hear

660
00:36:18,120 --> 00:36:21,799
Speaker 1: is if the especially around manufacturing, right, if we had

661
00:36:21,880 --> 00:36:25,120
Speaker 1: more certainty around manufacturing, particularly globally. I mean there are

662
00:36:25,239 --> 00:36:29,360
Speaker 1: clear global risks, but those export lead economies like Germany

663
00:36:29,400 --> 00:36:34,239
Speaker 1: are facing large challenges right now because of this uncertainty. Yeah,

664
00:36:34,280 --> 00:36:36,600
Speaker 1: if that resolved itself, I think people would be making

665
00:36:36,600 --> 00:36:40,400
Speaker 1: those investments. There's enough demand in the economy. Look at

666
00:36:40,400 --> 00:36:43,360
Speaker 1: the consumer. The American consumer continues to buy. Would the

667
00:36:43,360 --> 00:36:46,520
Speaker 1: consumer be the last person though, to feel the change.

668
00:36:46,840 --> 00:36:48,759
Speaker 1: If you're waiting for retail sales to fall off or

669
00:36:48,800 --> 00:36:50,759
Speaker 1: you're gonna then get a signal that's too late now?

670
00:36:50,800 --> 00:36:53,400
Speaker 1: But why is the consumer buying? Because the job market

671
00:36:53,400 --> 00:36:55,920
Speaker 1: continues to be strong, right, the labor markets continue to

672
00:36:55,920 --> 00:36:59,520
Speaker 1: be strong, and so household incomes continue to be strong. Well,

673
00:36:59,560 --> 00:37:01,799
Speaker 1: you've got to reaction function that has been based on

674
00:37:01,840 --> 00:37:06,600
Speaker 1: the idea for decades of controlling inflation and keeping inflation down.

675
00:37:07,200 --> 00:37:09,680
Speaker 1: Inflation has gone away as far as most people are

676
00:37:09,719 --> 00:37:13,160
Speaker 1: concerned right now, and unemployment keeps going lower and lower.

677
00:37:13,280 --> 00:37:14,960
Speaker 1: Do you need to change the way you look at

678
00:37:14,960 --> 00:37:19,560
Speaker 1: the economy now? I think look, inflation clearly is a conundrum.

679
00:37:19,640 --> 00:37:21,920
Speaker 1: That is, we don't really understand why it's been low

680
00:37:22,120 --> 00:37:25,560
Speaker 1: for so long and just but it's not necessarily the case.

681
00:37:25,600 --> 00:37:27,319
Speaker 1: And we see this around the world that if you

682
00:37:27,400 --> 00:37:30,200
Speaker 1: have a more accommodative monetary policy, you're going to suddenly

683
00:37:30,239 --> 00:37:34,040
Speaker 1: move inflation. That's not happened in other countries. And said,

684
00:37:34,080 --> 00:37:38,480
Speaker 1: there's some underlying trends with the economy that are different

685
00:37:38,480 --> 00:37:41,040
Speaker 1: today than before that we continue to try and understand

686
00:37:41,600 --> 00:37:45,400
Speaker 1: in that situation where there's uncertainty, I don't think we

687
00:37:45,440 --> 00:37:48,040
Speaker 1: should move precipitously in either direction. I think we should

688
00:37:48,080 --> 00:37:50,799
Speaker 1: stay the course and see how things unfold. We do

689
00:37:51,040 --> 00:37:54,120
Speaker 1: worry that Wall Street or Global Wall Street as it were,

690
00:37:54,880 --> 00:37:58,800
Speaker 1: might overreact to FED rate cuts and miss allocate capital. Yes,

691
00:37:58,920 --> 00:38:02,719
Speaker 1: I mean one of the concerns as financial stability, that is,

692
00:38:02,760 --> 00:38:06,279
Speaker 1: with rates going even lower, leverage rising, and that is

693
00:38:06,280 --> 00:38:08,879
Speaker 1: a concern for the economy. Do you see it anywhere yet?

694
00:38:09,840 --> 00:38:12,840
Speaker 1: A little bit in leverage lending, But it's something we

695
00:38:12,880 --> 00:38:15,160
Speaker 1: need to keep her. It's only something I'm watching. I

696
00:38:15,200 --> 00:38:18,960
Speaker 1: wouldn't say it's a situation that weren't any action at

697
00:38:19,000 --> 00:38:21,880
Speaker 1: this point. One of the things that came out of

698
00:38:21,880 --> 00:38:24,560
Speaker 1: the minutes this week was the idea that the FED

699
00:38:24,760 --> 00:38:27,200
Speaker 1: should be acting, at least some people on the committee

700
00:38:27,239 --> 00:38:30,759
Speaker 1: think so. To try to bring inflation up interest rates

701
00:38:30,760 --> 00:38:33,520
Speaker 1: though we're at zero for seven years didn't work. So

702
00:38:33,640 --> 00:38:35,959
Speaker 1: how much validity does that argument have anymore? So again,

703
00:38:36,000 --> 00:38:38,600
Speaker 1: I think we're there's some underlying transfer inflation, but if

704
00:38:38,600 --> 00:38:41,120
Speaker 1: you look at the latest CPI print, it's moving in

705
00:38:41,160 --> 00:38:45,759
Speaker 1: the right direction. We are moving around two and we're

706
00:38:45,800 --> 00:38:48,239
Speaker 1: close enough in my mind where I don't think we

707
00:38:48,239 --> 00:38:50,880
Speaker 1: need to take action at this point. Well, as a

708
00:38:50,960 --> 00:38:54,319
Speaker 1: FED continues, it's a review. One of the issues that's

709
00:38:54,360 --> 00:38:56,040
Speaker 1: come up is do you let the economy run hut

710
00:38:56,400 --> 00:38:58,719
Speaker 1: that inflation run above target for a while to make

711
00:38:58,800 --> 00:39:00,840
Speaker 1: up how do you feel about that? So, yeah, average

712
00:39:00,880 --> 00:39:05,080
Speaker 1: inflation targeting of some form. So that's an appealing idea

713
00:39:05,120 --> 00:39:08,359
Speaker 1: in theory. In practice it's a little difficult because you

714
00:39:08,400 --> 00:39:11,839
Speaker 1: are asking a future committee to act in a way

715
00:39:11,840 --> 00:39:14,719
Speaker 1: that the current committee wants it to act, and that's

716
00:39:14,800 --> 00:39:17,600
Speaker 1: very difficult. But if you let that happen, do you

717
00:39:17,640 --> 00:39:20,239
Speaker 1: worry that inflation could get out of control again? Or

718
00:39:20,280 --> 00:39:24,520
Speaker 1: are you fairly sanguine about the prospects for prices? So

719
00:39:24,520 --> 00:39:26,480
Speaker 1: at this point I don't see inflation running out of

720
00:39:26,480 --> 00:39:29,759
Speaker 1: control in most scenarios. Of course there are a few,

721
00:39:29,800 --> 00:39:31,839
Speaker 1: but generally no, I don't see that as a risk

722
00:39:31,920 --> 00:39:34,160
Speaker 1: right now, Well, then what is the FITS reaction function

723
00:39:34,200 --> 00:39:36,200
Speaker 1: going to be? What are you gonna look at? So

724
00:39:36,239 --> 00:39:37,879
Speaker 1: I can't speak to the FED. I can only speak

725
00:39:37,920 --> 00:39:40,120
Speaker 1: for myself. And again I look at a strong labor

726
00:39:40,160 --> 00:39:44,600
Speaker 1: market and rising wages, again slowly but rising wages. Look

727
00:39:44,640 --> 00:39:47,160
Speaker 1: at inflation, and one of the things we continue to

728
00:39:47,200 --> 00:39:50,040
Speaker 1: factor in is the financial stability question. When you look

729
00:39:50,080 --> 00:39:54,120
Speaker 1: at the labor market and you see slowing hiring um

730
00:39:54,160 --> 00:39:57,200
Speaker 1: still above the replacement rate. But is that because companies

731
00:39:57,239 --> 00:40:00,200
Speaker 1: can't find workers or because they're getting more caut Is

732
00:40:00,680 --> 00:40:02,319
Speaker 1: I think a mix of it too. But what I

733
00:40:02,400 --> 00:40:05,479
Speaker 1: hear more than they're getting cautious is they just can't

734
00:40:05,480 --> 00:40:08,200
Speaker 1: find the people, and not just people of the skilled positions.

735
00:40:08,440 --> 00:40:10,680
Speaker 1: We often focus on those by just talking to a

736
00:40:10,719 --> 00:40:12,879
Speaker 1: major homebuilder who said, I can't find people to carry

737
00:40:12,920 --> 00:40:15,839
Speaker 1: bricks and sticks on the site, right, and so I'm

738
00:40:15,920 --> 00:40:17,759
Speaker 1: limited in terms of how many homes I can build.

739
00:40:17,960 --> 00:40:19,520
Speaker 1: So is this about as good as it gets that?

740
00:40:20,280 --> 00:40:22,719
Speaker 1: I don't know. I mean, it's been surprising in a

741
00:40:22,800 --> 00:40:25,080
Speaker 1: good way that we're bringing more people off the sidelines

742
00:40:25,400 --> 00:40:27,919
Speaker 1: into the American economy. That's a good thing for the

743
00:40:27,960 --> 00:40:30,480
Speaker 1: person and for the American economy. And I think there

744
00:40:30,520 --> 00:40:32,640
Speaker 1: may be a little bit more to run, probably not

745
00:40:32,680 --> 00:40:34,839
Speaker 1: a lot more to run. So have you changed your

746
00:40:34,960 --> 00:40:38,880
Speaker 1: economic outlook based on the trade wars, based on what's happening?

747
00:40:39,440 --> 00:40:41,839
Speaker 1: Not yet. I mean, we we have predicted going back

748
00:40:41,880 --> 00:40:44,920
Speaker 1: to trained growth to percent growth with the employment numbers

749
00:40:44,920 --> 00:40:47,200
Speaker 1: coming down to about a hundred hundred and ten thousand

750
00:40:47,200 --> 00:40:50,440
Speaker 1: a month. Now, we haven't changed that because the volatility

751
00:40:50,920 --> 00:40:54,279
Speaker 1: in the policy itself, it's hard to predict and hard

752
00:40:54,320 --> 00:40:56,640
Speaker 1: to put into any model. Well, if you haven't changed

753
00:40:56,640 --> 00:40:59,840
Speaker 1: your views, Uh, where do you think the proper setting

754
00:40:59,880 --> 00:41:03,759
Speaker 1: for monetary policy is Several participants in the Open Market

755
00:41:03,840 --> 00:41:07,120
Speaker 1: Committee deliberations have told me, you look at the FED

756
00:41:07,160 --> 00:41:10,000
Speaker 1: funds rate above the Yeel curve, and that just tells

757
00:41:10,000 --> 00:41:12,359
Speaker 1: you you're too tight. Now, I think we're about where

758
00:41:12,360 --> 00:41:13,799
Speaker 1: we need to be in terms of I think we're

759
00:41:13,840 --> 00:41:16,600
Speaker 1: about neutral right now. Do you think that it is

760
00:41:16,640 --> 00:41:18,360
Speaker 1: a problem that we're going to see slowing in funding

761
00:41:18,440 --> 00:41:23,560
Speaker 1: in financial conditions, if uh, tightening of financial conditions, if

762
00:41:23,560 --> 00:41:27,560
Speaker 1: the current settings stay, it's a risk, and it's a

763
00:41:27,640 --> 00:41:30,640
Speaker 1: risk of monitoring, but right now I'm not forecasting that now.

764
00:41:31,040 --> 00:41:36,200
Speaker 1: So you don't see the markets as disrupting at this point. Well,

765
00:41:36,239 --> 00:41:38,719
Speaker 1: there's a lot of altill the market, for sure, and

766
00:41:38,719 --> 00:41:42,759
Speaker 1: the people watching them that interrupting the path of the economy.

767
00:41:42,960 --> 00:41:45,080
Speaker 1: Now not at this point. I think the larger risk

768
00:41:45,280 --> 00:41:48,080
Speaker 1: is this policy on certainty, particularly trade on certainty, and

769
00:41:48,120 --> 00:41:50,040
Speaker 1: there's nothing you can do. But there's nothing we need

770
00:41:50,080 --> 00:41:52,919
Speaker 1: to react as appropriate to that. But no, we can't.

771
00:41:52,960 --> 00:41:55,359
Speaker 1: We don't drive that policy. Do you worry if you're

772
00:41:55,360 --> 00:41:58,520
Speaker 1: trying to react that you're gonna be too late? Well,

773
00:41:58,560 --> 00:42:00,640
Speaker 1: if I knew what it was and we could plan,

774
00:42:00,840 --> 00:42:04,520
Speaker 1: but right now again, the volatility in the actual policy

775
00:42:04,640 --> 00:42:07,279
Speaker 1: is too great for me to predict. How hard is

776
00:42:07,320 --> 00:42:10,080
Speaker 1: it for you to do your job on a daily

777
00:42:10,120 --> 00:42:12,840
Speaker 1: basis given the tweeted criticism of the FED. And I

778
00:42:12,880 --> 00:42:15,680
Speaker 1: don't mean in the room when you're making policy decisions,

779
00:42:15,719 --> 00:42:18,200
Speaker 1: because every FED person will tell you it doesn't affect us.

780
00:42:18,400 --> 00:42:20,279
Speaker 1: But you go out and you talk to your constituents,

781
00:42:20,280 --> 00:42:23,719
Speaker 1: do you do you detect a change in attitude among

782
00:42:23,800 --> 00:42:26,120
Speaker 1: people these days? The main thing I hear when I'm

783
00:42:26,120 --> 00:42:27,480
Speaker 1: out and about, and I was out and about in

784
00:42:27,520 --> 00:42:32,000
Speaker 1: my district all summer meeting with people is the concern

785
00:42:32,200 --> 00:42:36,120
Speaker 1: that FED independence is being threatened. I mean, everybody I

786
00:42:36,200 --> 00:42:38,520
Speaker 1: talked to you said that FED, even though we're not

787
00:42:38,600 --> 00:42:42,839
Speaker 1: perfect and we don't always make perfect decisions, that independence

788
00:42:42,880 --> 00:42:46,719
Speaker 1: of the Federal Reserve is absolutely critical for the American economy.

789
00:42:47,000 --> 00:42:48,640
Speaker 1: You're not hearing people come up to you and say,

790
00:42:48,640 --> 00:42:50,799
Speaker 1: you guys are the bad guys. I don't hear much

791
00:42:50,800 --> 00:42:52,960
Speaker 1: of that now. In fact, all summer, I didn't hear

792
00:42:52,960 --> 00:42:54,839
Speaker 1: any of that. How much of a threat do you

793
00:42:54,840 --> 00:42:57,919
Speaker 1: think there is to the FED independence? Is this more

794
00:42:57,960 --> 00:43:00,879
Speaker 1: of a media creation than anything else? No, I think

795
00:43:00,880 --> 00:43:04,560
Speaker 1: we are a creature of Congress, and we are responsible

796
00:43:05,160 --> 00:43:09,520
Speaker 1: to Congress, and and so Congress could change the laws.

797
00:43:09,600 --> 00:43:11,719
Speaker 1: I don't think that's in the foreseeable future, but we

798
00:43:11,760 --> 00:43:14,520
Speaker 1: have to recognize that Congress has the absolute right to

799
00:43:14,560 --> 00:43:17,520
Speaker 1: do that. But we need every day to earn the

800
00:43:17,560 --> 00:43:20,640
Speaker 1: trust of the American people by acting on their behalf.

801
00:43:20,920 --> 00:43:23,279
Speaker 1: The last question is the same question I put to

802
00:43:23,480 --> 00:43:25,480
Speaker 1: all of your colleagues, and that is do you worry

803
00:43:25,520 --> 00:43:29,000
Speaker 1: we can talk ourselves into recession? Yeah? I mean, I

804
00:43:29,000 --> 00:43:32,320
Speaker 1: think the lack of animal spirits, you know, if that diminishes,

805
00:43:32,760 --> 00:43:36,239
Speaker 1: that's real. I don't sense that that is widespread right now.

806
00:43:36,280 --> 00:43:39,480
Speaker 1: I think there are some concerns, particular manufacturing. Although our

807
00:43:39,560 --> 00:43:43,360
Speaker 1: last manufacturing business outlooks survey out of Philadelphia was good.

808
00:43:43,760 --> 00:43:48,040
Speaker 1: So while even across the board manufacturing looks like it's weakening,

809
00:43:48,280 --> 00:43:51,120
Speaker 1: there are pockets where it's still strong. So you're optimistic

810
00:43:51,120 --> 00:43:53,839
Speaker 1: about where we go from here. I think we're I'm

811
00:43:53,880 --> 00:43:56,360
Speaker 1: cautiously optimistic, is the way I would say, Well, what

812
00:43:56,640 --> 00:43:59,600
Speaker 1: does cautiously optimistic mean? How much of a threat do

813
00:43:59,640 --> 00:44:02,399
Speaker 1: you think is well? I think if again, particularly if

814
00:44:02,400 --> 00:44:06,680
Speaker 1: it's policy uncertainty around trade, UH gets worse, we would

815
00:44:06,719 --> 00:44:09,799
Speaker 1: have to act as appropriate. You keep using the same

816
00:44:09,800 --> 00:44:12,560
Speaker 1: phrase that j Pile uses as zoos conferences and things

817
00:44:12,640 --> 00:44:15,640
Speaker 1: like that. You mean cutting rates at that point, even

818
00:44:15,719 --> 00:44:20,160
Speaker 1: if you think it doesn't work, Uh, well, yeah, because

819
00:44:20,440 --> 00:44:23,880
Speaker 1: if it starts to affect the consumer. Right, So, on

820
00:44:23,920 --> 00:44:25,880
Speaker 1: the business side, I don't think it had that channel

821
00:44:26,360 --> 00:44:29,160
Speaker 1: is not very strong. But if it starts to affect

822
00:44:29,160 --> 00:44:34,360
Speaker 1: the consumer and consumer confidence, because the consumer is the economy,

823
00:44:34,719 --> 00:44:36,640
Speaker 1: that would have a real impact. So if we could

824
00:44:37,080 --> 00:44:40,279
Speaker 1: do something in a way that would restore confidence to

825
00:44:40,280 --> 00:44:42,360
Speaker 1: the consumer and put a little bit more money in

826
00:44:42,400 --> 00:44:45,320
Speaker 1: their pocket through refinancing or whatever, that would be a

827
00:44:45,320 --> 00:44:47,440
Speaker 1: good thing. You think they would respond then to lower

828
00:44:47,480 --> 00:44:50,680
Speaker 1: interest rates. People respond to refinancing their mortgages for sure.

829
00:44:51,200 --> 00:44:53,680
Speaker 1: Does there much of that left? It depends on where

830
00:44:53,680 --> 00:44:56,480
Speaker 1: the rates are, right, all right, Pat Harker, thank you

831
00:44:56,560 --> 00:44:58,520
Speaker 1: very much for the Philadelphia said thank you for joining

832
00:44:58,560 --> 00:45:01,520
Speaker 1: us on Bloomberg Radio to Television this morning. We'll send

833
00:45:01,520 --> 00:45:05,160
Speaker 1: it back to you. That's Bloomberg's Michael McKee speaking with Philotaph.

834
00:45:05,200 --> 00:45:08,040
Speaker 1: You've fed President Patrick Harker. Thanks for listening to the

835
00:45:08,040 --> 00:45:14,560
Speaker 1: Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

836
00:45:14,920 --> 00:45:19,160
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

837
00:45:19,200 --> 00:45:23,440
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

838
00:45:23,880 --> 00:45:25,000
Speaker 1: I'm Bloomberg Radio