Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe.
Speaker 2: Why isn't thal Joe? How about that hawkish cut?
Speaker 3: Eh? Exciting interesting times in macro economics, the Fed, the
Speaker 3: marks plenty to talk about right now. We're recording this
Speaker 3: December twentieth.
Speaker 2: Yeah, we're recording this December twentieth. So two days after
Speaker 2: we had what is being called a hawkish cut from
Speaker 2: the FOMC, the Central Bank decided to cut by twenty
Speaker 2: five basis points. But at the same time they unveiled,
Speaker 2: you know, their new forecasts for next year, and it
Speaker 2: looks like the expectations that inflation maybe is going to
Speaker 2: be a little bit more stubborn and maybe we're only
Speaker 2: going to get two cuts next year. And markets promptly
Speaker 2: fell out of bed. They did not like that revised forecast,
Speaker 2: to say the least.
Speaker 3: Yeah, it's a little surprising, and we'll get into it,
Speaker 3: you know. I think to some extent a lot of
Speaker 3: it was expected, but there are real tensions right now.
Speaker 3: Right so, we have had stubborn, sideways inflation prints in
Speaker 3: recent months, maybe not quite the soft trajectory back down
Speaker 3: to target, the fact that we might not be down
Speaker 3: to target completely in twenty twenty five, some questions about
Speaker 3: labor market stability, plenty to dive into, plenty of crosswinds
Speaker 3: for investors, traders, and so forth.
Speaker 2: To digest crosswinds is a nice way of putting it.
Speaker 2: I feel like anyone who was hoping for a quiet
Speaker 2: end to the year might be disappointed with everything going on.
Speaker 2: But Joe, I have to say, we really do have
Speaker 2: the perfect guests to dive into all of this. We're
Speaker 2: going to be speaking with Federal Reserve Bank of San
Speaker 2: Francisco President Mary Daily, herself a voting member on the FOMC.
Speaker 2: So all right, thank you so much for coming on all.
Speaker 4: Thoughts, I'm delighted my lucky day.
Speaker 2: So why didn't I start with the obvious question? And
Speaker 2: one I think I suspect you've been asked this multiple
Speaker 2: times over the past couple days, But why cut at
Speaker 2: all if you think that inflation is expected to show
Speaker 2: not that much progress into next year and maybe not
Speaker 2: reach two percent until twenty twenty seven.
Speaker 4: It's a great question, And if I can take a minute,
Speaker 4: I'll explain exactly how I thought of it, so we
Speaker 4: had policy rightly, so at a highly restrictive level. Remember,
Speaker 4: the interest rate was really high, historically high, and that
Speaker 4: was to fight very high inflation, and a very robust
Speaker 4: labor market was helping spur high inflation. The economy was
Speaker 4: out of balance. So now that we have inflation that
Speaker 4: is much lower, we've made tremendous progress towards getting it
Speaker 4: back to two. We're not there yet, and the labor
Speaker 4: market is balanced now, completely balanced, appropriate to move into
Speaker 4: a more moderate level of restrictiveness. Otherwise what you end
Speaker 4: up doing is breaking the economy. If you leave the
Speaker 4: higher level of restrictiveness on while you're closer to your goals,
Speaker 4: the economy just starts to falter and you end up
Speaker 4: getting inflation down, but at the expense of people's jobs.
Speaker 4: And that's not a recipe for a soft landing. That's
Speaker 4: a recipe for a very hard landing, and it takes
Speaker 4: away what people have really wanted their entire time that
Speaker 4: we've been in this high inflation period, which is low
Speaker 4: and stable inflation and jobs that help them grow their
Speaker 4: careers and communities and families. So that's why we cut
Speaker 4: the rate. In my judgment, that's why I supported it.
Speaker 4: It was a close call. Whether it's seventy five or
Speaker 4: one hundred basis points in total, that's the right level
Speaker 4: to get from highly to moderate for me. We now
Speaker 4: have completed that recalibration right sizing, and now we can
Speaker 4: look at the data and the incoming information and our
Speaker 4: projection of how the economy will evolve, and take our
Speaker 4: time to make any additional policy adjustments.
Speaker 3: So labor market is, as you put it, in balance
Speaker 3: and no longer a driver of inflation, and yet inflation
Speaker 3: has been sideways above target. In fact, the inflation forecast
Speaker 3: per the dots for twenty twenty five ticked up. What
Speaker 3: is the residual source of the inflation if it's no
Speaker 3: longer the labor market.
Speaker 4: Now, that's another great question and one that we think
Speaker 4: a lot about. I think a lot about it, and
Speaker 4: really it traces to two things right now. One is
Speaker 4: driving it up, maybe temporarily, it's hard to say, and
Speaker 4: the other one is a more persistent issue. So let
Speaker 4: me start the first one. It's non market prices. And
Speaker 4: what that means for people who are really into this
Speaker 4: like me, is that it's prices we don't actually measure
Speaker 4: we estimate, and we're not doing this the BA and
Speaker 4: BLS are doing all the data collection. But it's really
Speaker 4: these prices that we don't know, We can't see them exactly,
Speaker 4: and so we estimate them. And so financial services prices,
Speaker 4: for instance, are based on asset value this, and those
Speaker 4: have been up. So it feels like inflation's in those
Speaker 4: areas partly because of the estimates. But it's hard to
Speaker 4: get your mind on that as a fundamental underlying inflation.
Speaker 4: It's not really what people think about when they think of,
Speaker 4: you know, high inflation is hurting me. They're thinking about
Speaker 4: other things. So that's one factor. The second factor that's
Speaker 4: really been elevating inflation is housing services, the price of
Speaker 4: housing and the price of rentals. Now what's interesting there
Speaker 4: is rental prices have been coming down, but home prices
Speaker 4: haven't been falling as much, and we're not seeing that
Speaker 4: gap close. And unfortunately we have a structural issue there
Speaker 4: that has nothing to do with FED policy. It's really
Speaker 4: about the substantial, significant, very very large shortfall in housing
Speaker 4: relatives to the number of people who wanted and so
Speaker 4: that's something that you know, maybe stickier for a longer
Speaker 4: period of time than we thought and will cause inflation
Speaker 4: to be elevated.
Speaker 2: I mean housing inflation. Is that something that the FED
Speaker 2: would attempt to offset? And I guess, like with what
Speaker 2: tools at your disposal? Because you have benchmark interest rates,
Speaker 2: and you know when rates go up as they have
Speaker 2: been up until relatively recently, the cost of capital increases
Speaker 2: for all these home builders and if anything, you know,
Speaker 2: we see housing activity tend to slow. Like, what is
Speaker 2: it that you can actually do about housing inflation?
Speaker 4: So what we do, and this is we do have
Speaker 4: a limited set of tools for the kind of housing
Speaker 4: inflation we're seeing. The driver of that being the imbalance
Speaker 4: between supply of housing and demand for housing. We really
Speaker 4: don't have a surgical tool for that problem. But what
Speaker 4: we do have is the interest rate. And one of
Speaker 4: the things you saw is that building really was stymied
Speaker 4: when we had interest rates at those very high levels.
Speaker 4: But as we started to move the interest rate down,
Speaker 4: then we saw builders start to come off the sideline.
Speaker 4: So I'll tell you an anecdote. Are some stories from
Speaker 4: my context. So I have the nine states in the
Speaker 4: Western US. That's the twelfth district of the Federal Reserve,
Speaker 4: and that's the coastal states Alaska and Hawaii, and all
Speaker 4: the inner mountains state so Utah, Nevada, Arizona, and Idaho.
Speaker 4: Those states we saw immediately when we first took the
Speaker 4: first fifty basis point reduction in the interest rate is
Speaker 4: our contacts. I was out in those areas. Our contact
Speaker 4: said we're going to take some projects off the sidelines,
Speaker 4: and I said, really, that's just a fifty basis point
Speaker 4: reduction in the interest rate, and they said, yes, but
Speaker 4: the direction of change is down, and so now we're
Speaker 4: ready to come out. And that has been happening since
Speaker 4: we've been on this relaxation of policy, and the consequence
Speaker 4: of that is that we're seeing some improvement, but that's
Speaker 4: not going to be sufficient. And another thing you learn,
Speaker 4: especially if you travel into Idaho Utah where they've had
Speaker 4: significant housing challenges, is the public sector and the private
Speaker 4: sector businesses are joining together to try to get some
Speaker 4: relief on the housing side. It's a problem for everyone,
Speaker 4: and the FED only has that limited tool.
Speaker 2: Joe, I'll give you a cookie if you can name
Speaker 2: the three American territories that are in addition to the
Speaker 2: nine states in the San Francisco Fed Catchment.
Speaker 4: Area Guam is one very good.
Speaker 2: You'll never get the third one one or the other
Speaker 2: two American Samoa and the Northern Mariana Islands.
Speaker 3: I just want to say Mary. Earlier this year, Tracy
Speaker 3: and I, I don't know if you know, we took
Speaker 3: a trip with one of your colleagues, Richmond Fed President
Speaker 3: Tom Barkin.
Speaker 4: So he's my buddy.
Speaker 3: If you ever wanted to record an odd lots with
Speaker 3: us on the road in Hawaii, I'm just throwing it
Speaker 3: out there. I'm just throw it out.
Speaker 4: There anywhere I can come to any of the states.
Speaker 4: I'm going to Alaska, I go to Hawaii, Idaho. Yeah,
Speaker 4: anytime I have a road I do road trips all
Speaker 4: the time, and you're welcome to do it.
Speaker 3: Okay. I'm making a note of that for our producers. Now,
Speaker 3: I want to go back to the inflation outlook specifically,
Speaker 3: and I take your point about some of these non
Speaker 3: market prices, and I certainly take your point about housing
Speaker 3: because very lots of crosswinds there, the degree to which
Speaker 3: the rate can affect things, some of the gaps between
Speaker 3: in some of the market private measures that come out
Speaker 3: on rents versus the public measures, and so forth. All
Speaker 3: that being said, there has been some sort of shift
Speaker 3: in the outlook since September. So these are long standing
Speaker 3: structural issues, and yet since September, obviously the inflation outlook
Speaker 3: has firmed per the dots. What has evolved since September
Speaker 3: such that the inflation outlook for twenty twenty five has
Speaker 3: gone up.
Speaker 4: Well, one thing that has evolved for me is just
Speaker 4: my better understanding as the data have come in and
Speaker 4: we've dug into them a little bit more, that housing
Speaker 4: inflation might just be more persistent. So if you think
Speaker 4: about how it usually works, you would see even with
Speaker 4: these gaps, you would see housing services inflation come down,
Speaker 4: and it has not come down as quickly as we
Speaker 4: would have thought, and so reevaluating how we think about
Speaker 4: it and just allowing more time and persistence there. Another
Speaker 4: thing that's happened is we have geopolitical issues and trade
Speaker 4: back and forth. It doesn't depend on what administration you've
Speaker 4: been in the one we're in now, we're the one
Speaker 4: that's upcoming. It really is that trade relations between the
Speaker 4: US and China haven't been as strong as they have
Speaker 4: been in past years, and that's spread out to other countries,
Speaker 4: and so that affects your outlook for just the price
Speaker 4: of goods. And then of course you know the economy
Speaker 4: has been consumer spending has just been stronger, and growth
Speaker 4: has been stronger than most forecasters, including US, have penciled in,
Speaker 4: and so there's an adjustment to the growth forecast as well.
Speaker 4: So the way it typically works in the economics models
Speaker 4: is that growth falls below potential growth, that puts downward
Speaker 4: pressure on inflation. But when growth is above potential growth,
Speaker 4: then we're going to see whether that's boosting inflation. I
Speaker 4: did allow it to boost inflation in my own forecast
Speaker 4: a little bit, but if it's coming out of productivity
Speaker 4: gains and labor force growth, then it may not. So
Speaker 4: that's why you have to be agile as a central banker.
Speaker 4: You put a forecast in it, but you don't get
Speaker 4: too attached to it.
Speaker 2: Definitely want to ask you more questions about the outlook
Speaker 2: for things like trade and some of the forward looking things.
Speaker 2: But before we do, just in terms of this week,
Speaker 2: were you surprised at all by the market reaction to
Speaker 2: the decision, because I mean there is an irony here,
Speaker 2: which is you cut twenty five basis points, and it
Speaker 2: was sort of the first time we've seen like a
Speaker 2: real tightening of financial conditions since like the summer.
Speaker 4: Basically, well, they're really forward looking. They're never going to
Speaker 4: adjust just I mean, this is one of the things
Speaker 4: about markets, they're extremely forward looking. So they were seems
Speaker 4: like they were really looking forward on what we said
Speaker 4: for next year. Now you asked if I was surprised.
Speaker 4: I was a little surprised.
Speaker 5: Not.
Speaker 4: I mean they had expected the great cut that we made,
Speaker 4: so that wasn't seemed to be the surprising piece. And
Speaker 4: they had penciled in in their market prices three interest
Speaker 4: rate cuts next year, not the four we had thought
Speaker 4: we would make in the September sep And so then
Speaker 4: when we had they saw the median come out it two,
Speaker 4: it seemed to be a very large response. And yes
Speaker 4: that it was surprising because three doesn't seem that far
Speaker 4: from two. And it's certainly in this in the range
Speaker 4: of the dispersion of forecasts. I mean, we had some
Speaker 4: with no cuts, we had some with one person with
Speaker 4: five cuts in the participant list, if I remember correctly,
Speaker 4: And so you know, I think the uncertainty bands about
Speaker 4: what will actually need to do going forward are very
Speaker 4: wide and I was surprised the markets didn't see that
Speaker 4: and say, okay, we were roughly in line with what
Speaker 4: the FED thought, but they didn't, and so that's unclear why.
Speaker 4: Maybe there's a lot of other things going on in
Speaker 4: the economy in the world that caused them to take
Speaker 4: this more risk off approach.
Speaker 3: But talking about okay, a one point a year ago
Speaker 3: or so, you know, the FED was in highly restrictive
Speaker 3: territory and now it's coming down to something that's a
Speaker 3: little bit more moderate. But either way, and of course
Speaker 3: we don't really know and you know those two dots,
Speaker 3: it's just could change again at the next update, But
Speaker 3: either way, at least right now, it looks like rates
Speaker 3: whenever this sort of cutting cycle comes to an end,
Speaker 3: are not going to look like pre COVID levels. And
Speaker 3: so people talk about the neutral rate of interest having
Speaker 3: gone up. What's changed since pre COVID such that, regardless
Speaker 3: of where that sends, we do appear to be in
Speaker 3: a sort of new higher rate band than we were
Speaker 3: if we've been having this conversation in say twenty nineteen
Speaker 3: or twenty eighteen.
Speaker 4: Yeah, no, a lot's changed since then. And so let's
Speaker 4: we can walk through some of the factors that I
Speaker 4: think are really material that the FED and other central
Speaker 4: banks around the globe are going to have to deal with.
Speaker 4: So one thing that's changed is the neutral rate of
Speaker 4: interest is just the price that clears the desire for
Speaker 4: investment and the desire for savings. Right, So you have
Speaker 4: the savings and you have the investment, and you balance
Speaker 4: those two out and you get an interest rate. That's
Speaker 4: the neutral rate of interest, and it is the one
Speaker 4: that persists when there's no shocks to the economy. The
Speaker 4: thing that we were facing coming out of the financial
Speaker 4: crisis and for the decade that preceded the pandemic, is
Speaker 4: that we had an abundance of savings and a dearth
Speaker 4: of investment, and that drove the neutral rate of interest down.
Speaker 4: Supply of savings was plentiful, interest in demand for investment
Speaker 4: was not as plentiful, and the neutral rate of interest fell,
Speaker 4: and it fell across the globe. It's a global rate.
Speaker 4: So now we have that unwinding. We have a lesser
Speaker 4: supply of savings. The sovereigns, the countries are all out
Speaker 4: there borrowing quite a lot of money, and that pushes
Speaker 4: the demand for an investment or spending up their companies
Speaker 4: are coming off the sidelines on investment looking to take
Speaker 4: advantage of automation or AI. That very I't been a
Speaker 4: labor economist my whole care. And one of the things
Speaker 4: you see again and again and again is when we
Speaker 4: have tight labor markets like we had, it drives firms
Speaker 4: into investments to automate so that they don't feel so
Speaker 4: frantic when they can't find workers. So we've seen that
Speaker 4: normal process, and I think that's been spurred even more
Speaker 4: by people recognizing the AI as a thing. Now there's
Speaker 4: sometimes and mostly not even using generative AI. I mean,
Speaker 4: some companies are absolutely reaching into generative AI. But when
Speaker 4: chat GPT was announced right before Things Giving of twenty
Speaker 4: twenty two, is that right, that's right, Yeah, twenty twenty two,
Speaker 4: suddenly people said, oh, I can do robotic process automation,
Speaker 4: I can do machine learning, I can do all these things.
Speaker 4: And it's my companies that sell me things to make
Speaker 4: my life better are going to give me those things.
Speaker 4: So I think that's really spurred some investment. Companies want
Speaker 4: to manage their potential workforce shortages going forward. They want
Speaker 4: to get better at doing their jobs faster, better, cheaper
Speaker 4: and they're investing in these things. So the ultimately what
Speaker 4: drives our star is you know, this balance between investment
Speaker 4: and savings, and that's changed. Another thing that's changed, which
Speaker 4: is really material to how we do our work at
Speaker 4: the central bank, is we spend a decade or more
Speaker 4: fighting inflation from below our target. Our targets two. We're
Speaker 4: stuck at one point five, one point six, one point eight,
Speaker 4: never got over one point eight. That's below the target.
Speaker 4: We're trying to push it up. Now we're back to
Speaker 4: the normal thing that central banks have done for most
Speaker 4: of their histories, which is fight inflation from above the target,
Speaker 4: pulling it down, and that means that interest rates are
Speaker 4: just going to be higher in order to keep that
Speaker 4: inflation at pay.
Speaker 2: Speaking of our star, how much confidence do you have
Speaker 2: in your estimates of the neutral rate right now? Because
Speaker 2: I do get the sense, you know, all the talk
Speaker 2: of data dependency, there is an interpretation out there that's
Speaker 2: basically while the FED is looking at the data and
Speaker 2: emphasizing data dependence because they have less confidence in a
Speaker 2: lot of their models at the moment, a lot of
Speaker 2: the traditional relationships that we've seen mean, you know, things
Speaker 2: like the beverage curve have broken down in the post
Speaker 2: pandemic period, and there is a lot of uncertainty over
Speaker 2: how things are working at the moment.
Speaker 4: I'm going to take the opposite view. I actually think
Speaker 4: the models have done remarkably well, so the beverage curve
Speaker 4: is like a grand success. For example, if you take
Speaker 4: this VU ratio and you look at that, we were
Speaker 4: on the very steep portion of the beverage curve, and
Speaker 4: you know, research at the San Francisco FED has demonstrated
Speaker 4: this along with many others across the system. But you know,
Speaker 4: I was really pleased when I saw we're coming down
Speaker 4: the straight portion of the beverage curve, which means firms
Speaker 4: just reduce vacancies and has almost no impact on unemployment.
Speaker 4: And that's the happy world we've been living in. While
Speaker 4: we were raising interest rates to fight inflation, vacancies came down,
Speaker 4: unemployment didn't go up very much, and we got a
Speaker 4: lot of balance in the labor market. Now, this vacancy
Speaker 4: to unemployment ratio is one, so one vacancy for every
Speaker 4: one unemployed worker, and that's a lot of really pain
Speaker 4: free adjustment. Now I'm talking pain free at the aggregate
Speaker 4: certainly we want to make sure that we don't say
Speaker 4: that it was pain free for those who had to
Speaker 4: resort themselves and change jobs or maybe even lose their jobs.
Speaker 4: But from an aggregate economy perspective, that was great. So
Speaker 4: that's a model doing well. Another place where the model
Speaker 4: is doing well is it's telling us the Phillips curves
Speaker 4: a little flatter than and it had been for a
Speaker 4: long time where you don't get you know, once the
Speaker 4: unemployment rate comes up to a certain level, it just
Speaker 4: doesn't put additional pressure on inflation. And so at this
Speaker 4: point we don't think the labor market is really a
Speaker 4: source of inflationary pressure, and that would come out of
Speaker 4: the models. Our data dependence is really related to this.
Speaker 4: In my judgment, this is how I think of it.
Speaker 4: The incoming information we have always used, we were data dependent.
Speaker 4: After the financial crisis, we were using we went to
Speaker 4: a dashboard of indicators. What we've really done in my
Speaker 4: history here at the FED is expand what we look at.
Speaker 4: We're not satisfied just looking these headline numbers, so we
Speaker 4: look at all the real side indicators, all the price indicators.
Speaker 4: It sort of reminds everybody data is a plural word.
Speaker 4: It doesn't mean three series. It also doesn't mean simply
Speaker 4: the quantitative data that you see the big institutions publish.
Speaker 4: It means talking to our contacts. You said you had
Speaker 4: Tom Barkin on, Well, Tom and I is here a
Speaker 4: particular attribute that we gather a lot of information and
Speaker 4: many other presidents too, But we gather a lot of
Speaker 4: information from talking to CEOs. Those are the people who
Speaker 4: are going to tell us I am going to hire
Speaker 4: next year, I'm not going to hire. I'm getting ready
Speaker 4: to layoff, I'm dusting off my strategic plans and I'm investing.
Speaker 4: Those are also data. So I think that our focus
Speaker 4: on data dependence is our focus on collecting that information
Speaker 4: and letting it affect our decisions so it can make
Speaker 4: better ones.
Speaker 3: Since you mentioned the specific thing, whether you're looking at
Speaker 3: the data that we see on the screen or the
Speaker 3: data that you collect from talking to CEOs, what is
Speaker 3: your assessment of the health of the labor market right now?
Speaker 3: The proclivity to hire, the ease of finding a job.
Speaker 3: How worried or happy are you about the status time.
Speaker 4: I see that labor market is really balanced, and that's
Speaker 4: something that I've been watching for and it hasn't ever
Speaker 4: gotten into a dangerous weakness. It's definitely slowed, and earlier
Speaker 4: in the year it was slowing at a rapid pace.
Speaker 4: Now that slowing is settled out a bit. What we
Speaker 4: hear from firms, So we do a lot of questions
Speaker 4: and surveys and with firms and we talked to them.
Speaker 4: What we're hearing is they don't have the kinds of
Speaker 4: problems hiring workers that they once had, and they're increasingly
Speaker 4: able to find workers of all different skill levels, which
Speaker 4: you know, they had pockets of where they just couldn't
Speaker 4: find anyone. Importantly, they're also saying that they think they
Speaker 4: can now bring workers back to the office because they
Speaker 4: have more bargaining power, if you will. Before, they know
Speaker 4: nobody wants to come back to the office, and now
Speaker 4: they don't have to say yes to that, and they
Speaker 4: feel really good about that from their productivity perspective. So
Speaker 4: then you go to workers and you say is it
Speaker 4: hard to find jobs? And say, well, it takes a
Speaker 4: little longer now and I'm hanging on to my existing
Speaker 4: job a little longer because I don't want to take
Speaker 4: the risk. But no, I can find jobs if I
Speaker 4: really want them. So that's what when I think of
Speaker 4: a perfectly balanced laver market, I think of workers might
Speaker 4: take a little bit, but they find jobs. Firms say,
Speaker 4: I can't get everything I want, but I can get workers,
Speaker 4: and they're staying a little longer. But I am watching
Speaker 4: it to see if any weakness emerges where workers start to,
Speaker 4: you know, say, it's really challenging out there, and that
Speaker 4: would be something we would want to avoid.
Speaker 3: By the way, I have some good news to report
Speaker 3: in the room. All right, you might be happy to
Speaker 3: hear this. Core PCE just came in as you were
Speaker 3: answering zero point one percent month over month versus expectations
Speaker 3: of zero point two percent. So just a little live
Speaker 3: date on the economic situation maybe makes your life ted
Speaker 3: easier in twenty twenty five.
Speaker 4: Well, I think it's just good news. I mean, you know,
Speaker 4: one of the things when I see that incoming in information,
Speaker 4: I remind myself of a couple of things. It's just
Speaker 4: a one data point. We are not a data to
Speaker 4: point dependent FED data point dependent FED. We're data dependent.
Speaker 4: Can't react too much on one data point. And for
Speaker 4: all the households and families and businesses out there, you know,
Speaker 4: thinking about how can they manage inflation. I feel a
Speaker 4: huge amount of relief that it's not is going in
Speaker 4: the right direction. So we got a lot of work
Speaker 4: to do. But that's good data.
Speaker 2: All right, let's talk about I guess more more complicated things,
Speaker 2: which would be the policy outlook. So we are recording
Speaker 2: this on December twentieth. We might have a potential government
Speaker 2: shut down. That's complication number one. And then secondly, we
Speaker 2: will definitely have a new Trump administration that has some
Speaker 2: new policy ideas, including tariffs and you know, potentially mass deportation.
Speaker 2: How are you thinking through those sort of forwardlooking policy elements.
Speaker 2: And one of the reasons I ask is because Pale
Speaker 2: at the presser on Wednesday, he said there were some
Speaker 2: members of the FMC who were starting to take that
Speaker 2: possibility into account in terms of their forecasts. Are you
Speaker 2: one of them?
Speaker 4: I am not one of them. I actually have managed
Speaker 4: through you know this, worked at the Central Bank here
Speaker 4: versus an economist, and now as the president since nineteen
Speaker 4: ninety six. And one of the things you learn is
Speaker 4: I've been through several changes in administration. And one of
Speaker 4: the things you learn if you do that is that
Speaker 4: all administrations change. They bring in a slate of new programs.
Speaker 4: Sometimes they talk about them a lot before they even
Speaker 4: come into office. Sometimes they don't. But those new programs
Speaker 4: are always things that cause you know, a lot of
Speaker 4: sometimes fear, exuberance, enthusiasm, whatever it is, expectations. But it's
Speaker 4: best for the Central Bank and my judgment, not to
Speaker 4: engage in that kind of speculation. Let's let the administration
Speaker 4: come in and put the full slate of programs together. Now,
Speaker 4: why is that better? Well, first, in my judgment, why
Speaker 4: do I do it that way? Well, first of all,
Speaker 4: it doesn't mean we don't understand how models in data
Speaker 4: and other things work, and that how different programs, whether
Speaker 4: it's tax cuts, extended deregulation, tariffs, deportations, we can look
Speaker 4: at how those things work from the research literature, from models.
Speaker 4: We can think about that, so we're well prepared to
Speaker 4: analyze it once the programs come into place. But there's
Speaker 4: usually a fairly large difference between what any administration says
Speaker 4: they would like to do and what they actually do
Speaker 4: at the end of the day when they've worked with
Speaker 4: members of Congress and the cabinet members, et cetera to
Speaker 4: get a slate that really works for everyone. Importantly, it's
Speaker 4: also and this is something that I speak about a lot,
Speaker 4: it's also the net net effect of all of these.
Speaker 4: So say you cut taxes, that's spurs growth. That's a
Speaker 4: positive for growth. There's deregulation often a positive for growth.
Speaker 4: Then you put tariffs can be a negative, and you
Speaker 4: do you know, immigration it can be some people have
Speaker 4: said that's a negative. It just take potentially workers from
Speaker 4: the labor force. So you put all those things together,
Speaker 4: and which you realize quickly is it depends on the
Speaker 4: scope of the changes, the magnitude of those changes, the
Speaker 4: timing of the changes, and how those things all net
Speaker 4: out to leave the economy either with an impetus or
Speaker 4: a restraint. And it's just too early to know any
Speaker 4: of that. So instead, back to traveling around the district,
Speaker 4: we ask our contacts, and what they're telling us is
Speaker 4: they feel pretty okay about how things are likely to go.
Speaker 4: If anything, they have the sentiments risen. And then the
Speaker 4: other thing they say is if you're in retail or
Speaker 4: manufacturing where you need inputs, they're just stockpiling some inventories.
Speaker 4: So if there are some early tariffs discussions, they will
Speaker 4: be prepared and then they expect it to resolve. Is
Speaker 4: something that's not very harsh.
Speaker 2: Speaking of sentiment, this is something I wanted to ask you, actually,
Speaker 2: So one of the big stories for the past couple
Speaker 2: of years was the terrible, terrible sentiment surveys. So you know,
Speaker 2: if you looked at something like consumer sentiment, it looked
Speaker 2: like we were already in a massive recession. People felt
Speaker 2: absolutely awful. And of course, since November we've seen some
Speaker 2: of those surveys start to turn People are turning more positive.
Speaker 2: The small business survey has spiked quite a bit. How
Speaker 2: much emphasis would you place on those surveys given that
Speaker 2: there was such a big discrepancy between the heart and
Speaker 2: the soft data, you know, just a year or two ago,
Speaker 2: is it possible we could get another discrepancy, but just
Speaker 2: going in the other direction.
Speaker 4: You know, I think it's possible. But in the before
Speaker 4: I really understood the discrepancy. And here's how I understood.
Speaker 4: You could see it when you would talk to people
Speaker 4: is they felt like inflation had raised the price level
Speaker 4: so much they weren't able to catch up, so it
Speaker 4: had stolen something from them. Because it's a tax, it's
Speaker 4: it feels toxic to people, and they felt like they
Speaker 4: weren't going to ever catch up, and that the economy
Speaker 4: might break, we might fall into a recession. So part
Speaker 4: of the sentiment turn that I've seen started in about
Speaker 4: in the middle of the summer, and it started when
Speaker 4: people thought, oh, we're actually not going to have a recession.
Speaker 4: The economy will continue on and I will be able
Speaker 4: to grow out of you know, with my wages and
Speaker 4: my earnings, I'll be able to get ground, gain ground
Speaker 4: on what I lost, and I'll be able to restore
Speaker 4: where I was before the pandemic and maybe even grow
Speaker 4: beyond that. And now with some of the changes for
Speaker 4: businesses and small businesses, our small businesses tell us that too,
Speaker 4: with some of the changes, they're somewhat hopeful that they'll
Speaker 4: be They like the extended tax cuts, the pretty They
Speaker 4: were hopeful that some aspects of regulation won't be won't
Speaker 4: feel as hard to manage. But you know, they don't know,
Speaker 4: they're just more they're hopeful. And so they say this too.
Speaker 4: You know, enthusiasm has to be backed with reality, and
Speaker 4: so right now they feel enthusiastic or optimistic, but they're
Speaker 4: still cautious in that cautiousness that spending their own money
Speaker 4: on things that's only going to be removed when we
Speaker 4: really see how the economy and the policy changes are
Speaker 4: netting out.
Speaker 3: Let's talk about as you mentioned, theoretical policy changes under
Speaker 3: the incoming administration. You are not one of the members
Speaker 3: who cause that to change how you're thinking about twenty
Speaker 3: twenty five because, as you said, we don't know, We
Speaker 3: don't know how it's going to net out, et cetera.
Speaker 3: Of the academic literature, but it's hard to know. But
Speaker 3: speaking of the academic literature, one thing that's commonly said is, well,
Speaker 3: a tariff is sort of a one off increase in
Speaker 3: the price level and doesn't necessarily transitory.
Speaker 2: Is it transitory tere.
Speaker 3: In a sense transitory. I'm never really satisfied with that answer, because, Okay,
Speaker 3: that may be true that a tariff does cause a
Speaker 3: one off increase in prices, et cetera, but doesn't change
Speaker 3: the overall trajectory. On the other hand, in theory, it
Speaker 3: creates an impetus for a structural adjustment to the economy
Speaker 3: that could be costly. If it's just or to build
Speaker 3: more in the US to avoid tariffs, then that means
Speaker 3: more spending and more investment. And as you described, one
Speaker 3: of the drivers of the sort of new hire neutral
Speaker 3: is this impulse among companies to spend. So how do
Speaker 3: you think about again we don't know the details, but
Speaker 3: when you hear the word tariffs, and whether it's a
Speaker 3: global tariff, whether it's a tariff on some countries or
Speaker 3: not others, how do you think about potential ramifications of that?
Speaker 4: Sure, I mean, I think that's actually a terrific question
Speaker 4: because it's I think it highlights first of all, that
Speaker 4: it's very challenging to make simple statements about complicated changes
Speaker 4: in policy. So an example is in the classic models,
Speaker 4: a tariff would be a one off you just raise it.
Speaker 4: That's a classic model that doesn't have any retaliation, it
Speaker 4: doesn't have any knock on effects as we would call them.
Speaker 4: Where you know, you say you teariff an intermediate input, Well,
Speaker 4: that's going to filter through the economy into the price
Speaker 4: of other goods that are produced using this intermediate input.
Speaker 4: That's unlikely to be just the one off time it'll
Speaker 4: filter through, and the duration of the time it takes
Speaker 4: for that to filter through is very challenging to know,
Speaker 4: ex ante in advance. So I think it just is
Speaker 4: much more complicated than you look through it now standard
Speaker 4: classic textbook models would tell you do you look through it.
Speaker 4: I tend not to see transitory very much. I think that,
Speaker 4: you know, that's a word I wasn't using a lot
Speaker 4: before and I'm certainly not using now. So I'm going
Speaker 4: to say, you know, one off, she just raise it
Speaker 4: and then it goes. But the practice of it has
Speaker 4: suggested that the economy is more complicated and it it
Speaker 4: takes some time to filter through now in terms of
Speaker 4: the structural changes, I mean, that's part of why tariffs
Speaker 4: are applied oftentimes they want a more fair playing field.
Speaker 4: Are elected officials because voters have said, we want a
Speaker 4: fairer playing field, and when you put a fair playing
Speaker 4: field in you might see a reorganization of activity to
Speaker 4: adjust to that new fairer playing field. But that was
Speaker 4: the tension all along. And so ultimately this is why
Speaker 4: the Central Bank is independent and outside of what elected
Speaker 4: officials do. It's one of the reasons elected officials are
Speaker 4: elected by voters to make decisions that are bettering society. Overall,
Speaker 4: the economy and society, and even when you don't agree
Speaker 4: with those that's still the intention, right that all different
Speaker 4: elected officials come out to try to do the FED.
Speaker 4: We only have two goals, price stability, full employment, and
Speaker 4: so we're taking the economy we have, and if there
Speaker 4: are structural changes that temporarily boost the price level on
Speaker 4: things or just you know, we're persistently due, we would
Speaker 4: have to work to make sure that that doesn't cause
Speaker 4: inflation to rise above two percent and that somehow we
Speaker 4: don't end up losing our full employment the place in
Speaker 4: full employment that we have now. So that is a
Speaker 4: healthy tension in my judgment, but it's also why the
Speaker 4: FED is independent from It's one of the reasons our
Speaker 4: founding fathers. They were all fathers at the time. I
Speaker 4: know we'd like to change those words sometimes, but they
Speaker 4: were all following fathers, and it's why they did that
Speaker 4: is it's because they wanted that tension to be there,
Speaker 4: in my judgment.
Speaker 2: So Joe and I were in San Francisco a few
Speaker 2: weeks ago.
Speaker 4: I know I missed you. I'm sorry.
Speaker 2: I know it would have been great to catch up,
Speaker 2: but I was in some other I love. I was
Speaker 2: literally about to talk about the weaibo. Okay, I went
Speaker 2: in my first ever WEIMO, and it kind of it
Speaker 2: blew me away, and we met with lots of vcs
Speaker 2: who are talking about all the cool stuff they're seeing
Speaker 2: in terms of AI. You sort of have a front
Speaker 2: row seat for AI, given you know your geographic location
Speaker 2: in San Francisco. Talk to us about how you're thinking
Speaker 2: through AI and its impact on productivity because obviously a
Speaker 2: lot of people expect a big productivity boost from this
Speaker 2: new technology, but you know, like so far, I think
Speaker 2: it kind of remains something of a hypothetical, like at
Speaker 2: large scale, But what are you watching for in terms
Speaker 2: of monitoring the actual impact of AI on productivity?
Speaker 4: So we're already seeing this. And one thing that if
Speaker 4: you go back to you Robert Solo, so there's a
Speaker 4: famous quote that you can see productivity everywhere except in
Speaker 4: the productivity data. And you're really seeing that now. And
Speaker 4: you know, I came to work at the FED in
Speaker 4: nineteen ninety six. So one of the first jobs I
Speaker 4: had sitting at the San Francisco FED as an economist
Speaker 4: was to collect evidence of a burgeoning productivity boom for
Speaker 4: Chairman Greenspan. Oh wow, it was literally what isn't that
Speaker 4: like the coolest thing? You land at the FED, you're
Speaker 4: doing research on the labor market, and suddenly the chairman
Speaker 4: of the Fed's interested in you collecting this information.
Speaker 2: So this would have been the early two thousands when
Speaker 2: since he was talking about like the big this.
Speaker 4: Is ninety seven, ninety eight, you know, really before we
Speaker 4: even got there, and he's he was an early spotter
Speaker 4: that if people are using computers, you're not going to
Speaker 4: see it in the data just yet, because what they're
Speaker 4: doing is they're buying all this equipment, but they it's
Speaker 4: really the software and the change in how they did
Speaker 4: their work that was going to boost the productivity. So
Speaker 4: let me give you a cool example. Now this didn't
Speaker 4: happen until the early two thousands, but still a cool example.
Speaker 4: So before, before we had the internet and the computers
Speaker 4: and connected networks and things, the gas meter readers had
Speaker 4: to come to your house and come up to your
Speaker 4: meter and read it and write it down in a
Speaker 4: notebook or to type it into a little machine. And
Speaker 4: they were getting bitten by dogs or they couldn't get in,
Speaker 4: and meters weren't getting written read, et cetera, et cetera.
Speaker 4: With this technology, they produced cars. This happened first The
Speaker 4: first place I ever saw this was Salt Lake City.
Speaker 4: They had trucks, and the trucks had readers on them,
Speaker 4: and they would communicate with your meter, which was a
Speaker 4: smart meter, and they didn't have to get out of
Speaker 4: the vehicle. And so no one's getting bitten by a dog.
Speaker 4: People are all their meters are being read. Productivity goes up,
Speaker 4: safety goes up, and importantly people's bills go down and
Speaker 4: are more accurate because you're not estimating them. So that
Speaker 4: was an example, and those were the kinds of examples
Speaker 4: I was giving Chairman Greenspan, and he was saying, Okay,
Speaker 4: we're going to see it everywhere except in the data,
Speaker 4: and sure enough turned out to be right. Pardevity was
Speaker 4: all over the place. And eventually, when the data got
Speaker 4: revised and we got better at biggering on what was
Speaker 4: going on, we saw that we had a computer revolution.
Speaker 4: The same thing appears to be happening with AI. And
Speaker 4: again I want to caution people from thinking it's all
Speaker 4: about chat, GPT or perplexity or any of the other models.
Speaker 4: I'm not trying to advertise models, but those are the
Speaker 4: ones that get a lot of attention. So but it's
Speaker 4: not about any particular model. It's really about machine learning,
Speaker 4: it's about you know, robotic processing, automation, just people businesses
Speaker 4: doing things. And so we started a network called the
Speaker 4: Emerging Tech Economic Research Network at the San Francisco FED
Speaker 4: and we're spending a lot of time with researchers, but
Speaker 4: we're also spending a lot of time with CEOs and
Speaker 4: CIOs and we're asking them what are you doing? And
Speaker 4: it is astounding how many companies in the United States,
Speaker 4: probably the globe. We're focused on the United States first,
Speaker 4: are using these things, everything from furniture companies to improve
Speaker 4: their sales, to design companies to figure out how to
Speaker 4: design things faster and more accurately idea generation. So we're
Speaker 4: seeing it everywhere. I don't think we'll see it in
Speaker 4: measured productivity right away, and you shouldn't expect to, but
Speaker 4: it's the emphasis of change is there. And so it's
Speaker 4: not all about the weay mos or the zekes. You
Speaker 4: have to write in the zekes next time, but it's
Speaker 4: really about businesses thinking about how to use technology to
Speaker 4: make their teams stronger, more capable, less tedious work get
Speaker 4: the job done. And I think that's potentially a huge benefit.
Speaker 4: It could take a decade, but it is happening.
Speaker 3: First of all, it must be fun to be the
Speaker 3: sef FED president. I'm sure every regional FED president thinks
Speaker 3: there region is great, but a have so much territory,
Speaker 3: it'd be all the coolest stuff in the world is
Speaker 3: happening in your district.
Speaker 4: I agree, actually, but you know I shouldn't say that.
Speaker 3: So I want to actually go back to you know,
Speaker 3: you talked about this, and first of all, I did
Speaker 3: find that just sort of a very fascinating reminder that
Speaker 3: at the beginning of the dot com boom, first there
Speaker 3: was just a bunch of costly spending on computers, and
Speaker 3: it took a while before businesses figured out what they
Speaker 3: were going to do with them. And so when you
Speaker 3: think about the sort of lagged effects of that spending,
Speaker 3: that's interesting. Going back to when we were having the
Speaker 3: more theoretical part of the conversation and you talked about
Speaker 3: why the neutral rate might be higher, you mentioned the
Speaker 3: higher proclivity to invest, but also mentioned there's a lot
Speaker 3: of government borrowing right now, and you know, one of
Speaker 3: the things that the new administration says it wants to
Speaker 3: do with the incoming treasury secretary is take more seriously
Speaker 3: the deficit. I am a person, as I've hinted on
Speaker 3: the podcast before, who has a loan that is going
Speaker 3: to have to be refinanced in a couple of years.
Speaker 3: I would love to see lower rates, setting aside what
Speaker 3: the ideal mix of deficit reduction, etc. If we want
Speaker 3: to get to a sort of sustainably lower band for rates.
Speaker 3: And you mentioned it's a global phenomenon, does lower deficit
Speaker 3: spending seem like one of the key components to it.
Speaker 4: You know, I don't make those fiscal decisions, but ultimately
Speaker 4: it matters. Total spending is what matters. So if the
Speaker 4: government spending goes down, and it's what happens is private
Speaker 4: sector spending goes up to fill that difference, then it
Speaker 4: won't really have much effect on the interest rate. But
Speaker 4: if we get a reduction in net spending because of that,
Speaker 4: then you could. But importantly, I think this is something
Speaker 4: that usually gets lost because most countries only talk about
Speaker 4: their own country because that's what's important to them. Sovereigns
Speaker 4: across the globe, we're spending more money, right and that's
Speaker 4: you know, it's partly a response to the pandemic and
Speaker 4: then you know, kind of get used to it and going.
Speaker 4: And so I think this is a global, a global issue.
Speaker 4: And then of course we still have the aging population
Speaker 4: that's working through that we have to pay for. And
Speaker 4: that's true in almost every country, industrialized country in the world.
Speaker 4: Every transition energy trans then you get technology that could
Speaker 4: help us, we could get more productive, but you do
Speaker 4: all these things and they end up becoming you know,
Speaker 4: expensive changes at a time when we're already paying for
Speaker 4: the aging population, and then we keep borrowing to do it.
Speaker 4: And it's just you know, it's a different environment that
Speaker 4: we were in prior to the pandemic, and we'll we'll
Speaker 4: have to deal with that. So I don't know that
Speaker 4: we can give you a lot of near term relief
Speaker 4: on your refinancing issue, but I do think these are
Speaker 4: problems that all nations are going to have to wrestle with.
Speaker 2: The nice thing about having the podcast as a platform, Joe,
Speaker 2: is that you can personally lobby the FED for a
Speaker 2: lower refi rate.
Speaker 3: That isdefended cut rage and it doesn't even lower the
Speaker 3: mortgage rate anyway.
Speaker 4: Sorry, I keep going, No, I just I think ultimately
Speaker 4: they you know this a that's another thing that we
Speaker 4: control the short term interest rate in it filters through
Speaker 4: to other interest rates. But we live in a global economy,
Speaker 4: and we live in a world where interest rates can
Speaker 4: move around for a variety of reasons, just like the
Speaker 4: stock market. And you know what really is what's important
Speaker 4: is that, ultimately, if you stack up has monetary policy
Speaker 4: been working? You can see evidence, clear evidence that not
Speaker 4: just supply driven inflation has gone down, So the supply
Speaker 4: has improved, inflation's fallen, but the demand component has gone
Speaker 4: down and things are rebalanced. So I still think monetary
Speaker 4: policy works. But that's a different question than what rate
Speaker 4: will we settle at, and in all likelihood it'll be
Speaker 4: higher than we saw it prior to the pandemic.
Speaker 3: I just have one last question, and it's sort of
Speaker 3: a Fed watcher question. I hope you're not offended by this,
Speaker 3: but before we did the episode, I had to look
Speaker 3: up as like is she a voting member or not?
Speaker 3: As I forget who is a voting member?
Speaker 4: Of course we forget. No, I'm kidding, I'm kidding.
Speaker 3: People who are fedwatchers sometimes talk a lot about the
Speaker 3: hawk dove meter and who's rotating in and out one
Speaker 3: year and there's this person more hawkish, more dubbish. You're
Speaker 3: currently a voting member right now. How significant is it
Speaker 3: when you think about especially now that we have the dots.
Speaker 3: People pay a lot of attention to the dots and
Speaker 3: everyone puts an a doubt regardless of whether they're a
Speaker 3: voting member or not, and those seem to be influential.
Speaker 3: How important is it for the sort of average person
Speaker 3: or FED watcher to pay close attention to who has
Speaker 3: a vote at any given time or from the perspective
Speaker 3: of a someone who rotates in and out, how much
Speaker 3: does it change you believe your influence on the state
Speaker 3: of policy, whether you actually formally have a vote at
Speaker 3: a given meeting or no. I've never seen an effect.
Speaker 3: This is really interesting.
Speaker 4: I've never seen an effect in my entire history working
Speaker 4: for the fat even when I was just staffing the
Speaker 4: FMC and not Audien. I just have never seen an effect.
Speaker 4: I mean, what is influential are ideas, arguments, evidence, thoughtfulness
Speaker 4: about where we should go and how we should get there,
Speaker 4: and being willing to interrogate and ask questions even when
Speaker 4: you're sure. I mean, ultimately, we're best with each other
Speaker 4: when we question and question and question again and be
Speaker 4: skeptical and curious, and skeptical you come in and you
Speaker 4: say you know, I already know the answer. You're not
Speaker 4: actually as useful as you come in and say I'm
Speaker 4: thinking about it this way or you thinking about it differently,
Speaker 4: And we have those rigorous debates. So if that's the
Speaker 4: main thing that's beneficial about being together and being on
Speaker 4: this committee, then you can see that voting doesn't matter
Speaker 4: because you really don't pay attention to the vote that
Speaker 4: people are talking about. You pay attention to the arguments
Speaker 4: that they're making. And so I've actually never seen a
Speaker 4: difference in my tenure under any chair. Work for four
Speaker 4: chairs at this point, I've never seen any difference. And
Speaker 4: one of the things that also is true is that
Speaker 4: chairs are willing to take two sense and they're willing
Speaker 4: to live with differences of opinion. And the dots are
Speaker 4: a tremendous example of that. Right you look at the
Speaker 4: dots and they are as the uncertainty of the economy
Speaker 4: is going up and it's not clear what the right
Speaker 4: answer is for next year. The dispersion in people's estimates
Speaker 4: about the forecast, the neutral rate of interest, and the
Speaker 4: policy that will be appropriate next year. They're just they're
Speaker 4: getting more dispersed. That is a benefit. That's a feature,
Speaker 4: not a bug, as we like to say. And I
Speaker 4: think it just speaks to the idea that voting doesn't
Speaker 4: matter and the rotation is not that relevant. What's relevant
Speaker 4: is arguments and thoughts. And you know, luckily we have
Speaker 4: a very transparent fed so you can go and read
Speaker 4: people's speeches and remarks, see their interviews, hear their podcasts
Speaker 4: here Odd Lucked, and you can go to make your
Speaker 4: own determination as a citizen.
Speaker 6: I'm noticed in the beginning you were still talking about
Speaker 6: like working towards a soft landing, And my question is,
Speaker 6: like when you actually get to say we did it,
Speaker 6: because like two years ago, I don't think anyone would
Speaker 6: have expected things to shake out the way they have.
Speaker 1: Like to me, the soft landing is kind of here.
Speaker 4: You know, I think here's what I would say. I
Speaker 4: gave a speech at NYU, And the reason I'm pointing
Speaker 4: to it isn't to say look at me, I give
Speaker 4: a speech is because it was about this. So ultimately
Speaker 4: I will judge a soft landing, and I think history
Speaker 4: will as well if we allow people the time to
Speaker 4: catch up. So if you look at people below the
Speaker 4: fiftieth percentile of the wage distribution, they're still behind. If
Speaker 4: you measure the cumulative losses they had from inflation, they
Speaker 4: still need another year or so of this kind of
Speaker 4: growth of wages above inflation to get their earnings their
Speaker 4: lives back.
Speaker 5: So for some.
Speaker 4: People, you feel fine. For other people are like, I
Speaker 4: got in such a giant ditch that I'm only now
Speaker 4: getting close to seeing out of that ditch, and then
Speaker 4: they want to have some path restore it. So I
Speaker 4: would say, so I actually redefine or defined for people
Speaker 4: what I mean by a soft landing. It's a durable
Speaker 4: expansion that allows that to occur. So I'm not at
Speaker 4: all satisfied right now, but i just want to keep
Speaker 4: going because you know, I grew up in the seventies.
Speaker 4: My parents had this card table, and as everyone in
Speaker 4: my community did, and they would on like one Sunday
Speaker 4: out of the month, they would put bills they could
Speaker 4: pay in one stack and bills they couldn't, And over
Speaker 4: the inflation period, the bills they couldn't pay just grew.
Speaker 4: Then Voker did the vulgar disinflation. They both lost their
Speaker 4: jobs and now the whole family in disarray, and I
Speaker 4: just remember that, and I think, you know, I didn't
Speaker 4: go to work at the FED because of that, But
Speaker 4: I just remember that, and I think that's probably how
Speaker 4: so many American families are feeling right now. They're just
Speaker 4: getting kind of their feet under them. So that's what
Speaker 4: a soft landing looks like.
Speaker 2: All right, Mary Daily, San Francisco FED President, thank you
Speaker 2: so much for coming on all thoughts. And I should
Speaker 2: say Mary has her own podcast, so you should definitely
Speaker 2: check that out too.
Speaker 4: Can I say the name of course zip code economies.
Speaker 4: Please please join us and you can come to any
Speaker 4: state in my district and I will travel with you.
Speaker 4: If Hawaii is your destination state, I'm going back this
Speaker 4: year to see how the Hawaiian economy is doing, going
Speaker 4: to Alaska, going to all the other states.
Speaker 2: I want Alaska.
Speaker 3: So even though it sounds nice on a cold New
Speaker 3: York day right now, I would do it last.
Speaker 4: The cool thing about any of these states, whether you're
Speaker 4: city in Idaho, Utah, Alaska, Hawaii, is you're going to see.
Speaker 4: This is the thing that I loved about the twelfth District.
Speaker 4: Once I moved to the twelfth district to take the
Speaker 4: economists job. Way back in the day, they would fly
Speaker 4: me to there. I would fly to the main city
Speaker 4: and drive all around. And here's what I learned that
Speaker 4: ultimately the economies are vastly different, and yet they're all
Speaker 4: the same. They all basically have people working together trying
Speaker 4: to you know, build their lives, build their careers, make
Speaker 4: a business. And that's a cool thing when you see
Speaker 4: the vast difference and then you say, it all comes
Speaker 4: down to the same thing.
Speaker 2: All right, Thank you so much. That was fantastic, Thank
Speaker 2: you so much.
Speaker 5: Thank you, Joe.
Speaker 2: That was a really fun conversation.
Speaker 3: I think if I were going to be any FED president,
Speaker 3: have to be the Hawaii list.
Speaker 2: Listen to Joe on this podcast lobbying for lower mortgage
Speaker 2: rates and for the twelfth FED district.
Speaker 3: Well, and lobbying for us to take a trip to
Speaker 3: last And I'm on board with that one. Would you
Speaker 3: say the Northern Mariana Island.
Speaker 4: Yeah.
Speaker 2: And the only reason I know that, by the way,
Speaker 2: is because it was the tiebreaker around a recent quiz
Speaker 2: that we held in Los Angeles for Bloomberg clients.
Speaker 3: Yeah, we didn't get to do it because there was
Speaker 3: no tie. But yes, we were going to ask the
Speaker 3: clients to name all of the states and regions, all.
Speaker 2: Nine states and three territories. I wouldn't have been able
Speaker 2: to do it Americana Islands, no way.
Speaker 3: Yeah, I thought that was a fantastic conversation. First of all,
Speaker 3: it's exciting we did get that nice beat on a
Speaker 3: core PCE in the middle of the episode. It still
Speaker 3: feels like a very tricky moment for sure for the FED,
Speaker 3: even before the effects of any Trump policies come into effect,
Speaker 3: regardless of what they are. The fact that the inflation
Speaker 3: outlooked for twenty twenty five it's still going to be
Speaker 3: a while apparently before they're sort of durably back. The
Speaker 3: fact that we have seen this sort of big increase
Speaker 3: in the ostensible neutral rate if it exists. Tricky times
Speaker 3: for the FED.
Speaker 2: Yeah, And I think there is that tension between you know,
Speaker 2: wanting to see how everything shakes out and so trying
Speaker 2: to be ahead of the curve to some degree. But
Speaker 2: it is interesting. It was interesting to hear her talk
Speaker 2: about like how she wasn't one of those people. Yeah,
Speaker 2: taking into account potential future policy, the.
Speaker 3: Housing question is going to be really interesting. Yeah, right, Like, so,
Speaker 3: what are the residual sources of inflation if it's no
Speaker 3: longer the labor market. Of course, she defended the beverage curve.
Speaker 3: It's an employee, it's back and balanced. But this idea
Speaker 3: that and you mentioned it. You know that housing construction
Speaker 3: has fallen. This is going to be a persistent source
Speaker 3: of economic stress, whether it shows up in the formal
Speaker 3: measures of inflation or how it doesn't. This remains a
Speaker 3: major issue, the fact that there is so much investment,
Speaker 3: or at least government spending happening around the world globally,
Speaker 3: military spending, aging, demographics, many, many such complications going forward.
Speaker 2: Complications definitely the word of the day. Let's see so again,
Speaker 2: we're recording this on Friday, December twentieth. We'll see what
Speaker 2: happens over the weekend with the government shutdown. But like,
Speaker 2: it does seem like there are a lot of one
Speaker 2: offs that the Central Bank is potentially going to have
Speaker 2: to take into account.
Speaker 3: Absolutely all right, shall we leave it there, Let's leave
Speaker 3: it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our guest Mary Daily, San Francisco Fed President. She
Speaker 3: is at Mary Daily econ and you can check out
Speaker 3: her podcast, zip Code Economies. Follow our producers Kerman Rodriguez
Speaker 3: at Carman Erman, dash Ol Bennett at Dashbock and kel
Speaker 3: Brooks at kel Brooks. Thank you to our producer Moses Ondam.
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Speaker 3: these topics, oh, including the fact and I meant to
Speaker 3: say it, including the fact that voting doesn't matter at
Speaker 3: the FED, which I thought was really interesting. Could talk
Speaker 3: about that in the discord discord dot gg.
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