WEBVTT - San Francisco Fed President Mary Daly Explains the 'Hawkish Cut' 0:00:03.080 --> 0:00:19.759 Bloomberg Audio Studios, Podcasts, radio News. 0:00:20.040 --> 0:00:23.040 Hello and welcome to another episode of the All Thoughts Podcast. 0:00:23.160 --> 0:00:24.560 I'm Tracy Alloway. 0:00:24.520 --> 0:00:25.120 And I'm Joe. 0:00:25.120 --> 0:00:27.720 Why isn't thal Joe? How about that hawkish cut? 0:00:27.760 --> 0:00:34.400 Eh? Exciting interesting times in macro economics, the Fed, the 0:00:34.479 --> 0:00:37.559 marks plenty to talk about right now. We're recording this 0:00:37.960 --> 0:00:38.959 December twentieth. 0:00:39.360 --> 0:00:42.520 Yeah, we're recording this December twentieth. So two days after 0:00:42.600 --> 0:00:45.400 we had what is being called a hawkish cut from 0:00:45.440 --> 0:00:48.960 the FOMC, the Central Bank decided to cut by twenty 0:00:48.960 --> 0:00:51.840 five basis points. But at the same time they unveiled, 0:00:51.920 --> 0:00:55.800 you know, their new forecasts for next year, and it 0:00:55.840 --> 0:00:58.800 looks like the expectations that inflation maybe is going to 0:00:58.800 --> 0:01:00.720 be a little bit more stubborn and maybe we're only 0:01:00.720 --> 0:01:04.640 going to get two cuts next year. And markets promptly 0:01:04.760 --> 0:01:07.800 fell out of bed. They did not like that revised forecast, 0:01:07.920 --> 0:01:08.600 to say the least. 0:01:08.640 --> 0:01:11.160 Yeah, it's a little surprising, and we'll get into it, 0:01:11.240 --> 0:01:12.959 you know. I think to some extent a lot of 0:01:13.000 --> 0:01:15.839 it was expected, but there are real tensions right now. 0:01:15.959 --> 0:01:20.960 Right so, we have had stubborn, sideways inflation prints in 0:01:21.240 --> 0:01:25.600 recent months, maybe not quite the soft trajectory back down 0:01:25.680 --> 0:01:28.160 to target, the fact that we might not be down 0:01:28.200 --> 0:01:32.000 to target completely in twenty twenty five, some questions about 0:01:32.080 --> 0:01:36.200 labor market stability, plenty to dive into, plenty of crosswinds 0:01:36.240 --> 0:01:38.040 for investors, traders, and so forth. 0:01:38.120 --> 0:01:40.520 To digest crosswinds is a nice way of putting it. 0:01:40.560 --> 0:01:42.800 I feel like anyone who was hoping for a quiet 0:01:43.120 --> 0:01:46.200 end to the year might be disappointed with everything going on. 0:01:46.319 --> 0:01:49.000 But Joe, I have to say, we really do have 0:01:49.120 --> 0:01:52.240 the perfect guests to dive into all of this. We're 0:01:52.280 --> 0:01:54.960 going to be speaking with Federal Reserve Bank of San 0:01:55.000 --> 0:01:59.280 Francisco President Mary Daily, herself a voting member on the FOMC. 0:01:59.360 --> 0:02:01.600 So all right, thank you so much for coming on all. 0:02:01.480 --> 0:02:03.560 Thoughts, I'm delighted my lucky day. 0:02:04.920 --> 0:02:07.800 So why didn't I start with the obvious question? And 0:02:07.880 --> 0:02:11.000 one I think I suspect you've been asked this multiple 0:02:11.040 --> 0:02:14.839 times over the past couple days, But why cut at 0:02:14.880 --> 0:02:18.800 all if you think that inflation is expected to show 0:02:18.840 --> 0:02:21.640 not that much progress into next year and maybe not 0:02:21.760 --> 0:02:24.120 reach two percent until twenty twenty seven. 0:02:24.680 --> 0:02:27.600 It's a great question, And if I can take a minute, 0:02:27.600 --> 0:02:30.240 I'll explain exactly how I thought of it, so we 0:02:30.360 --> 0:02:35.640 had policy rightly, so at a highly restrictive level. Remember, 0:02:35.680 --> 0:02:39.760 the interest rate was really high, historically high, and that 0:02:39.880 --> 0:02:43.520 was to fight very high inflation, and a very robust 0:02:43.760 --> 0:02:46.760 labor market was helping spur high inflation. The economy was 0:02:46.800 --> 0:02:50.400 out of balance. So now that we have inflation that 0:02:50.480 --> 0:02:53.600 is much lower, we've made tremendous progress towards getting it 0:02:53.639 --> 0:02:56.560 back to two. We're not there yet, and the labor 0:02:56.600 --> 0:03:01.080 market is balanced now, completely balanced, appropriate to move into 0:03:01.120 --> 0:03:04.760 a more moderate level of restrictiveness. Otherwise what you end 0:03:04.840 --> 0:03:07.400 up doing is breaking the economy. If you leave the 0:03:07.480 --> 0:03:11.360 higher level of restrictiveness on while you're closer to your goals, 0:03:11.639 --> 0:03:14.400 the economy just starts to falter and you end up 0:03:14.760 --> 0:03:18.120 getting inflation down, but at the expense of people's jobs. 0:03:18.200 --> 0:03:20.880 And that's not a recipe for a soft landing. That's 0:03:20.919 --> 0:03:23.400 a recipe for a very hard landing, and it takes 0:03:23.440 --> 0:03:26.200 away what people have really wanted their entire time that 0:03:26.200 --> 0:03:29.079 we've been in this high inflation period, which is low 0:03:29.160 --> 0:03:32.320 and stable inflation and jobs that help them grow their 0:03:32.360 --> 0:03:35.560 careers and communities and families. So that's why we cut 0:03:35.600 --> 0:03:38.080 the rate. In my judgment, that's why I supported it. 0:03:38.080 --> 0:03:40.920 It was a close call. Whether it's seventy five or 0:03:40.960 --> 0:03:43.520 one hundred basis points in total, that's the right level 0:03:43.520 --> 0:03:46.240 to get from highly to moderate for me. We now 0:03:46.240 --> 0:03:50.000 have completed that recalibration right sizing, and now we can 0:03:50.040 --> 0:03:53.080 look at the data and the incoming information and our 0:03:53.120 --> 0:03:56.240 projection of how the economy will evolve, and take our 0:03:56.280 --> 0:03:58.800 time to make any additional policy adjustments. 0:03:59.360 --> 0:04:03.400 So labor market is, as you put it, in balance 0:04:03.640 --> 0:04:07.680 and no longer a driver of inflation, and yet inflation 0:04:08.120 --> 0:04:11.600 has been sideways above target. In fact, the inflation forecast 0:04:11.640 --> 0:04:14.520 per the dots for twenty twenty five ticked up. What 0:04:14.640 --> 0:04:18.080 is the residual source of the inflation if it's no 0:04:18.160 --> 0:04:19.039 longer the labor market. 0:04:19.080 --> 0:04:21.480 Now, that's another great question and one that we think 0:04:21.520 --> 0:04:23.160 a lot about. I think a lot about it, and 0:04:23.200 --> 0:04:26.760 really it traces to two things right now. One is 0:04:26.880 --> 0:04:29.760 driving it up, maybe temporarily, it's hard to say, and 0:04:29.800 --> 0:04:31.760 the other one is a more persistent issue. So let 0:04:31.760 --> 0:04:35.480 me start the first one. It's non market prices. And 0:04:35.520 --> 0:04:38.080 what that means for people who are really into this 0:04:38.160 --> 0:04:41.120 like me, is that it's prices we don't actually measure 0:04:41.480 --> 0:04:44.680 we estimate, and we're not doing this the BA and 0:04:44.720 --> 0:04:47.279 BLS are doing all the data collection. But it's really 0:04:47.320 --> 0:04:51.320 these prices that we don't know, We can't see them exactly, 0:04:51.600 --> 0:04:55.120 and so we estimate them. And so financial services prices, 0:04:55.160 --> 0:04:57.880 for instance, are based on asset value this, and those 0:04:57.920 --> 0:05:00.440 have been up. So it feels like inflation's in those 0:05:00.480 --> 0:05:03.400 areas partly because of the estimates. But it's hard to 0:05:03.400 --> 0:05:07.440 get your mind on that as a fundamental underlying inflation. 0:05:07.520 --> 0:05:09.880 It's not really what people think about when they think of, 0:05:10.320 --> 0:05:12.880 you know, high inflation is hurting me. They're thinking about 0:05:12.960 --> 0:05:16.240 other things. So that's one factor. The second factor that's 0:05:16.279 --> 0:05:21.680 really been elevating inflation is housing services, the price of 0:05:21.720 --> 0:05:24.360 housing and the price of rentals. Now what's interesting there 0:05:24.440 --> 0:05:27.880 is rental prices have been coming down, but home prices 0:05:27.920 --> 0:05:30.279 haven't been falling as much, and we're not seeing that 0:05:30.600 --> 0:05:34.440 gap close. And unfortunately we have a structural issue there 0:05:34.480 --> 0:05:37.159 that has nothing to do with FED policy. It's really 0:05:37.240 --> 0:05:43.680 about the substantial, significant, very very large shortfall in housing 0:05:43.760 --> 0:05:46.000 relatives to the number of people who wanted and so 0:05:46.160 --> 0:05:49.520 that's something that you know, maybe stickier for a longer 0:05:49.560 --> 0:05:52.599 period of time than we thought and will cause inflation 0:05:52.720 --> 0:05:53.520 to be elevated. 0:05:53.839 --> 0:05:56.520 I mean housing inflation. Is that something that the FED 0:05:56.560 --> 0:05:59.520 would attempt to offset? And I guess, like with what 0:05:59.640 --> 0:06:03.719 tools at your disposal? Because you have benchmark interest rates, 0:06:03.760 --> 0:06:06.400 and you know when rates go up as they have 0:06:06.520 --> 0:06:10.360 been up until relatively recently, the cost of capital increases 0:06:10.400 --> 0:06:13.120 for all these home builders and if anything, you know, 0:06:13.200 --> 0:06:15.880 we see housing activity tend to slow. Like, what is 0:06:15.880 --> 0:06:18.160 it that you can actually do about housing inflation? 0:06:18.520 --> 0:06:20.719 So what we do, and this is we do have 0:06:20.760 --> 0:06:23.080 a limited set of tools for the kind of housing 0:06:23.320 --> 0:06:26.440 inflation we're seeing. The driver of that being the imbalance 0:06:26.520 --> 0:06:29.680 between supply of housing and demand for housing. We really 0:06:29.720 --> 0:06:33.120 don't have a surgical tool for that problem. But what 0:06:33.160 --> 0:06:34.919 we do have is the interest rate. And one of 0:06:34.920 --> 0:06:38.640 the things you saw is that building really was stymied 0:06:39.200 --> 0:06:42.000 when we had interest rates at those very high levels. 0:06:42.360 --> 0:06:44.920 But as we started to move the interest rate down, 0:06:45.440 --> 0:06:47.680 then we saw builders start to come off the sideline. 0:06:47.680 --> 0:06:49.720 So I'll tell you an anecdote. Are some stories from 0:06:49.720 --> 0:06:51.599 my context. So I have the nine states in the 0:06:51.600 --> 0:06:54.760 Western US. That's the twelfth district of the Federal Reserve, 0:06:55.279 --> 0:06:59.280 and that's the coastal states Alaska and Hawaii, and all 0:06:59.320 --> 0:07:04.000 the inner mountains state so Utah, Nevada, Arizona, and Idaho. 0:07:04.920 --> 0:07:08.000 Those states we saw immediately when we first took the 0:07:08.040 --> 0:07:11.080 first fifty basis point reduction in the interest rate is 0:07:11.120 --> 0:07:14.320 our contacts. I was out in those areas. Our contact 0:07:14.400 --> 0:07:16.760 said we're going to take some projects off the sidelines, 0:07:16.960 --> 0:07:19.360 and I said, really, that's just a fifty basis point 0:07:19.760 --> 0:07:22.200 reduction in the interest rate, and they said, yes, but 0:07:22.280 --> 0:07:25.440 the direction of change is down, and so now we're 0:07:25.480 --> 0:07:28.160 ready to come out. And that has been happening since 0:07:28.160 --> 0:07:32.040 we've been on this relaxation of policy, and the consequence 0:07:32.080 --> 0:07:35.200 of that is that we're seeing some improvement, but that's 0:07:35.480 --> 0:07:38.560 not going to be sufficient. And another thing you learn, 0:07:38.720 --> 0:07:41.280 especially if you travel into Idaho Utah where they've had 0:07:41.320 --> 0:07:45.800 significant housing challenges, is the public sector and the private 0:07:45.840 --> 0:07:48.720 sector businesses are joining together to try to get some 0:07:48.800 --> 0:07:51.200 relief on the housing side. It's a problem for everyone, 0:07:51.440 --> 0:07:53.640 and the FED only has that limited tool. 0:07:54.520 --> 0:07:56.640 Joe, I'll give you a cookie if you can name 0:07:56.720 --> 0:08:00.560 the three American territories that are in addition to the 0:08:00.640 --> 0:08:04.600 nine states in the San Francisco Fed Catchment. 0:08:04.200 --> 0:08:07.520 Area Guam is one very good. 0:08:07.680 --> 0:08:10.120 You'll never get the third one one or the other 0:08:10.160 --> 0:08:13.760 two American Samoa and the Northern Mariana Islands. 0:08:13.960 --> 0:08:17.040 I just want to say Mary. Earlier this year, Tracy 0:08:17.080 --> 0:08:18.640 and I, I don't know if you know, we took 0:08:18.680 --> 0:08:21.440 a trip with one of your colleagues, Richmond Fed President 0:08:21.440 --> 0:08:21.960 Tom Barkin. 0:08:22.040 --> 0:08:22.960 So he's my buddy. 0:08:23.440 --> 0:08:26.400 If you ever wanted to record an odd lots with 0:08:26.480 --> 0:08:29.240 us on the road in Hawaii, I'm just throwing it 0:08:29.280 --> 0:08:31.000 out there. I'm just throw it out. 0:08:30.880 --> 0:08:32.600 There anywhere I can come to any of the states. 0:08:32.760 --> 0:08:36.720 I'm going to Alaska, I go to Hawaii, Idaho. Yeah, 0:08:36.800 --> 0:08:39.720 anytime I have a road I do road trips all 0:08:39.720 --> 0:08:41.040 the time, and you're welcome to do it. 0:08:41.080 --> 0:08:44.800 Okay. I'm making a note of that for our producers. Now, 0:08:45.000 --> 0:08:48.120 I want to go back to the inflation outlook specifically, 0:08:48.160 --> 0:08:50.520 and I take your point about some of these non 0:08:50.559 --> 0:08:54.360 market prices, and I certainly take your point about housing 0:08:54.400 --> 0:08:57.240 because very lots of crosswinds there, the degree to which 0:08:57.280 --> 0:08:59.920 the rate can affect things, some of the gaps between 0:09:00.040 --> 0:09:02.439 in some of the market private measures that come out 0:09:02.440 --> 0:09:05.199 on rents versus the public measures, and so forth. All 0:09:05.320 --> 0:09:08.079 that being said, there has been some sort of shift 0:09:08.120 --> 0:09:11.319 in the outlook since September. So these are long standing 0:09:11.360 --> 0:09:16.240 structural issues, and yet since September, obviously the inflation outlook 0:09:16.440 --> 0:09:20.719 has firmed per the dots. What has evolved since September 0:09:21.200 --> 0:09:24.360 such that the inflation outlook for twenty twenty five has 0:09:24.400 --> 0:09:24.800 gone up. 0:09:25.200 --> 0:09:27.760 Well, one thing that has evolved for me is just 0:09:28.000 --> 0:09:31.080 my better understanding as the data have come in and 0:09:31.120 --> 0:09:33.480 we've dug into them a little bit more, that housing 0:09:33.600 --> 0:09:36.880 inflation might just be more persistent. So if you think 0:09:36.880 --> 0:09:40.040 about how it usually works, you would see even with 0:09:40.200 --> 0:09:44.319 these gaps, you would see housing services inflation come down, 0:09:44.720 --> 0:09:47.480 and it has not come down as quickly as we 0:09:48.040 --> 0:09:51.240 would have thought, and so reevaluating how we think about 0:09:51.280 --> 0:09:55.000 it and just allowing more time and persistence there. Another 0:09:55.040 --> 0:10:01.480 thing that's happened is we have geopolitical issues and trade 0:10:01.640 --> 0:10:04.520 back and forth. It doesn't depend on what administration you've 0:10:04.520 --> 0:10:06.439 been in the one we're in now, we're the one 0:10:06.480 --> 0:10:10.920 that's upcoming. It really is that trade relations between the 0:10:11.000 --> 0:10:13.360 US and China haven't been as strong as they have 0:10:13.440 --> 0:10:16.040 been in past years, and that's spread out to other countries, 0:10:16.320 --> 0:10:19.320 and so that affects your outlook for just the price 0:10:19.360 --> 0:10:22.400 of goods. And then of course you know the economy 0:10:22.440 --> 0:10:26.240 has been consumer spending has just been stronger, and growth 0:10:26.240 --> 0:10:31.480 has been stronger than most forecasters, including US, have penciled in, 0:10:31.760 --> 0:10:34.520 and so there's an adjustment to the growth forecast as well. 0:10:34.800 --> 0:10:38.680 So the way it typically works in the economics models 0:10:38.760 --> 0:10:42.720 is that growth falls below potential growth, that puts downward 0:10:42.720 --> 0:10:46.160 pressure on inflation. But when growth is above potential growth, 0:10:46.600 --> 0:10:49.680 then we're going to see whether that's boosting inflation. I 0:10:49.720 --> 0:10:52.080 did allow it to boost inflation in my own forecast 0:10:52.160 --> 0:10:54.680 a little bit, but if it's coming out of productivity 0:10:54.720 --> 0:10:57.800 gains and labor force growth, then it may not. So 0:10:57.840 --> 0:10:59.800 that's why you have to be agile as a central banker. 0:11:00.040 --> 0:11:01.760 You put a forecast in it, but you don't get 0:11:01.760 --> 0:11:03.559 too attached to it. 0:11:18.559 --> 0:11:20.920 Definitely want to ask you more questions about the outlook 0:11:21.000 --> 0:11:24.240 for things like trade and some of the forward looking things. 0:11:24.320 --> 0:11:27.400 But before we do, just in terms of this week, 0:11:27.520 --> 0:11:30.840 were you surprised at all by the market reaction to 0:11:31.080 --> 0:11:33.480 the decision, because I mean there is an irony here, 0:11:33.520 --> 0:11:36.200 which is you cut twenty five basis points, and it 0:11:36.240 --> 0:11:38.040 was sort of the first time we've seen like a 0:11:38.080 --> 0:11:41.559 real tightening of financial conditions since like the summer. 0:11:41.720 --> 0:11:45.640 Basically, well, they're really forward looking. They're never going to 0:11:45.720 --> 0:11:47.640 adjust just I mean, this is one of the things 0:11:47.640 --> 0:11:51.360 about markets, they're extremely forward looking. So they were seems 0:11:51.400 --> 0:11:54.240 like they were really looking forward on what we said 0:11:54.280 --> 0:11:57.240 for next year. Now you asked if I was surprised. 0:11:57.280 --> 0:11:58.360 I was a little surprised. 0:11:58.880 --> 0:11:58.960 Not. 0:11:59.480 --> 0:12:02.640 I mean they had expected the great cut that we made, 0:12:02.679 --> 0:12:05.240 so that wasn't seemed to be the surprising piece. And 0:12:05.320 --> 0:12:09.720 they had penciled in in their market prices three interest 0:12:09.800 --> 0:12:12.319 rate cuts next year, not the four we had thought 0:12:12.320 --> 0:12:15.559 we would make in the September sep And so then 0:12:15.600 --> 0:12:17.600 when we had they saw the median come out it two, 0:12:18.080 --> 0:12:22.040 it seemed to be a very large response. And yes 0:12:22.080 --> 0:12:24.720 that it was surprising because three doesn't seem that far 0:12:24.760 --> 0:12:27.840 from two. And it's certainly in this in the range 0:12:27.880 --> 0:12:31.320 of the dispersion of forecasts. I mean, we had some 0:12:31.440 --> 0:12:33.400 with no cuts, we had some with one person with 0:12:33.480 --> 0:12:36.240 five cuts in the participant list, if I remember correctly, 0:12:36.280 --> 0:12:39.679 And so you know, I think the uncertainty bands about 0:12:39.679 --> 0:12:42.080 what will actually need to do going forward are very 0:12:42.120 --> 0:12:45.720 wide and I was surprised the markets didn't see that 0:12:45.840 --> 0:12:48.720 and say, okay, we were roughly in line with what 0:12:48.760 --> 0:12:52.960 the FED thought, but they didn't, and so that's unclear why. 0:12:53.040 --> 0:12:54.760 Maybe there's a lot of other things going on in 0:12:54.800 --> 0:12:57.360 the economy in the world that caused them to take 0:12:57.400 --> 0:12:58.720 this more risk off approach. 0:12:58.800 --> 0:13:02.400 But talking about okay, a one point a year ago 0:13:02.480 --> 0:13:04.880 or so, you know, the FED was in highly restrictive 0:13:05.000 --> 0:13:07.800 territory and now it's coming down to something that's a 0:13:07.840 --> 0:13:10.720 little bit more moderate. But either way, and of course 0:13:10.760 --> 0:13:13.080 we don't really know and you know those two dots, 0:13:13.120 --> 0:13:16.400 it's just could change again at the next update, But 0:13:16.520 --> 0:13:18.600 either way, at least right now, it looks like rates 0:13:18.800 --> 0:13:20.800 whenever this sort of cutting cycle comes to an end, 0:13:20.840 --> 0:13:22.880 are not going to look like pre COVID levels. And 0:13:22.880 --> 0:13:25.440 so people talk about the neutral rate of interest having 0:13:25.520 --> 0:13:30.439 gone up. What's changed since pre COVID such that, regardless 0:13:30.440 --> 0:13:32.160 of where that sends, we do appear to be in 0:13:32.160 --> 0:13:35.720 a sort of new higher rate band than we were 0:13:36.000 --> 0:13:38.440 if we've been having this conversation in say twenty nineteen 0:13:38.520 --> 0:13:39.200 or twenty eighteen. 0:13:39.320 --> 0:13:41.720 Yeah, no, a lot's changed since then. And so let's 0:13:41.880 --> 0:13:43.800 we can walk through some of the factors that I 0:13:43.840 --> 0:13:47.040 think are really material that the FED and other central 0:13:47.040 --> 0:13:48.719 banks around the globe are going to have to deal with. 0:13:48.760 --> 0:13:51.040 So one thing that's changed is the neutral rate of 0:13:51.080 --> 0:13:56.440 interest is just the price that clears the desire for 0:13:56.559 --> 0:13:58.960 investment and the desire for savings. Right, So you have 0:13:58.960 --> 0:14:01.920 the savings and you have the investment, and you balance 0:14:01.960 --> 0:14:03.959 those two out and you get an interest rate. That's 0:14:04.000 --> 0:14:06.560 the neutral rate of interest, and it is the one 0:14:06.600 --> 0:14:09.880 that persists when there's no shocks to the economy. The 0:14:09.880 --> 0:14:12.160 thing that we were facing coming out of the financial 0:14:12.240 --> 0:14:16.200 crisis and for the decade that preceded the pandemic, is 0:14:16.240 --> 0:14:19.960 that we had an abundance of savings and a dearth 0:14:19.960 --> 0:14:23.280 of investment, and that drove the neutral rate of interest down. 0:14:23.400 --> 0:14:27.480 Supply of savings was plentiful, interest in demand for investment 0:14:27.560 --> 0:14:31.680 was not as plentiful, and the neutral rate of interest fell, 0:14:31.720 --> 0:14:34.520 and it fell across the globe. It's a global rate. 0:14:35.040 --> 0:14:39.200 So now we have that unwinding. We have a lesser 0:14:39.200 --> 0:14:43.760 supply of savings. The sovereigns, the countries are all out 0:14:43.760 --> 0:14:47.000 there borrowing quite a lot of money, and that pushes 0:14:47.200 --> 0:14:50.960 the demand for an investment or spending up their companies 0:14:51.000 --> 0:14:54.760 are coming off the sidelines on investment looking to take 0:14:54.800 --> 0:14:58.680 advantage of automation or AI. That very I't been a 0:14:58.720 --> 0:15:01.440 labor economist my whole care. And one of the things 0:15:01.440 --> 0:15:03.360 you see again and again and again is when we 0:15:03.400 --> 0:15:06.520 have tight labor markets like we had, it drives firms 0:15:06.520 --> 0:15:09.840 into investments to automate so that they don't feel so 0:15:10.200 --> 0:15:13.080 frantic when they can't find workers. So we've seen that 0:15:13.360 --> 0:15:16.440 normal process, and I think that's been spurred even more 0:15:16.800 --> 0:15:21.040 by people recognizing the AI as a thing. Now there's 0:15:21.080 --> 0:15:24.160 sometimes and mostly not even using generative AI. I mean, 0:15:24.240 --> 0:15:28.080 some companies are absolutely reaching into generative AI. But when 0:15:28.120 --> 0:15:31.840 chat GPT was announced right before Things Giving of twenty 0:15:32.120 --> 0:15:34.840 twenty two, is that right, that's right, Yeah, twenty twenty two, 0:15:35.000 --> 0:15:39.280 suddenly people said, oh, I can do robotic process automation, 0:15:39.480 --> 0:15:42.040 I can do machine learning, I can do all these things. 0:15:42.080 --> 0:15:44.880 And it's my companies that sell me things to make 0:15:44.920 --> 0:15:46.720 my life better are going to give me those things. 0:15:47.280 --> 0:15:51.120 So I think that's really spurred some investment. Companies want 0:15:51.160 --> 0:15:55.040 to manage their potential workforce shortages going forward. They want 0:15:55.040 --> 0:15:58.000 to get better at doing their jobs faster, better, cheaper 0:15:58.400 --> 0:16:01.160 and they're investing in these things. So the ultimately what 0:16:01.280 --> 0:16:05.200 drives our star is you know, this balance between investment 0:16:05.280 --> 0:16:09.080 and savings, and that's changed. Another thing that's changed, which 0:16:09.120 --> 0:16:11.240 is really material to how we do our work at 0:16:11.240 --> 0:16:14.400 the central bank, is we spend a decade or more 0:16:14.600 --> 0:16:19.120 fighting inflation from below our target. Our targets two. We're 0:16:19.160 --> 0:16:21.520 stuck at one point five, one point six, one point eight, 0:16:21.720 --> 0:16:24.360 never got over one point eight. That's below the target. 0:16:24.400 --> 0:16:26.600 We're trying to push it up. Now we're back to 0:16:26.640 --> 0:16:28.880 the normal thing that central banks have done for most 0:16:28.920 --> 0:16:32.240 of their histories, which is fight inflation from above the target, 0:16:32.280 --> 0:16:35.480 pulling it down, and that means that interest rates are 0:16:35.520 --> 0:16:37.320 just going to be higher in order to keep that 0:16:37.360 --> 0:16:38.240 inflation at pay. 0:16:38.840 --> 0:16:41.280 Speaking of our star, how much confidence do you have 0:16:41.480 --> 0:16:44.240 in your estimates of the neutral rate right now? Because 0:16:44.240 --> 0:16:45.920 I do get the sense, you know, all the talk 0:16:45.960 --> 0:16:49.360 of data dependency, there is an interpretation out there that's 0:16:49.400 --> 0:16:52.320 basically while the FED is looking at the data and 0:16:52.360 --> 0:16:55.880 emphasizing data dependence because they have less confidence in a 0:16:55.880 --> 0:16:57.880 lot of their models at the moment, a lot of 0:16:57.880 --> 0:17:01.160 the traditional relationships that we've seen mean, you know, things 0:17:01.240 --> 0:17:04.359 like the beverage curve have broken down in the post 0:17:04.400 --> 0:17:07.400 pandemic period, and there is a lot of uncertainty over 0:17:07.520 --> 0:17:09.320 how things are working at the moment. 0:17:09.520 --> 0:17:11.520 I'm going to take the opposite view. I actually think 0:17:11.560 --> 0:17:14.880 the models have done remarkably well, so the beverage curve 0:17:14.960 --> 0:17:18.720 is like a grand success. For example, if you take 0:17:18.760 --> 0:17:21.919 this VU ratio and you look at that, we were 0:17:21.960 --> 0:17:24.600 on the very steep portion of the beverage curve, and 0:17:24.840 --> 0:17:27.680 you know, research at the San Francisco FED has demonstrated 0:17:27.720 --> 0:17:30.760 this along with many others across the system. But you know, 0:17:30.800 --> 0:17:33.200 I was really pleased when I saw we're coming down 0:17:33.240 --> 0:17:36.520 the straight portion of the beverage curve, which means firms 0:17:36.560 --> 0:17:40.760 just reduce vacancies and has almost no impact on unemployment. 0:17:41.040 --> 0:17:43.760 And that's the happy world we've been living in. While 0:17:43.800 --> 0:17:47.160 we were raising interest rates to fight inflation, vacancies came down, 0:17:47.240 --> 0:17:50.159 unemployment didn't go up very much, and we got a 0:17:50.200 --> 0:17:53.320 lot of balance in the labor market. Now, this vacancy 0:17:53.359 --> 0:17:56.840 to unemployment ratio is one, so one vacancy for every 0:17:56.880 --> 0:18:00.680 one unemployed worker, and that's a lot of really pain 0:18:00.880 --> 0:18:04.080 free adjustment. Now I'm talking pain free at the aggregate 0:18:04.160 --> 0:18:06.280 certainly we want to make sure that we don't say 0:18:06.320 --> 0:18:07.879 that it was pain free for those who had to 0:18:07.960 --> 0:18:11.480 resort themselves and change jobs or maybe even lose their jobs. 0:18:11.600 --> 0:18:14.080 But from an aggregate economy perspective, that was great. So 0:18:14.119 --> 0:18:16.919 that's a model doing well. Another place where the model 0:18:17.560 --> 0:18:20.720 is doing well is it's telling us the Phillips curves 0:18:20.720 --> 0:18:22.720 a little flatter than and it had been for a 0:18:22.760 --> 0:18:25.439 long time where you don't get you know, once the 0:18:25.560 --> 0:18:28.639 unemployment rate comes up to a certain level, it just 0:18:28.840 --> 0:18:32.199 doesn't put additional pressure on inflation. And so at this 0:18:32.280 --> 0:18:35.080 point we don't think the labor market is really a 0:18:35.119 --> 0:18:37.320 source of inflationary pressure, and that would come out of 0:18:37.359 --> 0:18:42.160 the models. Our data dependence is really related to this. 0:18:42.280 --> 0:18:44.080 In my judgment, this is how I think of it. 0:18:44.600 --> 0:18:48.479 The incoming information we have always used, we were data dependent. 0:18:48.520 --> 0:18:50.800 After the financial crisis, we were using we went to 0:18:50.800 --> 0:18:54.399 a dashboard of indicators. What we've really done in my 0:18:54.680 --> 0:18:58.120 history here at the FED is expand what we look at. 0:18:58.560 --> 0:19:01.560 We're not satisfied just looking these headline numbers, so we 0:19:01.600 --> 0:19:05.320 look at all the real side indicators, all the price indicators. 0:19:05.560 --> 0:19:08.240 It sort of reminds everybody data is a plural word. 0:19:08.720 --> 0:19:12.880 It doesn't mean three series. It also doesn't mean simply 0:19:13.359 --> 0:19:18.680 the quantitative data that you see the big institutions publish. 0:19:18.920 --> 0:19:21.199 It means talking to our contacts. You said you had 0:19:21.200 --> 0:19:23.439 Tom Barkin on, Well, Tom and I is here a 0:19:23.480 --> 0:19:27.639 particular attribute that we gather a lot of information and 0:19:27.680 --> 0:19:30.240 many other presidents too, But we gather a lot of 0:19:30.280 --> 0:19:33.359 information from talking to CEOs. Those are the people who 0:19:33.400 --> 0:19:35.080 are going to tell us I am going to hire 0:19:35.119 --> 0:19:37.560 next year, I'm not going to hire. I'm getting ready 0:19:37.600 --> 0:19:41.520 to layoff, I'm dusting off my strategic plans and I'm investing. 0:19:42.119 --> 0:19:44.879 Those are also data. So I think that our focus 0:19:44.920 --> 0:19:47.760 on data dependence is our focus on collecting that information 0:19:47.840 --> 0:19:50.520 and letting it affect our decisions so it can make 0:19:50.560 --> 0:19:51.080 better ones. 0:19:51.480 --> 0:19:54.320 Since you mentioned the specific thing, whether you're looking at 0:19:54.359 --> 0:19:56.359 the data that we see on the screen or the 0:19:56.440 --> 0:19:59.679 data that you collect from talking to CEOs, what is 0:19:59.760 --> 0:20:03.280 your assessment of the health of the labor market right now? 0:20:03.320 --> 0:20:06.520 The proclivity to hire, the ease of finding a job. 0:20:06.560 --> 0:20:08.720 How worried or happy are you about the status time. 0:20:08.760 --> 0:20:11.880 I see that labor market is really balanced, and that's 0:20:11.880 --> 0:20:16.200 something that I've been watching for and it hasn't ever 0:20:16.240 --> 0:20:21.760 gotten into a dangerous weakness. It's definitely slowed, and earlier 0:20:21.840 --> 0:20:23.720 in the year it was slowing at a rapid pace. 0:20:24.800 --> 0:20:27.159 Now that slowing is settled out a bit. What we 0:20:27.240 --> 0:20:30.199 hear from firms, So we do a lot of questions 0:20:30.200 --> 0:20:33.080 and surveys and with firms and we talked to them. 0:20:33.280 --> 0:20:35.760 What we're hearing is they don't have the kinds of 0:20:35.760 --> 0:20:38.959 problems hiring workers that they once had, and they're increasingly 0:20:39.000 --> 0:20:41.960 able to find workers of all different skill levels, which 0:20:42.080 --> 0:20:44.080 you know, they had pockets of where they just couldn't 0:20:44.080 --> 0:20:47.640 find anyone. Importantly, they're also saying that they think they 0:20:47.640 --> 0:20:51.080 can now bring workers back to the office because they 0:20:51.119 --> 0:20:54.200 have more bargaining power, if you will. Before, they know 0:20:54.280 --> 0:20:56.119 nobody wants to come back to the office, and now 0:20:56.440 --> 0:20:58.920 they don't have to say yes to that, and they 0:20:58.920 --> 0:21:02.240 feel really good about that from their productivity perspective. So 0:21:02.280 --> 0:21:04.520 then you go to workers and you say is it 0:21:04.560 --> 0:21:06.520 hard to find jobs? And say, well, it takes a 0:21:06.520 --> 0:21:09.720 little longer now and I'm hanging on to my existing 0:21:09.800 --> 0:21:11.560 job a little longer because I don't want to take 0:21:11.600 --> 0:21:14.040 the risk. But no, I can find jobs if I 0:21:14.080 --> 0:21:16.080 really want them. So that's what when I think of 0:21:16.160 --> 0:21:19.280 a perfectly balanced laver market, I think of workers might 0:21:19.280 --> 0:21:22.040 take a little bit, but they find jobs. Firms say, 0:21:22.280 --> 0:21:25.200 I can't get everything I want, but I can get workers, 0:21:25.280 --> 0:21:27.920 and they're staying a little longer. But I am watching 0:21:28.080 --> 0:21:31.000 it to see if any weakness emerges where workers start to, 0:21:31.359 --> 0:21:33.919 you know, say, it's really challenging out there, and that 0:21:33.920 --> 0:21:36.000 would be something we would want to avoid. 0:21:36.320 --> 0:21:38.240 By the way, I have some good news to report 0:21:38.920 --> 0:21:40.879 in the room. All right, you might be happy to 0:21:40.880 --> 0:21:43.159 hear this. Core PCE just came in as you were 0:21:43.200 --> 0:21:46.760 answering zero point one percent month over month versus expectations 0:21:46.800 --> 0:21:49.640 of zero point two percent. So just a little live 0:21:50.000 --> 0:21:54.320 date on the economic situation maybe makes your life ted 0:21:54.359 --> 0:21:55.440 easier in twenty twenty five. 0:21:55.520 --> 0:21:58.159 Well, I think it's just good news. I mean, you know, 0:21:58.200 --> 0:22:00.320 one of the things when I see that incoming in information, 0:22:00.480 --> 0:22:03.280 I remind myself of a couple of things. It's just 0:22:03.359 --> 0:22:05.520 a one data point. We are not a data to 0:22:05.600 --> 0:22:09.280 point dependent FED data point dependent FED. We're data dependent. 0:22:09.440 --> 0:22:12.880 Can't react too much on one data point. And for 0:22:12.960 --> 0:22:16.239 all the households and families and businesses out there, you know, 0:22:16.320 --> 0:22:19.919 thinking about how can they manage inflation. I feel a 0:22:20.040 --> 0:22:22.320 huge amount of relief that it's not is going in 0:22:22.359 --> 0:22:24.600 the right direction. So we got a lot of work 0:22:24.600 --> 0:22:40.480 to do. But that's good data. 0:22:42.560 --> 0:22:46.320 All right, let's talk about I guess more more complicated things, 0:22:46.400 --> 0:22:49.360 which would be the policy outlook. So we are recording 0:22:49.359 --> 0:22:52.920 this on December twentieth. We might have a potential government 0:22:52.960 --> 0:22:56.040 shut down. That's complication number one. And then secondly, we 0:22:56.080 --> 0:22:59.320 will definitely have a new Trump administration that has some 0:22:59.800 --> 0:23:05.480 new policy ideas, including tariffs and you know, potentially mass deportation. 0:23:06.480 --> 0:23:11.560 How are you thinking through those sort of forwardlooking policy elements. 0:23:11.600 --> 0:23:13.480 And one of the reasons I ask is because Pale 0:23:13.880 --> 0:23:16.800 at the presser on Wednesday, he said there were some 0:23:16.960 --> 0:23:20.560 members of the FMC who were starting to take that 0:23:20.960 --> 0:23:23.919 possibility into account in terms of their forecasts. Are you 0:23:23.960 --> 0:23:24.440 one of them? 0:23:24.560 --> 0:23:27.560 I am not one of them. I actually have managed 0:23:27.600 --> 0:23:29.880 through you know this, worked at the Central Bank here 0:23:30.359 --> 0:23:33.639 versus an economist, and now as the president since nineteen 0:23:33.680 --> 0:23:35.760 ninety six. And one of the things you learn is 0:23:35.800 --> 0:23:38.480 I've been through several changes in administration. And one of 0:23:38.480 --> 0:23:40.399 the things you learn if you do that is that 0:23:40.520 --> 0:23:44.880 all administrations change. They bring in a slate of new programs. 0:23:45.280 --> 0:23:48.120 Sometimes they talk about them a lot before they even 0:23:48.160 --> 0:23:51.360 come into office. Sometimes they don't. But those new programs 0:23:51.520 --> 0:23:53.919 are always things that cause you know, a lot of 0:23:54.520 --> 0:23:59.760 sometimes fear, exuberance, enthusiasm, whatever it is, expectations. But it's 0:23:59.760 --> 0:24:02.040 best for the Central Bank and my judgment, not to 0:24:02.640 --> 0:24:05.400 engage in that kind of speculation. Let's let the administration 0:24:05.520 --> 0:24:09.359 come in and put the full slate of programs together. Now, 0:24:09.359 --> 0:24:12.240 why is that better? Well, first, in my judgment, why 0:24:12.280 --> 0:24:14.560 do I do it that way? Well, first of all, 0:24:14.880 --> 0:24:17.800 it doesn't mean we don't understand how models in data 0:24:17.840 --> 0:24:21.240 and other things work, and that how different programs, whether 0:24:21.280 --> 0:24:27.080 it's tax cuts, extended deregulation, tariffs, deportations, we can look 0:24:27.119 --> 0:24:30.360 at how those things work from the research literature, from models. 0:24:30.359 --> 0:24:33.240 We can think about that, so we're well prepared to 0:24:33.440 --> 0:24:36.240 analyze it once the programs come into place. But there's 0:24:36.560 --> 0:24:41.320 usually a fairly large difference between what any administration says 0:24:41.359 --> 0:24:44.240 they would like to do and what they actually do 0:24:44.359 --> 0:24:46.199 at the end of the day when they've worked with 0:24:46.280 --> 0:24:49.919 members of Congress and the cabinet members, et cetera to 0:24:49.960 --> 0:24:53.920 get a slate that really works for everyone. Importantly, it's 0:24:53.960 --> 0:24:56.439 also and this is something that I speak about a lot, 0:24:56.640 --> 0:24:59.160 it's also the net net effect of all of these. 0:24:59.400 --> 0:25:02.639 So say you cut taxes, that's spurs growth. That's a 0:25:02.640 --> 0:25:07.080 positive for growth. There's deregulation often a positive for growth. 0:25:07.480 --> 0:25:10.359 Then you put tariffs can be a negative, and you 0:25:10.480 --> 0:25:13.520 do you know, immigration it can be some people have 0:25:13.560 --> 0:25:16.280 said that's a negative. It just take potentially workers from 0:25:16.320 --> 0:25:18.399 the labor force. So you put all those things together, 0:25:18.440 --> 0:25:20.359 and which you realize quickly is it depends on the 0:25:20.400 --> 0:25:24.480 scope of the changes, the magnitude of those changes, the 0:25:24.520 --> 0:25:27.600 timing of the changes, and how those things all net 0:25:27.600 --> 0:25:31.160 out to leave the economy either with an impetus or 0:25:31.359 --> 0:25:34.000 a restraint. And it's just too early to know any 0:25:34.040 --> 0:25:38.080 of that. So instead, back to traveling around the district, 0:25:38.160 --> 0:25:40.840 we ask our contacts, and what they're telling us is 0:25:41.560 --> 0:25:44.800 they feel pretty okay about how things are likely to go. 0:25:44.840 --> 0:25:48.080 If anything, they have the sentiments risen. And then the 0:25:48.160 --> 0:25:51.000 other thing they say is if you're in retail or 0:25:51.160 --> 0:25:55.360 manufacturing where you need inputs, they're just stockpiling some inventories. 0:25:55.680 --> 0:25:59.040 So if there are some early tariffs discussions, they will 0:25:59.080 --> 0:26:01.359 be prepared and then they expect it to resolve. Is 0:26:01.400 --> 0:26:03.440 something that's not very harsh. 0:26:03.480 --> 0:26:06.160 Speaking of sentiment, this is something I wanted to ask you, actually, 0:26:06.320 --> 0:26:08.400 So one of the big stories for the past couple 0:26:08.440 --> 0:26:13.000 of years was the terrible, terrible sentiment surveys. So you know, 0:26:13.040 --> 0:26:16.240 if you looked at something like consumer sentiment, it looked 0:26:16.240 --> 0:26:19.760 like we were already in a massive recession. People felt 0:26:19.760 --> 0:26:23.359 absolutely awful. And of course, since November we've seen some 0:26:23.400 --> 0:26:26.520 of those surveys start to turn People are turning more positive. 0:26:26.640 --> 0:26:30.239 The small business survey has spiked quite a bit. How 0:26:30.320 --> 0:26:33.760 much emphasis would you place on those surveys given that 0:26:33.800 --> 0:26:36.359 there was such a big discrepancy between the heart and 0:26:36.400 --> 0:26:39.000 the soft data, you know, just a year or two ago, 0:26:39.400 --> 0:26:41.800 is it possible we could get another discrepancy, but just 0:26:41.840 --> 0:26:43.320 going in the other direction. 0:26:43.800 --> 0:26:47.919 You know, I think it's possible. But in the before 0:26:48.000 --> 0:26:52.000 I really understood the discrepancy. And here's how I understood. 0:26:52.320 --> 0:26:54.040 You could see it when you would talk to people 0:26:54.560 --> 0:26:58.880 is they felt like inflation had raised the price level 0:26:59.000 --> 0:27:01.760 so much they weren't able to catch up, so it 0:27:01.760 --> 0:27:05.000 had stolen something from them. Because it's a tax, it's 0:27:05.240 --> 0:27:07.840 it feels toxic to people, and they felt like they 0:27:07.840 --> 0:27:10.040 weren't going to ever catch up, and that the economy 0:27:10.119 --> 0:27:13.200 might break, we might fall into a recession. So part 0:27:13.200 --> 0:27:16.280 of the sentiment turn that I've seen started in about 0:27:16.280 --> 0:27:18.880 in the middle of the summer, and it started when 0:27:19.440 --> 0:27:22.200 people thought, oh, we're actually not going to have a recession. 0:27:22.480 --> 0:27:25.360 The economy will continue on and I will be able 0:27:25.400 --> 0:27:28.399 to grow out of you know, with my wages and 0:27:28.440 --> 0:27:31.439 my earnings, I'll be able to get ground, gain ground 0:27:31.440 --> 0:27:33.280 on what I lost, and I'll be able to restore 0:27:33.320 --> 0:27:35.840 where I was before the pandemic and maybe even grow 0:27:35.880 --> 0:27:38.480 beyond that. And now with some of the changes for 0:27:38.600 --> 0:27:42.000 businesses and small businesses, our small businesses tell us that too, 0:27:42.359 --> 0:27:45.160 with some of the changes, they're somewhat hopeful that they'll 0:27:45.200 --> 0:27:47.840 be They like the extended tax cuts, the pretty They 0:27:47.840 --> 0:27:51.680 were hopeful that some aspects of regulation won't be won't 0:27:51.720 --> 0:27:54.440 feel as hard to manage. But you know, they don't know, 0:27:54.560 --> 0:27:57.760 they're just more they're hopeful. And so they say this too. 0:27:58.000 --> 0:28:01.760 You know, enthusiasm has to be backed with reality, and 0:28:01.840 --> 0:28:05.560 so right now they feel enthusiastic or optimistic, but they're 0:28:05.560 --> 0:28:08.760 still cautious in that cautiousness that spending their own money 0:28:08.800 --> 0:28:11.480 on things that's only going to be removed when we 0:28:11.560 --> 0:28:17.040 really see how the economy and the policy changes are 0:28:17.200 --> 0:28:17.760 netting out. 0:28:18.400 --> 0:28:22.400 Let's talk about as you mentioned, theoretical policy changes under 0:28:22.440 --> 0:28:25.960 the incoming administration. You are not one of the members 0:28:26.000 --> 0:28:28.600 who cause that to change how you're thinking about twenty 0:28:28.640 --> 0:28:30.560 twenty five because, as you said, we don't know, We 0:28:30.600 --> 0:28:32.120 don't know how it's going to net out, et cetera. 0:28:32.240 --> 0:28:35.240 Of the academic literature, but it's hard to know. But 0:28:35.480 --> 0:28:40.160 speaking of the academic literature, one thing that's commonly said is, well, 0:28:40.160 --> 0:28:43.120 a tariff is sort of a one off increase in 0:28:43.160 --> 0:28:46.000 the price level and doesn't necessarily transitory. 0:28:46.160 --> 0:28:47.320 Is it transitory tere. 0:28:47.200 --> 0:28:52.400 In a sense transitory. I'm never really satisfied with that answer, because, Okay, 0:28:52.440 --> 0:28:54.680 that may be true that a tariff does cause a 0:28:54.680 --> 0:28:57.600 one off increase in prices, et cetera, but doesn't change 0:28:57.600 --> 0:29:00.760 the overall trajectory. On the other hand, in theory, it 0:29:00.840 --> 0:29:04.080 creates an impetus for a structural adjustment to the economy 0:29:04.080 --> 0:29:06.640 that could be costly. If it's just or to build 0:29:06.760 --> 0:29:10.160 more in the US to avoid tariffs, then that means 0:29:10.240 --> 0:29:13.360 more spending and more investment. And as you described, one 0:29:13.360 --> 0:29:16.120 of the drivers of the sort of new hire neutral 0:29:16.320 --> 0:29:20.560 is this impulse among companies to spend. So how do 0:29:20.680 --> 0:29:25.280 you think about again we don't know the details, but 0:29:25.320 --> 0:29:27.480 when you hear the word tariffs, and whether it's a 0:29:27.680 --> 0:29:30.440 global tariff, whether it's a tariff on some countries or 0:29:30.440 --> 0:29:33.960 not others, how do you think about potential ramifications of that? 0:29:34.280 --> 0:29:36.440 Sure, I mean, I think that's actually a terrific question 0:29:36.560 --> 0:29:39.640 because it's I think it highlights first of all, that 0:29:39.800 --> 0:29:44.440 it's very challenging to make simple statements about complicated changes 0:29:44.480 --> 0:29:48.320 in policy. So an example is in the classic models, 0:29:48.440 --> 0:29:50.560 a tariff would be a one off you just raise it. 0:29:50.840 --> 0:29:53.920 That's a classic model that doesn't have any retaliation, it 0:29:53.960 --> 0:29:56.320 doesn't have any knock on effects as we would call them. 0:29:56.320 --> 0:29:59.520 Where you know, you say you teariff an intermediate input, Well, 0:29:59.520 --> 0:30:02.560 that's going to filter through the economy into the price 0:30:02.560 --> 0:30:06.040 of other goods that are produced using this intermediate input. 0:30:06.280 --> 0:30:09.080 That's unlikely to be just the one off time it'll 0:30:09.200 --> 0:30:11.480 filter through, and the duration of the time it takes 0:30:11.520 --> 0:30:14.040 for that to filter through is very challenging to know, 0:30:14.440 --> 0:30:17.880 ex ante in advance. So I think it just is 0:30:18.000 --> 0:30:21.560 much more complicated than you look through it now standard 0:30:21.560 --> 0:30:24.200 classic textbook models would tell you do you look through it. 0:30:24.920 --> 0:30:27.440 I tend not to see transitory very much. I think that, 0:30:27.560 --> 0:30:29.560 you know, that's a word I wasn't using a lot 0:30:29.600 --> 0:30:31.600 before and I'm certainly not using now. So I'm going 0:30:31.640 --> 0:30:33.840 to say, you know, one off, she just raise it 0:30:33.880 --> 0:30:36.520 and then it goes. But the practice of it has 0:30:36.680 --> 0:30:40.360 suggested that the economy is more complicated and it it 0:30:40.480 --> 0:30:42.680 takes some time to filter through now in terms of 0:30:42.680 --> 0:30:45.040 the structural changes, I mean, that's part of why tariffs 0:30:45.040 --> 0:30:48.000 are applied oftentimes they want a more fair playing field. 0:30:48.320 --> 0:30:51.440 Are elected officials because voters have said, we want a 0:30:51.480 --> 0:30:54.000 fairer playing field, and when you put a fair playing 0:30:54.040 --> 0:30:57.080 field in you might see a reorganization of activity to 0:30:57.160 --> 0:30:59.680 adjust to that new fairer playing field. But that was 0:30:59.680 --> 0:31:03.080 the tension all along. And so ultimately this is why 0:31:03.120 --> 0:31:06.360 the Central Bank is independent and outside of what elected 0:31:06.360 --> 0:31:09.400 officials do. It's one of the reasons elected officials are 0:31:09.400 --> 0:31:13.720 elected by voters to make decisions that are bettering society. Overall, 0:31:13.880 --> 0:31:17.160 the economy and society, and even when you don't agree 0:31:17.200 --> 0:31:19.960 with those that's still the intention, right that all different 0:31:20.000 --> 0:31:23.120 elected officials come out to try to do the FED. 0:31:23.600 --> 0:31:26.840 We only have two goals, price stability, full employment, and 0:31:26.920 --> 0:31:29.239 so we're taking the economy we have, and if there 0:31:29.240 --> 0:31:32.840 are structural changes that temporarily boost the price level on 0:31:32.960 --> 0:31:35.840 things or just you know, we're persistently due, we would 0:31:35.840 --> 0:31:37.960 have to work to make sure that that doesn't cause 0:31:38.000 --> 0:31:41.320 inflation to rise above two percent and that somehow we 0:31:41.360 --> 0:31:44.120 don't end up losing our full employment the place in 0:31:44.120 --> 0:31:46.920 full employment that we have now. So that is a 0:31:46.960 --> 0:31:49.720 healthy tension in my judgment, but it's also why the 0:31:49.760 --> 0:31:52.800 FED is independent from It's one of the reasons our 0:31:52.840 --> 0:31:55.080 founding fathers. They were all fathers at the time. I 0:31:55.080 --> 0:31:57.000 know we'd like to change those words sometimes, but they 0:31:57.000 --> 0:31:59.640 were all following fathers, and it's why they did that 0:31:59.800 --> 0:32:02.400 is it's because they wanted that tension to be there, 0:32:02.640 --> 0:32:03.720 in my judgment. 0:32:04.320 --> 0:32:06.760 So Joe and I were in San Francisco a few 0:32:06.800 --> 0:32:07.320 weeks ago. 0:32:07.720 --> 0:32:09.200 I know I missed you. I'm sorry. 0:32:09.360 --> 0:32:11.000 I know it would have been great to catch up, 0:32:11.040 --> 0:32:15.800 but I was in some other I love. I was 0:32:15.800 --> 0:32:18.560 literally about to talk about the weaibo. Okay, I went 0:32:18.600 --> 0:32:20.640 in my first ever WEIMO, and it kind of it 0:32:20.640 --> 0:32:22.880 blew me away, and we met with lots of vcs 0:32:22.920 --> 0:32:25.160 who are talking about all the cool stuff they're seeing 0:32:25.200 --> 0:32:28.360 in terms of AI. You sort of have a front 0:32:28.440 --> 0:32:32.200 row seat for AI, given you know your geographic location 0:32:32.360 --> 0:32:35.600 in San Francisco. Talk to us about how you're thinking 0:32:35.640 --> 0:32:39.840 through AI and its impact on productivity because obviously a 0:32:39.880 --> 0:32:42.640 lot of people expect a big productivity boost from this 0:32:42.760 --> 0:32:45.440 new technology, but you know, like so far, I think 0:32:45.440 --> 0:32:48.440 it kind of remains something of a hypothetical, like at 0:32:48.520 --> 0:32:51.480 large scale, But what are you watching for in terms 0:32:51.480 --> 0:32:55.200 of monitoring the actual impact of AI on productivity? 0:32:55.480 --> 0:32:58.239 So we're already seeing this. And one thing that if 0:32:58.240 --> 0:33:00.720 you go back to you Robert Solo, so there's a 0:33:00.760 --> 0:33:03.440 famous quote that you can see productivity everywhere except in 0:33:03.480 --> 0:33:06.959 the productivity data. And you're really seeing that now. And 0:33:07.040 --> 0:33:08.600 you know, I came to work at the FED in 0:33:08.680 --> 0:33:10.720 nineteen ninety six. So one of the first jobs I 0:33:10.800 --> 0:33:13.480 had sitting at the San Francisco FED as an economist 0:33:13.920 --> 0:33:18.280 was to collect evidence of a burgeoning productivity boom for 0:33:18.400 --> 0:33:21.720 Chairman Greenspan. Oh wow, it was literally what isn't that 0:33:21.840 --> 0:33:23.720 like the coolest thing? You land at the FED, you're 0:33:23.720 --> 0:33:26.240 doing research on the labor market, and suddenly the chairman 0:33:26.320 --> 0:33:28.600 of the Fed's interested in you collecting this information. 0:33:28.760 --> 0:33:30.320 So this would have been the early two thousands when 0:33:30.520 --> 0:33:32.120 since he was talking about like the big this. 0:33:32.120 --> 0:33:34.680 Is ninety seven, ninety eight, you know, really before we 0:33:34.720 --> 0:33:37.080 even got there, and he's he was an early spotter 0:33:37.440 --> 0:33:40.640 that if people are using computers, you're not going to 0:33:40.720 --> 0:33:43.920 see it in the data just yet, because what they're 0:33:43.960 --> 0:33:47.760 doing is they're buying all this equipment, but they it's 0:33:47.800 --> 0:33:50.960 really the software and the change in how they did 0:33:51.000 --> 0:33:53.600 their work that was going to boost the productivity. So 0:33:53.680 --> 0:33:56.240 let me give you a cool example. Now this didn't 0:33:56.240 --> 0:33:58.800 happen until the early two thousands, but still a cool example. 0:33:59.200 --> 0:34:05.240 So before, before we had the internet and the computers 0:34:05.280 --> 0:34:09.880 and connected networks and things, the gas meter readers had 0:34:09.920 --> 0:34:12.319 to come to your house and come up to your 0:34:12.400 --> 0:34:14.799 meter and read it and write it down in a 0:34:14.840 --> 0:34:17.919 notebook or to type it into a little machine. And 0:34:18.200 --> 0:34:20.640 they were getting bitten by dogs or they couldn't get in, 0:34:20.680 --> 0:34:23.600 and meters weren't getting written read, et cetera, et cetera. 0:34:24.160 --> 0:34:27.719 With this technology, they produced cars. This happened first The 0:34:27.719 --> 0:34:29.480 first place I ever saw this was Salt Lake City. 0:34:29.560 --> 0:34:32.040 They had trucks, and the trucks had readers on them, 0:34:32.239 --> 0:34:35.560 and they would communicate with your meter, which was a 0:34:35.600 --> 0:34:37.480 smart meter, and they didn't have to get out of 0:34:37.480 --> 0:34:40.200 the vehicle. And so no one's getting bitten by a dog. 0:34:40.239 --> 0:34:43.160 People are all their meters are being read. Productivity goes up, 0:34:43.200 --> 0:34:47.160 safety goes up, and importantly people's bills go down and 0:34:47.280 --> 0:34:49.799 are more accurate because you're not estimating them. So that 0:34:49.960 --> 0:34:52.080 was an example, and those were the kinds of examples 0:34:52.400 --> 0:34:55.239 I was giving Chairman Greenspan, and he was saying, Okay, 0:34:55.320 --> 0:34:57.960 we're going to see it everywhere except in the data, 0:34:58.400 --> 0:35:01.759 and sure enough turned out to be right. Pardevity was 0:35:01.800 --> 0:35:04.319 all over the place. And eventually, when the data got 0:35:04.360 --> 0:35:06.360 revised and we got better at biggering on what was 0:35:06.400 --> 0:35:08.680 going on, we saw that we had a computer revolution. 0:35:09.160 --> 0:35:12.680 The same thing appears to be happening with AI. And 0:35:12.760 --> 0:35:15.399 again I want to caution people from thinking it's all 0:35:15.440 --> 0:35:18.440 about chat, GPT or perplexity or any of the other models. 0:35:18.440 --> 0:35:20.279 I'm not trying to advertise models, but those are the 0:35:20.280 --> 0:35:23.239 ones that get a lot of attention. So but it's 0:35:23.280 --> 0:35:27.240 not about any particular model. It's really about machine learning, 0:35:27.520 --> 0:35:32.680 it's about you know, robotic processing, automation, just people businesses 0:35:32.800 --> 0:35:35.759 doing things. And so we started a network called the 0:35:36.120 --> 0:35:39.080 Emerging Tech Economic Research Network at the San Francisco FED 0:35:39.080 --> 0:35:41.560 and we're spending a lot of time with researchers, but 0:35:41.600 --> 0:35:44.800 we're also spending a lot of time with CEOs and 0:35:45.840 --> 0:35:48.480 CIOs and we're asking them what are you doing? And 0:35:48.520 --> 0:35:51.760 it is astounding how many companies in the United States, 0:35:52.000 --> 0:35:54.359 probably the globe. We're focused on the United States first, 0:35:54.719 --> 0:35:58.040 are using these things, everything from furniture companies to improve 0:35:58.080 --> 0:36:02.120 their sales, to design companies to figure out how to 0:36:02.120 --> 0:36:06.560 design things faster and more accurately idea generation. So we're 0:36:06.600 --> 0:36:09.040 seeing it everywhere. I don't think we'll see it in 0:36:09.120 --> 0:36:12.520 measured productivity right away, and you shouldn't expect to, but 0:36:12.680 --> 0:36:15.560 it's the emphasis of change is there. And so it's 0:36:15.560 --> 0:36:18.319 not all about the weay mos or the zekes. You 0:36:18.400 --> 0:36:20.359 have to write in the zekes next time, but it's 0:36:20.440 --> 0:36:25.160 really about businesses thinking about how to use technology to 0:36:25.239 --> 0:36:30.799 make their teams stronger, more capable, less tedious work get 0:36:30.800 --> 0:36:33.800 the job done. And I think that's potentially a huge benefit. 0:36:34.000 --> 0:36:37.040 It could take a decade, but it is happening. 0:36:37.760 --> 0:36:39.279 First of all, it must be fun to be the 0:36:39.600 --> 0:36:43.200 sef FED president. I'm sure every regional FED president thinks 0:36:43.320 --> 0:36:46.400 there region is great, but a have so much territory, 0:36:46.400 --> 0:36:48.920 it'd be all the coolest stuff in the world is 0:36:48.920 --> 0:36:50.160 happening in your district. 0:36:50.880 --> 0:36:53.120 I agree, actually, but you know I shouldn't say that. 0:36:54.680 --> 0:36:56.920 So I want to actually go back to you know, 0:36:57.040 --> 0:36:59.279 you talked about this, and first of all, I did 0:36:59.320 --> 0:37:01.600 find that just sort of a very fascinating reminder that 0:37:01.640 --> 0:37:04.040 at the beginning of the dot com boom, first there 0:37:04.160 --> 0:37:06.799 was just a bunch of costly spending on computers, and 0:37:06.840 --> 0:37:09.040 it took a while before businesses figured out what they 0:37:09.040 --> 0:37:10.400 were going to do with them. And so when you 0:37:10.440 --> 0:37:13.560 think about the sort of lagged effects of that spending, 0:37:13.640 --> 0:37:15.800 that's interesting. Going back to when we were having the 0:37:15.800 --> 0:37:18.359 more theoretical part of the conversation and you talked about 0:37:18.400 --> 0:37:21.000 why the neutral rate might be higher, you mentioned the 0:37:21.120 --> 0:37:24.719 higher proclivity to invest, but also mentioned there's a lot 0:37:24.760 --> 0:37:28.040 of government borrowing right now, and you know, one of 0:37:28.040 --> 0:37:30.960 the things that the new administration says it wants to 0:37:31.040 --> 0:37:34.280 do with the incoming treasury secretary is take more seriously 0:37:34.480 --> 0:37:37.520 the deficit. I am a person, as I've hinted on 0:37:37.800 --> 0:37:40.239 the podcast before, who has a loan that is going 0:37:40.280 --> 0:37:43.320 to have to be refinanced in a couple of years. 0:37:43.320 --> 0:37:46.560 I would love to see lower rates, setting aside what 0:37:46.640 --> 0:37:50.480 the ideal mix of deficit reduction, etc. If we want 0:37:50.520 --> 0:37:54.600 to get to a sort of sustainably lower band for rates. 0:37:54.880 --> 0:37:58.560 And you mentioned it's a global phenomenon, does lower deficit 0:37:58.600 --> 0:38:01.399 spending seem like one of the key components to it. 0:38:02.239 --> 0:38:06.920 You know, I don't make those fiscal decisions, but ultimately 0:38:07.200 --> 0:38:10.839 it matters. Total spending is what matters. So if the 0:38:10.880 --> 0:38:15.600 government spending goes down, and it's what happens is private 0:38:15.640 --> 0:38:18.680 sector spending goes up to fill that difference, then it 0:38:18.680 --> 0:38:21.920 won't really have much effect on the interest rate. But 0:38:22.160 --> 0:38:25.480 if we get a reduction in net spending because of that, 0:38:25.840 --> 0:38:29.960 then you could. But importantly, I think this is something 0:38:30.000 --> 0:38:32.759 that usually gets lost because most countries only talk about 0:38:32.760 --> 0:38:36.880 their own country because that's what's important to them. Sovereigns 0:38:36.880 --> 0:38:39.920 across the globe, we're spending more money, right and that's 0:38:39.960 --> 0:38:42.680 you know, it's partly a response to the pandemic and 0:38:42.719 --> 0:38:46.240 then you know, kind of get used to it and going. 0:38:46.280 --> 0:38:49.520 And so I think this is a global, a global issue. 0:38:49.520 --> 0:38:51.800 And then of course we still have the aging population 0:38:51.880 --> 0:38:53.920 that's working through that we have to pay for. And 0:38:53.960 --> 0:38:57.960 that's true in almost every country, industrialized country in the world. 0:38:58.000 --> 0:39:01.799 Every transition energy trans then you get technology that could 0:39:01.840 --> 0:39:04.160 help us, we could get more productive, but you do 0:39:04.200 --> 0:39:06.239 all these things and they end up becoming you know, 0:39:06.320 --> 0:39:09.640 expensive changes at a time when we're already paying for 0:39:09.680 --> 0:39:12.799 the aging population, and then we keep borrowing to do it. 0:39:12.880 --> 0:39:14.960 And it's just you know, it's a different environment that 0:39:15.000 --> 0:39:17.560 we were in prior to the pandemic, and we'll we'll 0:39:17.560 --> 0:39:19.400 have to deal with that. So I don't know that 0:39:19.400 --> 0:39:21.880 we can give you a lot of near term relief 0:39:21.920 --> 0:39:24.640 on your refinancing issue, but I do think these are 0:39:24.680 --> 0:39:27.319 problems that all nations are going to have to wrestle with. 0:39:28.080 --> 0:39:30.839 The nice thing about having the podcast as a platform, Joe, 0:39:30.920 --> 0:39:33.600 is that you can personally lobby the FED for a 0:39:33.680 --> 0:39:34.719 lower refi rate. 0:39:35.080 --> 0:39:39.440 That isdefended cut rage and it doesn't even lower the 0:39:39.440 --> 0:39:40.240 mortgage rate anyway. 0:39:40.280 --> 0:39:43.040 Sorry, I keep going, No, I just I think ultimately 0:39:43.120 --> 0:39:45.040 they you know this a that's another thing that we 0:39:45.560 --> 0:39:49.319 control the short term interest rate in it filters through 0:39:49.360 --> 0:39:52.440 to other interest rates. But we live in a global economy, 0:39:52.440 --> 0:39:54.640 and we live in a world where interest rates can 0:39:54.680 --> 0:39:56.799 move around for a variety of reasons, just like the 0:39:56.840 --> 0:40:00.719 stock market. And you know what really is what's important 0:40:00.840 --> 0:40:04.400 is that, ultimately, if you stack up has monetary policy 0:40:04.440 --> 0:40:08.759 been working? You can see evidence, clear evidence that not 0:40:08.880 --> 0:40:11.680 just supply driven inflation has gone down, So the supply 0:40:11.719 --> 0:40:15.640 has improved, inflation's fallen, but the demand component has gone 0:40:15.680 --> 0:40:18.160 down and things are rebalanced. So I still think monetary 0:40:18.160 --> 0:40:21.640 policy works. But that's a different question than what rate 0:40:21.719 --> 0:40:24.239 will we settle at, and in all likelihood it'll be 0:40:24.320 --> 0:40:26.960 higher than we saw it prior to the pandemic. 0:40:27.160 --> 0:40:29.440 I just have one last question, and it's sort of 0:40:29.520 --> 0:40:33.680 a Fed watcher question. I hope you're not offended by this, 0:40:33.800 --> 0:40:36.480 but before we did the episode, I had to look 0:40:36.560 --> 0:40:38.279 up as like is she a voting member or not? 0:40:38.520 --> 0:40:40.279 As I forget who is a voting member? 0:40:40.320 --> 0:40:43.440 Of course we forget. No, I'm kidding, I'm kidding. 0:40:45.080 --> 0:40:47.840 People who are fedwatchers sometimes talk a lot about the 0:40:47.880 --> 0:40:50.359 hawk dove meter and who's rotating in and out one 0:40:50.440 --> 0:40:53.479 year and there's this person more hawkish, more dubbish. You're 0:40:53.520 --> 0:40:57.279 currently a voting member right now. How significant is it 0:40:57.320 --> 0:40:59.800 when you think about especially now that we have the dots. 0:41:00.080 --> 0:41:01.759 People pay a lot of attention to the dots and 0:41:01.760 --> 0:41:04.040 everyone puts an a doubt regardless of whether they're a 0:41:04.120 --> 0:41:06.799 voting member or not, and those seem to be influential. 0:41:07.200 --> 0:41:11.120 How important is it for the sort of average person 0:41:11.239 --> 0:41:14.160 or FED watcher to pay close attention to who has 0:41:14.280 --> 0:41:16.759 a vote at any given time or from the perspective 0:41:16.840 --> 0:41:19.560 of a someone who rotates in and out, how much 0:41:19.600 --> 0:41:22.959 does it change you believe your influence on the state 0:41:23.000 --> 0:41:25.040 of policy, whether you actually formally have a vote at 0:41:25.080 --> 0:41:27.080 a given meeting or no. I've never seen an effect. 0:41:27.840 --> 0:41:28.720 This is really interesting. 0:41:28.760 --> 0:41:31.080 I've never seen an effect in my entire history working 0:41:31.120 --> 0:41:32.960 for the fat even when I was just staffing the 0:41:33.040 --> 0:41:36.000 FMC and not Audien. I just have never seen an effect. 0:41:36.040 --> 0:41:43.040 I mean, what is influential are ideas, arguments, evidence, thoughtfulness 0:41:43.040 --> 0:41:45.200 about where we should go and how we should get there, 0:41:45.640 --> 0:41:49.680 and being willing to interrogate and ask questions even when 0:41:49.680 --> 0:41:53.160 you're sure. I mean, ultimately, we're best with each other 0:41:53.520 --> 0:41:57.120 when we question and question and question again and be 0:41:57.239 --> 0:42:01.000 skeptical and curious, and skeptical you come in and you 0:42:01.040 --> 0:42:03.239 say you know, I already know the answer. You're not 0:42:03.320 --> 0:42:06.200 actually as useful as you come in and say I'm 0:42:06.239 --> 0:42:08.400 thinking about it this way or you thinking about it differently, 0:42:08.400 --> 0:42:10.960 And we have those rigorous debates. So if that's the 0:42:11.000 --> 0:42:13.759 main thing that's beneficial about being together and being on 0:42:13.800 --> 0:42:16.320 this committee, then you can see that voting doesn't matter 0:42:16.400 --> 0:42:19.400 because you really don't pay attention to the vote that 0:42:19.440 --> 0:42:21.880 people are talking about. You pay attention to the arguments 0:42:21.920 --> 0:42:24.360 that they're making. And so I've actually never seen a 0:42:24.480 --> 0:42:27.480 difference in my tenure under any chair. Work for four 0:42:27.560 --> 0:42:31.400 chairs at this point, I've never seen any difference. And 0:42:31.960 --> 0:42:33.960 one of the things that also is true is that 0:42:34.239 --> 0:42:36.960 chairs are willing to take two sense and they're willing 0:42:37.200 --> 0:42:39.799 to live with differences of opinion. And the dots are 0:42:40.320 --> 0:42:44.040 a tremendous example of that. Right you look at the 0:42:44.040 --> 0:42:46.800 dots and they are as the uncertainty of the economy 0:42:46.840 --> 0:42:49.759 is going up and it's not clear what the right 0:42:49.840 --> 0:42:53.320 answer is for next year. The dispersion in people's estimates 0:42:53.320 --> 0:42:57.400 about the forecast, the neutral rate of interest, and the 0:42:57.440 --> 0:43:01.080 policy that will be appropriate next year. They're just they're 0:43:01.080 --> 0:43:04.760 getting more dispersed. That is a benefit. That's a feature, 0:43:04.800 --> 0:43:06.840 not a bug, as we like to say. And I 0:43:06.840 --> 0:43:09.320 think it just speaks to the idea that voting doesn't 0:43:09.360 --> 0:43:12.800 matter and the rotation is not that relevant. What's relevant 0:43:12.960 --> 0:43:16.440 is arguments and thoughts. And you know, luckily we have 0:43:16.440 --> 0:43:18.919 a very transparent fed so you can go and read 0:43:18.920 --> 0:43:22.000 people's speeches and remarks, see their interviews, hear their podcasts 0:43:22.000 --> 0:43:24.960 here Odd Lucked, and you can go to make your 0:43:24.960 --> 0:43:26.480 own determination as a citizen. 0:43:26.760 --> 0:43:29.120 I'm noticed in the beginning you were still talking about 0:43:29.120 --> 0:43:32.040 like working towards a soft landing, And my question is, 0:43:32.040 --> 0:43:34.520 like when you actually get to say we did it, 0:43:34.719 --> 0:43:37.200 because like two years ago, I don't think anyone would 0:43:37.200 --> 0:43:39.640 have expected things to shake out the way they have. 0:43:39.960 --> 0:43:42.600 Like to me, the soft landing is kind of here. 0:43:42.640 --> 0:43:45.239 You know, I think here's what I would say. I 0:43:45.239 --> 0:43:48.080 gave a speech at NYU, And the reason I'm pointing 0:43:48.080 --> 0:43:49.520 to it isn't to say look at me, I give 0:43:49.520 --> 0:43:52.799 a speech is because it was about this. So ultimately 0:43:52.880 --> 0:43:55.320 I will judge a soft landing, and I think history 0:43:55.360 --> 0:43:58.560 will as well if we allow people the time to 0:43:58.640 --> 0:44:00.640 catch up. So if you look at people below the 0:44:00.680 --> 0:44:04.480 fiftieth percentile of the wage distribution, they're still behind. If 0:44:04.480 --> 0:44:08.040 you measure the cumulative losses they had from inflation, they 0:44:08.080 --> 0:44:10.440 still need another year or so of this kind of 0:44:10.480 --> 0:44:14.160 growth of wages above inflation to get their earnings their 0:44:14.360 --> 0:44:15.000 lives back. 0:44:15.080 --> 0:44:15.879 So for some. 0:44:15.840 --> 0:44:18.640 People, you feel fine. For other people are like, I 0:44:18.719 --> 0:44:22.560 got in such a giant ditch that I'm only now 0:44:22.880 --> 0:44:25.200 getting close to seeing out of that ditch, and then 0:44:25.239 --> 0:44:28.160 they want to have some path restore it. So I 0:44:28.160 --> 0:44:31.919 would say, so I actually redefine or defined for people 0:44:31.920 --> 0:44:34.400 what I mean by a soft landing. It's a durable 0:44:34.440 --> 0:44:37.000 expansion that allows that to occur. So I'm not at 0:44:37.000 --> 0:44:39.439 all satisfied right now, but i just want to keep 0:44:39.440 --> 0:44:41.640 going because you know, I grew up in the seventies. 0:44:42.000 --> 0:44:45.719 My parents had this card table, and as everyone in 0:44:45.719 --> 0:44:48.720 my community did, and they would on like one Sunday 0:44:48.719 --> 0:44:51.000 out of the month, they would put bills they could 0:44:51.000 --> 0:44:53.480 pay in one stack and bills they couldn't, And over 0:44:53.520 --> 0:44:55.800 the inflation period, the bills they couldn't pay just grew. 0:44:56.080 --> 0:44:58.640 Then Voker did the vulgar disinflation. They both lost their 0:44:58.719 --> 0:45:01.600 jobs and now the whole family in disarray, and I 0:45:01.719 --> 0:45:04.479 just remember that, and I think, you know, I didn't 0:45:04.520 --> 0:45:06.480 go to work at the FED because of that, But 0:45:06.600 --> 0:45:08.839 I just remember that, and I think that's probably how 0:45:08.880 --> 0:45:11.480 so many American families are feeling right now. They're just 0:45:11.600 --> 0:45:14.400 getting kind of their feet under them. So that's what 0:45:14.440 --> 0:45:15.520 a soft landing looks like. 0:45:15.680 --> 0:45:18.759 All right, Mary Daily, San Francisco FED President, thank you 0:45:18.840 --> 0:45:21.200 so much for coming on all thoughts. And I should 0:45:21.200 --> 0:45:23.640 say Mary has her own podcast, so you should definitely 0:45:23.680 --> 0:45:24.439 check that out too. 0:45:24.600 --> 0:45:27.000 Can I say the name of course zip code economies. 0:45:27.040 --> 0:45:29.799 Please please join us and you can come to any 0:45:29.840 --> 0:45:32.080 state in my district and I will travel with you. 0:45:32.520 --> 0:45:35.160 If Hawaii is your destination state, I'm going back this 0:45:35.280 --> 0:45:38.279 year to see how the Hawaiian economy is doing, going 0:45:38.280 --> 0:45:40.200 to Alaska, going to all the other states. 0:45:40.280 --> 0:45:43.520 I want Alaska. 0:45:43.960 --> 0:45:46.440 So even though it sounds nice on a cold New 0:45:46.520 --> 0:45:48.520 York day right now, I would do it last. 0:45:48.600 --> 0:45:50.920 The cool thing about any of these states, whether you're 0:45:50.960 --> 0:45:55.040 city in Idaho, Utah, Alaska, Hawaii, is you're going to see. 0:45:55.400 --> 0:45:57.320 This is the thing that I loved about the twelfth District. 0:45:57.400 --> 0:45:59.719 Once I moved to the twelfth district to take the 0:46:00.000 --> 0:46:02.520 economists job. Way back in the day, they would fly 0:46:02.640 --> 0:46:04.399 me to there. I would fly to the main city 0:46:04.440 --> 0:46:06.919 and drive all around. And here's what I learned that 0:46:07.440 --> 0:46:10.680 ultimately the economies are vastly different, and yet they're all 0:46:10.680 --> 0:46:14.760 the same. They all basically have people working together trying 0:46:14.760 --> 0:46:17.399 to you know, build their lives, build their careers, make 0:46:17.440 --> 0:46:19.919 a business. And that's a cool thing when you see 0:46:19.960 --> 0:46:21.919 the vast difference and then you say, it all comes 0:46:21.920 --> 0:46:22.759 down to the same thing. 0:46:23.080 --> 0:46:26.120 All right, Thank you so much. That was fantastic, Thank 0:46:26.160 --> 0:46:26.560 you so much. 0:46:26.600 --> 0:46:39.600 Thank you, Joe. 0:46:39.600 --> 0:46:41.040 That was a really fun conversation. 0:46:41.800 --> 0:46:44.440 I think if I were going to be any FED president, 0:46:44.960 --> 0:46:46.759 have to be the Hawaii list. 0:46:47.000 --> 0:46:50.480 Listen to Joe on this podcast lobbying for lower mortgage 0:46:50.560 --> 0:46:53.160 rates and for the twelfth FED district. 0:46:52.840 --> 0:46:54.719 Well, and lobbying for us to take a trip to 0:46:54.840 --> 0:46:57.680 last And I'm on board with that one. Would you 0:46:57.680 --> 0:46:59.240 say the Northern Mariana Island. 0:46:59.440 --> 0:46:59.760 Yeah. 0:47:00.040 --> 0:47:02.120 And the only reason I know that, by the way, 0:47:02.239 --> 0:47:06.320 is because it was the tiebreaker around a recent quiz 0:47:06.360 --> 0:47:10.120 that we held in Los Angeles for Bloomberg clients. 0:47:10.360 --> 0:47:12.719 Yeah, we didn't get to do it because there was 0:47:12.800 --> 0:47:14.920 no tie. But yes, we were going to ask the 0:47:15.000 --> 0:47:17.839 clients to name all of the states and regions, all. 0:47:17.800 --> 0:47:20.879 Nine states and three territories. I wouldn't have been able 0:47:20.920 --> 0:47:23.000 to do it Americana Islands, no way. 0:47:23.400 --> 0:47:27.560 Yeah, I thought that was a fantastic conversation. First of all, 0:47:27.560 --> 0:47:29.879 it's exciting we did get that nice beat on a 0:47:29.920 --> 0:47:33.080 core PCE in the middle of the episode. It still 0:47:33.080 --> 0:47:36.360 feels like a very tricky moment for sure for the FED, 0:47:36.600 --> 0:47:40.480 even before the effects of any Trump policies come into effect, 0:47:40.520 --> 0:47:42.960 regardless of what they are. The fact that the inflation 0:47:43.080 --> 0:47:45.520 outlooked for twenty twenty five it's still going to be 0:47:45.920 --> 0:47:49.759 a while apparently before they're sort of durably back. The 0:47:49.800 --> 0:47:52.560 fact that we have seen this sort of big increase 0:47:52.719 --> 0:47:57.280 in the ostensible neutral rate if it exists. Tricky times 0:47:57.280 --> 0:47:57.759 for the FED. 0:47:57.960 --> 0:48:00.480 Yeah, And I think there is that tension between you know, 0:48:00.560 --> 0:48:03.520 wanting to see how everything shakes out and so trying 0:48:03.560 --> 0:48:06.560 to be ahead of the curve to some degree. But 0:48:06.640 --> 0:48:09.160 it is interesting. It was interesting to hear her talk 0:48:09.160 --> 0:48:12.200 about like how she wasn't one of those people. Yeah, 0:48:12.239 --> 0:48:16.279 taking into account potential future policy, the. 0:48:16.280 --> 0:48:19.319 Housing question is going to be really interesting. Yeah, right, Like, so, 0:48:19.640 --> 0:48:22.239 what are the residual sources of inflation if it's no 0:48:22.320 --> 0:48:25.080 longer the labor market. Of course, she defended the beverage curve. 0:48:25.200 --> 0:48:28.280 It's an employee, it's back and balanced. But this idea 0:48:28.400 --> 0:48:31.400 that and you mentioned it. You know that housing construction 0:48:32.080 --> 0:48:35.720 has fallen. This is going to be a persistent source 0:48:36.080 --> 0:48:38.960 of economic stress, whether it shows up in the formal 0:48:39.000 --> 0:48:42.239 measures of inflation or how it doesn't. This remains a 0:48:42.480 --> 0:48:44.720 major issue, the fact that there is so much investment, 0:48:44.880 --> 0:48:47.600 or at least government spending happening around the world globally, 0:48:48.120 --> 0:48:53.440 military spending, aging, demographics, many, many such complications going forward. 0:48:53.640 --> 0:48:57.200 Complications definitely the word of the day. Let's see so again, 0:48:57.239 --> 0:49:00.799 we're recording this on Friday, December twentieth. We'll see what 0:49:00.840 --> 0:49:03.319 happens over the weekend with the government shutdown. But like, 0:49:03.440 --> 0:49:05.200 it does seem like there are a lot of one 0:49:05.320 --> 0:49:07.920 offs that the Central Bank is potentially going to have 0:49:07.960 --> 0:49:08.840 to take into account. 0:49:08.880 --> 0:49:11.000 Absolutely all right, shall we leave it there, Let's leave 0:49:11.000 --> 0:49:11.360 it there. 0:49:11.520 --> 0:49:14.399 This has been another episode of the Authoughts podcast. I'm 0:49:14.400 --> 0:49:17.440 Tracy Alloway. You can follow me at Tracy Alloway. 0:49:17.160 --> 0:49:20.040 And I'm Jill Wisenthal. You can follow me at the Stalwart. 0:49:20.320 --> 0:49:23.840 Follow our guest Mary Daily, San Francisco Fed President. She 0:49:24.080 --> 0:49:27.279 is at Mary Daily econ and you can check out 0:49:27.280 --> 0:49:32.080 her podcast, zip Code Economies. Follow our producers Kerman Rodriguez 0:49:32.080 --> 0:49:35.040 at Carman Erman, dash Ol Bennett at Dashbock and kel 0:49:35.120 --> 0:49:38.960 Brooks at kel Brooks. Thank you to our producer Moses Ondam. 0:49:39.120 --> 0:49:41.239 And for more odd Laws content, go to Bloomberg dot 0:49:41.239 --> 0:49:43.760 com slash odd Lots, where you have transcripts, a blog 0:49:43.840 --> 0:49:46.040 and a newsletter and you can chat about all of 0:49:46.040 --> 0:49:48.319 these topics, oh, including the fact and I meant to 0:49:48.320 --> 0:49:50.799 say it, including the fact that voting doesn't matter at 0:49:50.800 --> 0:49:53.120 the FED, which I thought was really interesting. Could talk 0:49:53.120 --> 0:49:55.960 about that in the discord discord dot gg. 0:49:55.840 --> 0:49:58.440 Slash odlines And if you enjoy all thoughts, if you 0:49:58.640 --> 0:50:00.400 like it when we have FED President and so on 0:50:00.480 --> 0:50:02.840 the show, then please leave us a positive review on 0:50:02.920 --> 0:50:06.200 your favorite podcast platform. And remember, if you are a 0:50:06.239 --> 0:50:09.320 Bloomberg subscriber, you can listen to all of our episodes 0:50:09.440 --> 0:50:11.960 absolutely ad free. All you need to do is find 0:50:12.000 --> 0:50:15.680 the Bloomberg channel on Apple Podcasts and follow the instructions there. 0:50:16.120 --> 0:50:16.920 Thanks for listening.