WEBVTT - Surveillance: This Is A Sustainable Cycle, Mulvaney Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jai Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.600 Bloomberg dot Com, and of course on the Bloomberg Dropping 0:00:32.640 --> 0:00:34.240 by the Studio of New York City on Police To 0:00:34.240 --> 0:00:36.879 say is John Riding, rd Q Economics, Chief economist and 0:00:36.920 --> 0:00:40.760 founding partner. Good morning to John. Eight thirty that GDP 0:00:40.920 --> 0:00:44.560 print comes, what's the guide? Well, our view is slumber 0:00:44.640 --> 0:00:46.440 is going to come in around three and a half percent. 0:00:46.520 --> 0:00:48.840 But I think the thing number to focus on within 0:00:48.880 --> 0:00:52.720 the report is how strong the capital spending numbers are, 0:00:52.880 --> 0:00:55.800 and that is going to be the driver as we 0:00:55.880 --> 0:00:57.160 go forward. And I think it's going to be a 0:00:57.200 --> 0:01:02.920 fairly solid number on business equipment spending, which is key 0:01:03.040 --> 0:01:06.600 for productivity growth going forward and raising the potential GDP 0:01:06.720 --> 0:01:09.560 growth rate rather than just the cyclical GDP growth rate. 0:01:09.600 --> 0:01:12.560 Then we've got these really noisy aspects like inventories and 0:01:12.680 --> 0:01:16.559 the impact of net net exports. What are you expecting there, John, Well, 0:01:16.720 --> 0:01:19.479 the trade deficit is going to continue to widen, and 0:01:19.840 --> 0:01:22.160 we we had something of a bit of an artificial 0:01:22.200 --> 0:01:25.720 narrowing in the second quarter on amongst other things, high 0:01:25.800 --> 0:01:31.000 sorry being exports in an attempt to beat the terrorists. UM. 0:01:31.040 --> 0:01:34.080 But as we UH so, that trade GAPP is gonna 0:01:34.600 --> 0:01:37.600 widen because we've got a strong economy that's close to 0:01:37.640 --> 0:01:40.040 full employment. And if we're gonna have a capital spending boom, 0:01:40.040 --> 0:01:41.880 where are we going to get the capital equipment from? 0:01:42.120 --> 0:01:46.119 The US actually runs a deficit now on capital goods 0:01:46.200 --> 0:01:49.400 because so as we invest more in the U S 0:01:49.440 --> 0:01:51.880 economy in the short run, that deficit is going to widen, 0:01:52.160 --> 0:01:53.400 and I think it's going to be a little bit 0:01:53.480 --> 0:01:56.080 offset by higher inventories. But that's why we like to 0:01:56.120 --> 0:01:59.600 put aside those swing factors and focus on what one 0:01:59.640 --> 0:02:04.000 might an economic GDP identity terms C plus I consumer 0:02:04.040 --> 0:02:08.640 spending plus fixed investment spending UM, And that to me 0:02:08.720 --> 0:02:10.760 is the number to keep an eye on as we 0:02:11.040 --> 0:02:13.400 uh both in the past and go forward, as you 0:02:13.440 --> 0:02:15.880 try and look through the noise and get a better 0:02:15.919 --> 0:02:19.920 handle on underlying growth. Neil cash Calorie of the Minneapolis 0:02:19.919 --> 0:02:22.079 Fed out with an alped in the Wall Street Journal 0:02:22.160 --> 0:02:25.600 saying the Fed should take a pause. What's the argument 0:02:25.600 --> 0:02:28.880 against that now? Well, I think the argument against it 0:02:28.880 --> 0:02:31.080 it is where we are in the economy. You know, 0:02:31.200 --> 0:02:35.720 we important to remember that we have growth rates, and 0:02:35.760 --> 0:02:38.600 the growth rates have been rising, and we have levels 0:02:38.600 --> 0:02:41.280 of the economy, and the level of the economy relative 0:02:41.320 --> 0:02:44.760 to its potential is pretty high. So the FEDS achieving 0:02:44.800 --> 0:02:48.120 its subjectives. We have a troop sent inflation rate, we 0:02:48.200 --> 0:02:52.720 have full employment possible, and the trajectory is too strong 0:02:52.840 --> 0:02:56.160 employment growth still and the declining and employment rates. So 0:02:56.560 --> 0:03:00.360 we the FED is going to seek to norm alize, 0:03:00.400 --> 0:03:03.360 to renormalize interest rates, and you do that when the 0:03:03.400 --> 0:03:05.919 economy is strong, not not when the economy is weak. 0:03:06.120 --> 0:03:08.760 So to take a pause, the problem then comes is 0:03:08.919 --> 0:03:11.400 how do you restart if you need to restart? Did 0:03:11.440 --> 0:03:14.200 Neil Coush Curry, John, thanks so much for mentioning that out. 0:03:14.280 --> 0:03:18.679 But did Neil couch Curry not study his data dependent 0:03:18.840 --> 0:03:22.280 history and that every central bank at all times is 0:03:22.320 --> 0:03:26.960 ex post they have to wait to see GDP before 0:03:27.000 --> 0:03:32.440 they pause. Right, Well, I I think the absolutely data dependent. 0:03:33.040 --> 0:03:35.040 But there's you know, there's a third element to which 0:03:35.080 --> 0:03:37.840 is the financial stability element. Now, we were at levels 0:03:37.840 --> 0:03:41.040 of the equity market that maybe three four or five 0:03:41.120 --> 0:03:42.960 years ago. We wouldn't have imagined that we would have 0:03:43.000 --> 0:03:46.800 gotten this far. And everything's worrying about the delta from 0:03:46.880 --> 0:03:50.080 the um, you know, from the high, but we have 0:03:50.200 --> 0:03:52.240 to look at the high we're coming from. And we 0:03:52.320 --> 0:03:55.960 also have to look at you know, Joe Fellman in 0:03:56.040 --> 0:03:59.160 your TV show earlier was talking about Amazon and what 0:03:59.520 --> 0:04:01.040 you know, you try talking about the missus and he's 0:04:01.080 --> 0:04:02.960 talking about but yeah, but look at the absolute numbers 0:04:02.960 --> 0:04:06.120 of revenue growth, look at the absolute number of profit growth. 0:04:06.680 --> 0:04:08.640 Turned to you know, one of my favorite functions on 0:04:08.640 --> 0:04:11.360 Bloomberg E a go, which gives you the earnings analysts 0:04:11.920 --> 0:04:14.480 analysis children thirty companies on the S and P five 0:04:14.960 --> 0:04:19.520 reported better than eight percent revenue growth better than earnings growth. 0:04:19.760 --> 0:04:22.760 We have to remember if it's a little better or 0:04:22.800 --> 0:04:24.600 a little worse. We also have to remember to look 0:04:24.600 --> 0:04:27.720 at the absolute magnitudes. And thus magnitudes are strong, and 0:04:27.760 --> 0:04:30.280 that's an environment in which I think monastery policy and 0:04:30.360 --> 0:04:33.360 interest rates should be renorted. And John, I did a 0:04:33.440 --> 0:04:37.400 seventeen year regression of Amazon, and we're above the trend, 0:04:37.680 --> 0:04:40.440 no question about that. But you'd be shocked how we're 0:04:40.520 --> 0:04:46.279 not that far above the trend. Negative in the pre market. Yeah, 0:04:46.279 --> 0:04:49.599 it's it's a better company on a company that big. 0:04:49.600 --> 0:04:51.839 That's real money. So John, let's talk about that. Because 0:04:51.880 --> 0:04:54.360 we had several Federal Reserve official always including I believe 0:04:54.400 --> 0:04:58.720 Loretta Mesta and Rich Clarada, came out this week discussing 0:04:58.839 --> 0:05:01.960 the market, saying that essentially it won't inflict the pain 0:05:02.000 --> 0:05:04.440 on the economy that some people think. Are you in 0:05:04.480 --> 0:05:09.960 that camp? I am, because the economy hasn't grown into 0:05:10.640 --> 0:05:12.800 the level of the market as it weren't from the 0:05:12.839 --> 0:05:15.920 consumer demand side. So, like one of the points that 0:05:16.160 --> 0:05:20.320 has been made by h vicecheck Clarity essay was the 0:05:20.360 --> 0:05:23.760 savings rate. Now, the savings rate turns out it's double 0:05:24.080 --> 0:05:26.320 what we thought the savings rate was on the numbers 0:05:26.360 --> 0:05:30.360 mentioned measured last year by you know, by the GDP report. 0:05:30.760 --> 0:05:36.640 So when the equity market declines and that reduces wealth, 0:05:37.000 --> 0:05:42.279 that impacts spending if people feel they're going to be 0:05:42.320 --> 0:05:45.240 short of their financial objectives. Now I I think that 0:05:45.279 --> 0:05:47.839 the equity market have to go down a long way 0:05:48.400 --> 0:05:53.599 from here to put that phenomenon into play. The idea 0:05:53.600 --> 0:05:55.440 what we need to raise the savings rate. Turns out, 0:05:55.640 --> 0:05:58.400 you know, the savings rate is at a much higher 0:05:58.520 --> 0:06:00.920 level than we than we pre obviously thought. So I 0:06:01.360 --> 0:06:04.480 don't think that the equity market feeds back onto the 0:06:04.520 --> 0:06:08.200 real economy here. And I do think that the Feds right, 0:06:08.240 --> 0:06:11.400 that the underlying fundamentals of the economy right now are 0:06:11.640 --> 0:06:14.919 are quite strong. And uh, you know, we're just not 0:06:15.000 --> 0:06:18.080 used to volatility that we have some market volatility here. 0:06:18.480 --> 0:06:20.719 Can we do the fun bit now? Yeah? Can we 0:06:20.760 --> 0:06:23.000 do the fun bit? I missed this on TV. Did 0:06:23.000 --> 0:06:25.560 you miss this? It's because you were preparing for one 0:06:25.560 --> 0:06:28.679 of your other propermi So, John Riding is a massive 0:06:28.760 --> 0:06:31.920 Preston North End fan. Explain it to our American audience. 0:06:31.960 --> 0:06:34.120 You want to explain that to American audience? Job, because 0:06:34.160 --> 0:06:38.200 I can't explain it to them. Preston at End is 0:06:38.240 --> 0:06:40.640 one of the oldest football clubs where soccer teams, who'd 0:06:40.640 --> 0:06:45.159 say in the US, founded in eighteen eighty um, one 0:06:45.200 --> 0:06:47.840 of the first team to win the Football League when 0:06:47.839 --> 0:06:53.160 I started hundred and thirty years ago. And it's my hometown. 0:06:55.040 --> 0:06:57.440 I am. I'm very close club. I sponsor one of 0:06:57.480 --> 0:07:01.600 the players there, Seawan McGuire are who also plays for 0:07:01.640 --> 0:07:06.720 the Republic of Ireland's national team. Very cool, that's Preston 0:07:06.760 --> 0:07:10.480 North End and and you get a shirt. You get 0:07:10.520 --> 0:07:13.600 a Preston North End Jersey with Keane on the bag 0:07:13.800 --> 0:07:17.400 and three number three, and this was your ice hockey number. 0:07:17.440 --> 0:07:20.400 There was way back high school, high school, high school, 0:07:20.400 --> 0:07:25.520 that you're gonna wear this in the gym. John, I'm 0:07:25.560 --> 0:07:28.120 looking at the size of it. They got an x L. 0:07:28.680 --> 0:07:32.160 That's not no. No, it needs to have a few 0:07:32.160 --> 0:07:39.240 more exes that Carol b nice, it needs Yes, there 0:07:39.240 --> 0:07:42.880 needs to be a few more cut What do I 0:07:42.960 --> 0:07:45.240 frame it? I think you should frame this. I think 0:07:45.240 --> 0:07:47.800 it's great. I think John Rinding and I should sign it. 0:07:47.880 --> 0:07:49.400 I should say that on the back of my chair 0:07:49.440 --> 0:07:52.280 at the World headquarters. They have from a wonderful fan 0:07:52.400 --> 0:07:56.320 up in Montreal, a generous fan, a real Montreal Canadians jersey. 0:07:56.680 --> 0:07:58.720 And that's where the number three comes from. The number 0:07:58.720 --> 0:08:02.880 three was wonderful defenseman named J. C. Trumble who died 0:08:02.960 --> 0:08:06.200 way too young. Well, he was my hero when I 0:08:06.280 --> 0:08:10.000 was at Williams. Well, you have a lot of fans 0:08:10.040 --> 0:08:11.920 in in Preston. I said that, shure, it came from 0:08:11.920 --> 0:08:16.360 the club. And obviously than desfined yourself in the northwest 0:08:16.400 --> 0:08:19.560 of England. For some reason, they would be more than 0:08:19.640 --> 0:08:24.120 happy to host you. Well, thank you one sport, Manchester 0:08:24.160 --> 0:08:27.040 United or Liverpool when you can support press exactly. I mean, 0:08:27.320 --> 0:08:29.760 you know, is this Tom's new club? Because it was 0:08:29.800 --> 0:08:32.880 west Ham live from the Preston North End Interactive Studio. 0:08:33.400 --> 0:08:35.200 We cant do that. We could do that Good Morning 0:08:35.240 --> 0:08:38.920 Interactive Brokers. We could go which you can't do the 0:08:38.920 --> 0:08:41.439 show from what happens in football this weekend. I mean 0:08:41.440 --> 0:08:43.360 when there's a small World Series game out in l 0:08:43.400 --> 0:08:47.400 A Hailey from Rodeo Drive just emails in says, yeah, 0:08:47.400 --> 0:08:49.560 I looked at the weather seventy five degrees. It's like 0:08:50.080 --> 0:08:52.280 Pet Carroll. They're not going to be freezing at Fenway Park, 0:08:52.320 --> 0:08:55.240 are they. They won't be needing heaters. It's like they 0:08:55.280 --> 0:08:59.360 had the other night and they dug out. Okay over 0:08:59.360 --> 0:09:03.480 there now, I was just reaching for my exciting. I 0:09:03.760 --> 0:09:05.719 am very excited, but I think a lot going on 0:09:05.880 --> 0:09:07.800 what happens. Let me do this and we'll come back 0:09:07.840 --> 0:09:11.520 and talk about John's viewing habits for Saturday in Premiere 0:09:11.559 --> 0:09:15.079 Like John wrighty, thank you as always for your wisdom 0:09:15.120 --> 0:09:29.960 on economics and guiding me toward Preston North End. Well, 0:09:30.000 --> 0:09:32.640 we would like to welcome Dallas FED President Robert Kaplan. 0:09:32.720 --> 0:09:36.280 He is joining us from Mexico City this morning. His district, 0:09:36.320 --> 0:09:39.000 of course, very tightly integrated with Mexico. But I've got 0:09:39.000 --> 0:09:42.960 to start with the markets today, Mr President, You've heard 0:09:43.240 --> 0:09:46.040 over the last few minutes where we are today back 0:09:46.080 --> 0:09:48.360 down again. A lot of people are saying this is 0:09:48.400 --> 0:09:50.679 the Fed's fault. What do you make of what's been 0:09:50.679 --> 0:09:55.960 going on in markets lately? Well, I'll avoid in this 0:09:56.000 --> 0:10:00.840 position commenting too much on market changes other than the say, uh, 0:10:00.960 --> 0:10:03.760 some amount of volatility in the markets, and up and 0:10:03.840 --> 0:10:07.360 down I think is typical. The one thing I would 0:10:07.360 --> 0:10:10.400 comment on as I watch earnings reports, and I talked 0:10:10.440 --> 0:10:12.720 about thirty c e o s a month, And I 0:10:12.760 --> 0:10:16.720 think this story is consistent. Input costs or higher across 0:10:16.800 --> 0:10:22.000 the board, labor materials, steal aluminum, and I think companies 0:10:22.040 --> 0:10:26.080 are struggling for whether they can pass those increases on 0:10:26.280 --> 0:10:30.200 in price increases or whether they're facing margin erosion. And 0:10:30.280 --> 0:10:33.360 I see in the corporate earnings reports very consistent story 0:10:33.400 --> 0:10:35.839 from what I'm hearing from companies. Well, is there a 0:10:35.920 --> 0:10:38.559 level change, a percent move, or something that would cause 0:10:38.600 --> 0:10:41.280 you to believe that maybe the FED should slow down 0:10:41.320 --> 0:10:45.840 take a pause, not move in December. What I'm looking 0:10:45.920 --> 0:10:50.000 for is what impact and what this all indicates about 0:10:50.040 --> 0:10:53.480 the strength of the underlying economy and and also the 0:10:53.520 --> 0:10:57.280 impact on financial conditions. So it's not a market move 0:10:57.360 --> 0:11:01.240 up or down per se, it's it's still ill. Uh, 0:11:01.400 --> 0:11:04.480 what is my outlook for the economy and what is 0:11:04.520 --> 0:11:08.320 my assessment of financial conditions in the economy that might 0:11:08.360 --> 0:11:11.920 impact of future growth prospects. Well, if it's not you, 0:11:12.040 --> 0:11:14.080 if it's not the Fed, some say it is a 0:11:14.080 --> 0:11:17.160 weaker outlook for growth, particularly with earnings going into two 0:11:17.240 --> 0:11:21.240 thousand nineteen. Of you that yesterday new vice chairman Rich 0:11:21.280 --> 0:11:24.360 claire to seemed to disagree with in his speech, have 0:11:24.480 --> 0:11:27.920 you changed your forecast in any way up or down 0:11:27.960 --> 0:11:31.480 going into two thousand nineteen. So, Mike, as you know 0:11:31.679 --> 0:11:35.640 from our previous conversations all year this year, I've been 0:11:35.640 --> 0:11:37.719 saying two thousand eighteen was going to be a very 0:11:37.760 --> 0:11:41.520 strong year. We've got a substantial amount of fiscal stimulus, 0:11:41.960 --> 0:11:45.120 not just a tax agreement, but also the budget bill 0:11:45.480 --> 0:11:49.240 which increased government spending. And we've been forecasting all year 0:11:49.320 --> 0:11:53.280 that two thousand nineteen growth would be weaker than two 0:11:53.320 --> 0:11:56.640 thousand eighteen, and that two thousand twenty would be a 0:11:56.640 --> 0:12:00.440 little bit weaker still as fiscal stimulus where is off 0:12:01.000 --> 0:12:03.920 and we still got this head wind of an aging 0:12:04.040 --> 0:12:07.880 population and slowing workforce growth. So my my outlook is 0:12:07.920 --> 0:12:12.439 pretty consistent. But I've been expecting some moderation of growth 0:12:12.840 --> 0:12:15.880 because I've been believing that the fiscal stimulus is gonna 0:12:15.880 --> 0:12:17.920 wane as we head to the end of this year 0:12:17.960 --> 0:12:20.199 and into next year. One of the other big stories 0:12:20.240 --> 0:12:22.320 people have been talking about is, of course Donald Trump's 0:12:22.320 --> 0:12:25.800 criticisms of j. Powell and the FED. Jetty Yellow very 0:12:25.840 --> 0:12:29.440 strong in the Financial Times today saying Trump does have 0:12:29.600 --> 0:12:32.960 the potential to undermine the FED? How much should we 0:12:33.000 --> 0:12:38.240 worry about that? So? UH, I think people outside the 0:12:38.280 --> 0:12:42.200 FED UH, as appropriate, should be feel free to comment 0:12:42.280 --> 0:12:45.079 on this. I think in my position I won't comment 0:12:45.160 --> 0:12:48.520 on it other than to say my job is to 0:12:48.720 --> 0:12:53.160 do UH economic analysis and make judgments on monetary policy 0:12:53.520 --> 0:12:57.320 without regard to political considerations or political influence, and I 0:12:57.360 --> 0:13:00.680 think criticism comes with the territory. So I think my 0:13:00.800 --> 0:13:03.559 mission and our mission at the FETE is the same. Well, 0:13:03.640 --> 0:13:06.520 you being set up for to be the fall guy 0:13:06.640 --> 0:13:11.880 for any kind of economic shortfall. So I think it's 0:13:12.000 --> 0:13:16.240 very important that I not worry about that. I think 0:13:16.240 --> 0:13:19.000 we're in a very challenging situation that you and I 0:13:19.040 --> 0:13:22.959 have talked about before. We've got healthy growth in the 0:13:23.040 --> 0:13:28.240 United States, but fiscal stimulus is part of that growth. Uh, 0:13:28.280 --> 0:13:31.720 it's gonna wane in nineteen and twenty and the and 0:13:31.760 --> 0:13:34.200 the trick is how to get the judgment and the 0:13:34.240 --> 0:13:40.319 balance right between moving toward a neutral stance but avoiding 0:13:40.840 --> 0:13:45.920 being predetermined or rigid in in what that destination ultimately 0:13:46.000 --> 0:13:48.000 is and the pace of it. And so I think 0:13:48.040 --> 0:13:51.080 that's still the challenge. And that's a that's complicated enough 0:13:51.120 --> 0:13:55.520 with worry without me worrying about other extraneous factors. Let's 0:13:55.559 --> 0:13:57.520 talk about the Baige Book suggests a lot of concern 0:13:57.640 --> 0:14:01.240 about tariffs in the American business. What impact are you 0:14:01.320 --> 0:14:08.200 seeing or forecasting? So it's unusual for me to talk 0:14:08.240 --> 0:14:12.800 to a CEO that is not seen cost increases pretty 0:14:12.840 --> 0:14:19.160 much across the board, labor, costs, materials, Uh, It's it's typical. 0:14:19.280 --> 0:14:21.880 The only question c e o s have is as 0:14:22.000 --> 0:14:25.240 can they pass those increases on in terms of prices. 0:14:25.560 --> 0:14:28.600 In some industries they are doing that. In other industries. 0:14:29.000 --> 0:14:32.240 Given the dynamics of the industry, they can't. And I 0:14:32.280 --> 0:14:36.560 think the Beige book is very consistent, and so that's 0:14:36.600 --> 0:14:40.560 why if the tariff situation intensifies, my guess is input 0:14:40.640 --> 0:14:44.720 cost pressures are going to intensify also. UH. And it's 0:14:44.760 --> 0:14:48.760 not having a big effect on headline GDP growth, but 0:14:48.840 --> 0:14:52.200 it's having a very big effect on companies and industries 0:14:52.600 --> 0:14:55.960 and their ability to manage their costs well. Can companies 0:14:55.960 --> 0:15:00.680 in your district race prices depends on the industry. Uh, 0:15:00.760 --> 0:15:04.600 In certain industries they can, and and in particular, if 0:15:04.640 --> 0:15:08.840 it's a consumer facing industry, UH, they may not have 0:15:08.960 --> 0:15:13.600 pricing power and they may suffer margin erosion. And there's 0:15:13.640 --> 0:15:17.320 a whole range of consumer facing industries, including by the way, 0:15:17.360 --> 0:15:21.440 the home builders who really aren't able effectively. They're finding 0:15:21.480 --> 0:15:24.880 to pass on cost increases and they're either gonna see 0:15:25.240 --> 0:15:29.080 UH volume declines because of sticker shock on the part 0:15:29.080 --> 0:15:31.480 of the consumer, or they're gonna have to find a 0:15:31.520 --> 0:15:34.640 way to to moderate their costs because they just don't 0:15:34.680 --> 0:15:37.640 have pricing power. We're getting closer to the neutral rate. 0:15:37.680 --> 0:15:40.160 You've pegged it like it's about two seven five to 0:15:40.320 --> 0:15:44.360 three percent. How close are you to possibly making a 0:15:44.440 --> 0:15:51.000 policy mistake. So I've said that the estimate of the 0:15:51.000 --> 0:15:55.240 neutral rate, it's a concept, it's imprecise, it's uncertain, it's 0:15:55.280 --> 0:15:57.520 part of the mosaic I look at. And I've said 0:15:57.600 --> 0:15:59.640 it could be it could be two and a half 0:15:59.680 --> 0:16:02.280 to three, two and three quarters, it could be two 0:16:02.320 --> 0:16:04.720 and three quarters to three. We're gonna have to make 0:16:04.760 --> 0:16:09.360 that judgment over the next year as as the economy unfolds. 0:16:09.400 --> 0:16:15.000 But to your point, I'm very sensitive, uh, to not 0:16:15.120 --> 0:16:18.960 being rigid or predetermined about the pace at which we 0:16:19.080 --> 0:16:22.840 get there. And the reason is, again, I expect GDP 0:16:22.960 --> 0:16:25.000 growth in two thousand and eighteen to be strong, but 0:16:25.080 --> 0:16:29.240 I expect it to moderate as this fiscal stimulus starts 0:16:29.280 --> 0:16:33.000 to wane in nineteen and twenty. And we've still got 0:16:33.000 --> 0:16:36.480 to deal with the headwinds of slowing workforce growth due 0:16:36.560 --> 0:16:40.120 to aging and sluggish productivity. So I think getting this 0:16:40.240 --> 0:16:43.600 balance right is going to require me to keep an 0:16:43.640 --> 0:16:48.360 open mind, not be two predetermined or pre judge and 0:16:48.560 --> 0:16:51.400 uh and so I think that's the challenge of this 0:16:52.040 --> 0:16:54.640 and uh and so we'll have to make these judgments, 0:16:54.640 --> 0:16:57.600 and I will make these judgments as we head along 0:16:57.640 --> 0:17:00.680 this path. I, speaking of judgments, effective FED funds are 0:17:00.720 --> 0:17:03.000 again trading at the top of their range right at 0:17:03.040 --> 0:17:06.440 ioe ER right now as they were in June. How 0:17:06.480 --> 0:17:09.160 much of a problem is that? And do you anticipate 0:17:09.200 --> 0:17:12.400 we will see in November or in December an adjustment 0:17:12.440 --> 0:17:17.440 to the ioe R rate. So we'll have to see. Uh, 0:17:17.680 --> 0:17:20.880 it's always possible we'll have to make more technical adjustments. 0:17:21.400 --> 0:17:24.359 And part of what we're judging as we wind down 0:17:24.400 --> 0:17:27.840 the balance sheet is what is the demand for reserves 0:17:28.040 --> 0:17:31.800 in the banking system and in the economy and uh, 0:17:31.880 --> 0:17:33.720 And I think we're gonna have to be open minded 0:17:33.800 --> 0:17:37.280 to learning from this. There's no textbook on how you 0:17:37.400 --> 0:17:41.200 normalize interest rate policy and wind down a balance sheet, 0:17:41.480 --> 0:17:44.240 and so I think it's critical to be open to learning. 0:17:44.600 --> 0:17:46.479 And I think we're doing that right here. And so 0:17:46.600 --> 0:17:49.760 it's possible we'll have to make more technical adjustments in 0:17:49.800 --> 0:17:52.359 the months ahead. Would that be something that could be 0:17:52.359 --> 0:17:55.080 done in November? We we don't expect any kind of 0:17:55.160 --> 0:17:57.720 rate move because it's a non press conference meeting, but 0:17:57.960 --> 0:18:01.360 something like that, would you feel free to approve an 0:18:01.359 --> 0:18:05.600 ioe ER adjustment. I don't want to pre judge what 0:18:05.600 --> 0:18:07.960 we're gonna do. But I think it's one of one 0:18:08.000 --> 0:18:10.440 of the things that Yeah, I I think it's important 0:18:10.440 --> 0:18:14.280 to keep an open mind in each meeting about about 0:18:14.280 --> 0:18:17.320 addressing this if it needs to be addressed. No FED 0:18:17.359 --> 0:18:21.160 district more closely tied to Mexico than yours. You are 0:18:21.240 --> 0:18:23.320 in Mexico, CD, you give us a feel for what 0:18:23.400 --> 0:18:27.119 you think about the incoming Mexican administration. What are you 0:18:27.160 --> 0:18:31.600 expecting in the economic relationship between the two countries. Well, 0:18:32.440 --> 0:18:36.160 on the positive side, UH, I think it's been important 0:18:36.200 --> 0:18:38.600 for the United States and for both countries from Mexico 0:18:38.640 --> 0:18:43.240 and the United States to move forward getting an UH 0:18:43.280 --> 0:18:47.480 the trade agreements in this hemisphere updated and resolved, and 0:18:47.520 --> 0:18:50.399 I think it removes an enormous uncertainty. But it also 0:18:51.080 --> 0:18:55.080 and from our research at the Dallas Bed, improves US 0:18:55.160 --> 0:18:58.959 competitiveness and allows us to add US jobs. And so 0:18:59.040 --> 0:19:01.640 we're glad that's get being done. That's good for both countries. 0:19:02.080 --> 0:19:07.159 There's a lot of uncertainty about the privatization and modernization 0:19:07.200 --> 0:19:10.159 of this country and a lot of the reforms that 0:19:10.240 --> 0:19:12.159 have been done over the last five years, and I 0:19:12.160 --> 0:19:15.399 think the jury is still out as to whether those 0:19:15.440 --> 0:19:18.600 reforms will continue or whether they'll be put on hold 0:19:18.720 --> 0:19:21.040 or slow down. And that's the part we don't know. 0:19:22.040 --> 0:19:27.680 UH next to two point oh going to change anything. UH, 0:19:27.760 --> 0:19:30.960 it'll it'll create some changes. I think the most important 0:19:31.000 --> 0:19:33.560 thing about NAFTA two point oh or the North American 0:19:34.280 --> 0:19:37.919 Trade Agreement is that it's that it's going to get resolved. 0:19:38.520 --> 0:19:41.840 I think you could quibble about certain provisions, whether it's 0:19:41.880 --> 0:19:46.120 going to help improve US competitiveness and our global competitiveness, 0:19:46.119 --> 0:19:49.280 But I think the most important headline is that removing 0:19:49.280 --> 0:19:51.920 the uncertainty is good for the United States and it's 0:19:51.960 --> 0:19:57.040 good for Mexico. We talked about input costs UH and 0:19:57.119 --> 0:20:01.639 global competitiveness. Getting this agreement is important to the United 0:20:01.680 --> 0:20:05.919 States because seventy of the imports from Mexico or intermediate 0:20:05.920 --> 0:20:10.040 goods part of integrated supply chains and logistic arrangements that 0:20:10.119 --> 0:20:12.240 we think make the US more competitive and allow the 0:20:12.320 --> 0:20:15.640 US to add jobs. And so that parts the critical part. 0:20:16.040 --> 0:20:18.160 Back to rates for a moment, We have a question 0:20:18.240 --> 0:20:21.719 from a viewers. It wasn't strong enough in asking you 0:20:21.800 --> 0:20:24.240 about a potential pause when you look at the interest 0:20:24.320 --> 0:20:27.879 rate sectors of the economy, autos and particularly housing and 0:20:27.880 --> 0:20:31.240 the impacts of higher rates and even the lack of 0:20:31.840 --> 0:20:36.080 tax deductions in the high tax states. Does that lead 0:20:36.119 --> 0:20:38.120 you to think maybe you've gone too far or you're 0:20:38.119 --> 0:20:42.560 getting really close to it. No, Listen, I watch housing 0:20:42.760 --> 0:20:45.199 very carefully, and I talked to home builders. We have 0:20:45.240 --> 0:20:47.600 a number in our district and a couple of number 0:20:47.640 --> 0:20:49.879 of national home builders do a lot of business in 0:20:49.920 --> 0:20:52.960 Texas because it's growing so fast. And you may know, 0:20:53.640 --> 0:20:56.040 and we've been watching this closely at the Dallas fed 0:20:56.440 --> 0:20:59.640 new home sales in Dallas and Houston, which are two 0:20:59.640 --> 0:21:02.200 of the asses growing cities in the United States, new 0:21:02.240 --> 0:21:04.960 home sales have been sluggish, and in fact they've been weak, 0:21:05.440 --> 0:21:08.000 and so we we're doing a lot of work at 0:21:08.040 --> 0:21:12.840 our district trying to understand how that slowing fits in 0:21:13.000 --> 0:21:16.520 with overall economic growth. And one of the conclusions I 0:21:16.520 --> 0:21:19.919 would come to is there's all there's a the input costs, 0:21:20.200 --> 0:21:24.280 labor shortages, higher input costs, and yes, higher mortgage rates 0:21:24.480 --> 0:21:28.240 are all part of the story. And so we're watching 0:21:28.280 --> 0:21:31.199 this carefully. It's been weak for the last three months. 0:21:31.840 --> 0:21:34.879 I'm not ready to say that it's an indicator of 0:21:34.960 --> 0:21:37.119 the of the weakening in the economy, but I can 0:21:37.160 --> 0:21:39.679 tell you we're watching it very carefully, and again it 0:21:39.760 --> 0:21:43.520 comes in the context of my own base case expectation 0:21:43.920 --> 0:21:46.840 the growth was going to weaken as we headed into 0:21:46.920 --> 0:21:50.159 night two thousand nineteen. So I'm just watching what this 0:21:50.280 --> 0:21:55.920 tells us if anything about about the trend in GDP growth. 0:21:56.560 --> 0:21:59.280 New Vice Chair Clarena is gonna ahead yet another FED 0:21:59.359 --> 0:22:02.920 sub committee on communication. What can we expect? What's wrong 0:22:03.000 --> 0:22:04.960 with the way you communicate now? And how would you 0:22:05.040 --> 0:22:09.880 fix it? Well, I'm and I'm on that subcommittee, uh 0:22:09.960 --> 0:22:14.520 with Vice Chair Clarata. Uh. I wouldn't put it that 0:22:14.560 --> 0:22:18.800 there's something wrong. I think a good organization is constantly 0:22:19.359 --> 0:22:24.560 re reviewing its communications, it's frameworks, uh, the way it operates. 0:22:24.680 --> 0:22:28.360 I think that's healthy. Uh. And I think I think 0:22:28.359 --> 0:22:31.440 the FED is moving toward doing that, and I would 0:22:31.480 --> 0:22:34.560 hope doing it on some regular basis. And I think 0:22:34.600 --> 0:22:38.320 that's wise and as an as an as an institution 0:22:38.680 --> 0:22:41.720 where it's critical that we keep our independence. I think 0:22:41.760 --> 0:22:45.320 part of keeping your independence is earning it by revisiting 0:22:45.600 --> 0:22:49.640 the way you conduct yourself, including communication and your frameworks. 0:22:49.920 --> 0:22:52.240 So I think us doing that is a good thing. 0:22:52.440 --> 0:22:55.160 We speaking of communication in our FT interview, Jennet Yellen 0:22:55.400 --> 0:22:58.240 talks about how there was internal dissent in the Open 0:22:58.280 --> 0:23:01.760 Market Committee over Keilly, A group calling itself the Three Amigos, 0:23:02.040 --> 0:23:06.400 which included j Powell, worried that it would trigger financial instability. 0:23:06.520 --> 0:23:09.480 How united is the committee now on the policy path 0:23:09.560 --> 0:23:15.240 that now Chairman Paul has set. So there's debate around 0:23:15.240 --> 0:23:18.119 the committee, and I hope there will be debate. I 0:23:18.160 --> 0:23:21.280 think debate and disagreement is one of the things I've 0:23:21.280 --> 0:23:24.160 been very impressed by at the Federal Open Market Committee. 0:23:24.400 --> 0:23:27.639 And I don't think you want a situation where we 0:23:27.720 --> 0:23:33.400 all agree completely, and we've got a number of us 0:23:33.400 --> 0:23:36.080 all I'll speak for myself believe that we should be 0:23:36.119 --> 0:23:40.200 gradually and patiently moving toward a more neutral stance. I mean, 0:23:40.280 --> 0:23:42.320