Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We welcome our Bloomberg TV and radio audience worldwide. I'm
Speaker 2: Matt Miller alongside Danny Berger. Joining us now is Federal
Speaker 2: Reserve Governor Steven Myron here at the desk.
Speaker 3: We're honored to have you here.
Speaker 2: Along with Michael McKee, our international economics and policy correspondent.
Speaker 3: Might take it away.
Speaker 4: Well, good morning, Steve, Thank you for joining us on
Speaker 4: this non jobs day, job's day. We get no government
Speaker 4: primary economic data because of the shutdown right now, So
Speaker 4: let me start by asking if that continues. As a
Speaker 4: member of the Open Market Committee, would you feel comfortable
Speaker 4: voting for a significant cut in interest rates if you
Speaker 4: don't have data on employment and on inflation.
Speaker 1: Good morning, and thanks for having me. Look, I think
Speaker 1: it's important to recognize, first of all, that, as you're
Speaker 1: pointing out, access to high quality data is of utmost
Speaker 1: importance when making Montary Paul's decisions. However, it's also the
Speaker 1: case that we don't make monetary policisions every day. Right
Speaker 1: The FOMC meets to vote once every six weeks or so. Now,
Speaker 1: I think that's a bit longer than most shutdowns have
Speaker 1: historically lasted, so I'm hopeful that we'll get the data
Speaker 1: by the time we actually have to make the decision.
Speaker 4: Well, despite what the President says, as you well know,
Speaker 4: inflation is rising, food prices are up, gasoline prices higher
Speaker 4: than when he took office. Those are the prices that
Speaker 4: Americans notice and hate. So isn't it a risk to
Speaker 4: cut rates significantly in an regime where where inflation is rising.
Speaker 1: So my view is that policy should be forward looking. Right,
Speaker 1: I don't necessarily have a forecast that those items are
Speaker 1: going to continue rising. In fact, I think that a
Speaker 1: lot of them will actually reverse somewhat. But for my process,
Speaker 1: what matters most of all is the cost of housing,
Speaker 1: because that is the single largest component of the inflation process,
Speaker 1: and it's also one of the things that people notice
Speaker 1: the most. They notice when their rent surges, they notice
Speaker 1: when the cost of shelter increases, and that's why it
Speaker 1: gets the largest weight in the inflation in disease. And
Speaker 1: my expectation is that we've just experienced, you know, the
Speaker 1: biggest population shocks to both the upside and the downside
Speaker 1: in my lifetime, and I think in most people's lifetimes,
Speaker 1: and to me, it'd be very surprising if that left
Speaker 1: no lingering trace on the price of shelter. And so
Speaker 1: I am expecting a significant disinflation to the services component
Speaker 1: of the inflation disease driven by shelter, which is affected
Speaker 1: to an extent by changes in population growth.
Speaker 4: Well, we were talking before we came on about your
Speaker 4: view of our start the neutral rate. We've got inflation
Speaker 4: running at basically three percent. You've got unemployment at four
Speaker 4: point three percent, which is historically very low. The Atlanta
Speaker 4: Fed says we're growing three point eight percent, or grow
Speaker 4: three point eight percent in the third quarter. There's no
Speaker 4: economic model that I know of that would get you
Speaker 4: to a near zero neutral rate with those kind of conditions.
Speaker 3: Yeah.
Speaker 1: So, first of all, I have seen some folks argue
Speaker 1: that they think that my conception of the neutral rate
Speaker 1: is he That's not the case. I think that's a
Speaker 1: misreading of the speech. If you read the speech carefully,
Speaker 1: you'll notice that I do a weighted average of a
Speaker 1: model implied X and ty and at market implied XANTY
Speaker 1: rate and gets so.
Speaker 3: About a half.
Speaker 1: And that's consistent with the dot that I put down
Speaker 1: on the statement on the Summary of Economic Projections. And
Speaker 1: so I basically thought, you know, sort of going into
Speaker 1: things last year, there were all these policies that were
Speaker 1: pushing our star higher, Like the highest population growth we'd
Speaker 1: seen in decades, the largest fiscal sustainable fiscal deficits we'd seen,
Speaker 1: sustained fiscal deficits we'd seen in a really long time.
Speaker 1: Those are pushing our star higher. So last year I
Speaker 1: really thought it was at the top of the range
Speaker 1: of where everyone else in the committee thought it was.
Speaker 1: And I think it's now come down this year to
Speaker 1: the bottom end of the range.
Speaker 3: Of where everyone else thinks it is. But you can't
Speaker 3: model that. What do you mean? I can't mombel the models.
Speaker 4: If you put in the numbers that we have right now,
Speaker 4: it wouldn't spit out year zero or half a percent
Speaker 4: oh real rate.
Speaker 3: Well no, but what I've done.
Speaker 1: What I've done is modeled my expectations for inflation based
Speaker 1: on the changes that I see happening from from housing.
Speaker 3: As we talked about a moment ago.
Speaker 1: I've modeled out changes to the output gap that I
Speaker 1: expect to see from policies that expand the supply side
Speaker 1: of the economy therefore expand potential output faster than they
Speaker 1: would expand actual output. And some policies that we've seen
Speaker 1: and acted over the course of this year would push
Speaker 1: out potential and actual by the same amount or bring
Speaker 1: in potential and actual by the same amount. Other policies
Speaker 1: would push out one more than the other. And so
Speaker 1: for an example of one that would push out one
Speaker 1: more than the other would be deregulation, right. I think
Speaker 1: that the regulatory state has been being peeled back over
Speaker 1: the course of this year, and all indications are that
Speaker 1: will accelerate, particularly as the pace of confirmations of appointees
Speaker 1: has just picked up as well. That, in my mind,
Speaker 1: will accelerate the pace of deregulation too. And when you
Speaker 1: remove regulations, you expand the potential output of the economy
Speaker 1: faster than actual output, and so that creates a positive
Speaker 1: output gap.
Speaker 2: I actually, you know, I'm not as deep into this
Speaker 2: as Mike, and certainly neither of us is as deep
Speaker 2: into it as you. But I have the tailor rule
Speaker 2: function on my Bloomberg terminal. I love to play with it,
Speaker 2: and I always ask important economists when they come on
Speaker 2: what variables they would plug into it.
Speaker 3: I put in zero point.
Speaker 2: Five for you in the neutral rate here and I
Speaker 2: put in four percent in the Nehru, I'm still only
Speaker 2: getting three and a half for the tailor rule estimate.
Speaker 2: I know this is a very elementary, you know function
Speaker 2: here on the Bloomberg, But what would you change to
Speaker 2: get you know, your rate down to where you think
Speaker 2: it should be, which is even I think less than
Speaker 2: the three percent terminal rate that the market is pricing in.
Speaker 1: Yes, so let me be clear, montary policy works with lacks, right,
Speaker 1: And yes, those lags are long and variable, but nevertheless
Speaker 1: they exist. And so I think it's inappropriate to put
Speaker 1: in the currents backward looking data as opposed to where
Speaker 1: you expect those data to be in the near term,
Speaker 1: right over the course of the next.
Speaker 3: Year to two years or so.
Speaker 1: And so that's why when I work through the calculations
Speaker 1: that I work through in the speech, which also used
Speaker 1: actually a couple of different specifications of the tailor rule,
Speaker 1: I put in my expectations for.
Speaker 3: Where I think inflation is going to be.
Speaker 1: I put in my expectations for where I think where
Speaker 1: I think the output gap is going to be. And
Speaker 1: so when you look at inflation now on a year
Speaker 1: over year basis, you're including lots of stuff that occurred
Speaker 1: before the overall policy space shifted. And as I just
Speaker 1: said a moment ago, we just lived through the largest
Speaker 1: population growth shocks on both the upside and the downside
Speaker 1: in very rapid succession to a variable the structure of
Speaker 1: the economy. Population growth that usually changes only very very slowly,
Speaker 1: changed incredibly rapidly in both directions. Right to use backward
Speaker 1: looking data that just ignores that shock on the upside
Speaker 1: of the downside, which was of monumental historical significance to
Speaker 1: the US economy, I think is deeply misguided. I think
Speaker 1: it's imperative to use forward looking forecasts that incorporate something
Speaker 1: like that.
Speaker 2: While we can do that with the tailor rule on
Speaker 2: the Bloomberg terminal. As I'm sure you know, if you
Speaker 2: click on the second tab of the function, you can
Speaker 2: put in your inflation forecasts and your unemployment forecast going forward.
Speaker 2: I won't ask you what all of your variables were,
Speaker 2: but I will ask about inflation, because, as a kid
Speaker 2: who grew up under Ronald Reagan, I've always been skeptical
Speaker 2: of government policy when it comes to inflation. I've been
Speaker 2: hearing for so many years that the FED wants to
Speaker 2: get it to two percent, but I find it hard
Speaker 2: to believe. And we've averaged three percent essentially on the
Speaker 2: core since World War Two? Do you think most people
Speaker 2: feel comfortable with that level? With a three percent level?
Speaker 1: Well, you know, I think what you're asking sort of
Speaker 1: invites a previous question, which is what did Congress assigned
Speaker 1: the FED to do? And Congress assigned the FED to
Speaker 1: pursue stable prices? Now, historically the FED has had lots
Speaker 1: of leeway and how to interpret that, and it's chosen
Speaker 1: to interpret that as two percent growth and measured personal
Speaker 1: consumption expenditure inflation.
Speaker 3: Right.
Speaker 1: The way that you calculate inflation is sort of you know,
Speaker 1: it's a very complex thing and there's lots of methological
Speaker 1: choices that get made when you're sort of deciding how
Speaker 1: the sausage gets made, and it can really affect how
Speaker 1: things are measured. Right, And so when you say, do
Speaker 1: households have faith that the FED is pursuing and achieving
Speaker 1: its inflation? I think that, you know, sort of small
Speaker 1: changes in measured inflation are difficult for households to detect
Speaker 1: because they can be you know, because the way that
Speaker 1: measured inflation is measured is there's lots of noise in it,
Speaker 1: and I think that small changes in measured inflation are
Speaker 1: usually dominated by the noise relative to what households are experiencing.
Speaker 1: But nevertheless, when you look at inflation expectations, I think
Speaker 1: that they remain reasonably well anchored, which indicates that households
Speaker 1: and firms the United States have faith in the Fed's
Speaker 1: ability and willingness and future of hitting its inflation it's
Speaker 1: inflation target.
Speaker 5: Governor Martin, you've been extremely transparent with your view and
Speaker 5: have been very generous with that. You've always been very
Speaker 5: transparent with your views. You're probably the most prolific social
Speaker 5: media poster of anyone that the Fed's ever had. In
Speaker 5: twenty twenty three, I saw you had tweeted something out saying, basically,
Speaker 5: the case against adjustment cuts is that financial conditions have
Speaker 5: eased massively, and policy works via financial conditions. Real rates
Speaker 5: don't exist in a vacuum. Given that view, the fact
Speaker 5: we have record high stock prices right now, well, is
Speaker 5: it a sign of unsustainable froth of even a bubble
Speaker 5: that will make bringing down inflation that much more difficult.
Speaker 3: Yeah, So that's a great point.
Speaker 1: Financial conditions are the channel through wich monetary policy works,
Speaker 1: and so they matter when you're thinking about where monetary policy.
Speaker 3: Should be set now.
Speaker 1: As we were saying moments ago, my view is that
Speaker 1: last year neutral was much higher because immigration was much higher,
Speaker 1: because fiscal deficits were much higher than I expect.
Speaker 3: Them to be going forward.
Speaker 1: If you look at fiscal deficits this year in February
Speaker 1: through August, which are the data that we have available
Speaker 1: and that encompass after the policy space changed, there are
Speaker 1: about four hundred billion dollars at an annualized rate below
Speaker 1: where they were in the comparable period in the previous
Speaker 1: fiscal year. So physical deficits are coming in also, and
Speaker 1: that also helps drive down our star. So my view
Speaker 1: is that policy, even though financial conditions appear to be
Speaker 1: on some measures loose, policy has actually grown tighter because
Speaker 1: neutral has migrated down.
Speaker 3: Now.
Speaker 1: I do want to be clear that financial conditions can
Speaker 1: also be driven by variety of non monetary factors. There
Speaker 1: have been substantial changes to the supply side of economy
Speaker 1: this year, both through the tax code and through the
Speaker 1: regulatory code, as well as trade renegotiation. Right, all of
Speaker 1: that can affect financial conditions for non monetary purposes, sorry,
Speaker 1: through non monetary channels. And so it can be a
Speaker 1: little bit of a mistake to look at financial conditions
Speaker 1: and infer something necessarily about the stance of monetary policy,
Speaker 1: because they can be driven up by other things.
Speaker 3: And also they're not all loose.
Speaker 1: I mean, you know, housing finances arguably still a relatively
Speaker 1: tight short.
Speaker 5: But a lot of this view is incredibly forwardlooking. And
Speaker 5: that's the point, right that we're not looking at backward data.
Speaker 5: But is there any data that we could get Governor
Speaker 5: Myron that would change your mind, and it would change
Speaker 5: your mind to have you believe that we should not
Speaker 5: be pushing towards more rate cuts right now?
Speaker 3: Oh? Absolutely.
Speaker 1: Look, my view is that services inflation is the most
Speaker 1: persistent and sticky part of inflation. A lot of my
Speaker 1: view about services inflation is driven by the housing sector,
Speaker 1: as shelter costs are the largest costs for most families.
Speaker 1: My view about shelter inflation, as I said, is driven
Speaker 1: by two things, as I said in the speech, One
Speaker 1: the facts that average rents have finally up to market rents,
Speaker 1: meaning the catch a period is done. You know, people
Speaker 1: don't reset their leases every day, they reset every year,
Speaker 1: every couple of years, and so that means that a
Speaker 1: change in market rents takes time to feed through to
Speaker 1: when it's experienced by households. When you look at the data,
Speaker 1: it seems to me that that catch a period is done,
Speaker 1: which means that I expect shelter rents to come down
Speaker 1: CPI rents to come down, bring shelter inflation down. The
Speaker 1: second thing is the immigration shock that we talked about.
Speaker 1: My view is that immigration was pushing rents up in
Speaker 1: previous years, and now that shock has not only gone
Speaker 1: to zero, I think it's actually reversed. I think we
Speaker 1: have negative net migration when it comes.
Speaker 3: To the United States this year. Right. So my view
Speaker 3: is driven by two things.
Speaker 1: Shelter sorry services are the more persistent and sticky part
Speaker 1: of inflation. Services are driven in large part by housing,
Speaker 1: and I expect housing inflation to come down through those channels.
Speaker 1: If something were to happen that were to tell me
Speaker 1: that that channel is invalidated, that there's some shock that's
Speaker 1: going to be pushing rents materially higher, the benign inflation
Speaker 1: forecast that I have would have to be adjusted as
Speaker 1: a result. All else EQL right. If nothing else were
Speaker 1: to change to off set that. But to me, that's
Speaker 1: the core of my inflation view, and I would want
Speaker 1: to see something come along and tell me that that
Speaker 1: channel is wrong and that I'm thinking about it the
Speaker 1: wrong way.
Speaker 4: I want to ask you about something in your speech
Speaker 4: that has confused a lot of people, including me. You
Speaker 4: argue that tax cuts are going to help lower the
Speaker 4: deficit by increasing economic activity, and at the same time
Speaker 4: you argue that tariffs, which are taxes on the American people,
Speaker 4: are going to lower the deficit. You have one way
Speaker 4: raising taxes and the other cutting taxes at the same
Speaker 4: time lowering the deficit.
Speaker 3: How does that work? Yeah, So.
Speaker 1: You know, it's important when you think about economics to
Speaker 1: think about the elsses of supply and demand. And when
Speaker 1: you cut taxes on American production, whether that's labor or
Speaker 1: whether it's corporate income, you want to think about theses
Speaker 1: supply of those activity and is going to lead to
Speaker 1: additional labor supply?
Speaker 3: Is it going to lead to additional investment? Right?
Speaker 1: And so that's the way that cutting access can actually
Speaker 1: generate economic growth in the United States. When you think
Speaker 1: about tariffs again, you think about the ASSSITT as a
Speaker 1: demand and supply. And in this case, American consumers and
Speaker 1: firms are the demand and foreign producers are the supply. Now,
Speaker 1: the economic evidence is overwhelmingly that the elasticity of the
Speaker 1: demand in imports is much higher than the elasticity of
Speaker 1: the supply. Put another way, foreign producers are inelastic. Right,
Speaker 1: You've got a factory in China or somewhere else, and
Speaker 1: it's stuck in China or wherever it is, it's installed capital.
Speaker 3: It's inelastic.
Speaker 1: Whereas American consumers can, American importers can alter their demand
Speaker 1: power patterns.
Speaker 3: They could import from.
Speaker 1: China, but they also could import from Vietnam, or they
Speaker 1: could or they could make stuff at home. That flexibility
Speaker 1: gives them the ability to avoid the burden of the tariff. Now,
Speaker 1: this is just tax incidence theory in public finance economics
Speaker 1: one oh one. And when you look at it this way,
Speaker 1: the argument that economists always reached. The conclusion that economists
Speaker 1: always reach is that the burden of a tax, a tariff,
Speaker 1: a substate, anything falls on the more inelastic party. Right now,
Speaker 1: the evidence is overwhelmingly that the FIGM producers are the
Speaker 1: more inelastic party because the factory is stuck in place
Speaker 1: it can't move, whereas import demand can can substitute across borders.
Speaker 1: So it is the case that the negative effects of
Speaker 1: any tariff fall on the fall on the more inelastic party,
Speaker 1: which is overwhelmingly the exporter and not the importer. And
Speaker 1: so as a result, the positive effects of tax cuts
Speaker 1: in the United States get felt by production and they
Speaker 1: increase economic growth. Where is the negative effects of raising
Speaker 1: revenue from tariffs get born by the get born by
Speaker 1: the exporting country.
Speaker 4: Well, we haven't seen any evidence in import prices that
Speaker 4: that's happening.
Speaker 1: Well, you know, import prices, as your points, dollar denominated
Speaker 1: import prices, as you're pointing out, have been relatively flat.
Speaker 3: However, I want to and people.
Speaker 1: I think you're you're alluding to an argument that people make,
Speaker 1: which is that you would think you would see import
Speaker 1: prices decline if foreigners were reducing their selling prices. Is
Speaker 1: that that's the argument referring to Yeah. To me, that
Speaker 1: logic doesn't follow for two reasons. One, you know, it's
Speaker 1: there's an implicit all else equal clause that's not being stated,
Speaker 1: and all else is not equal. Because we also had
Speaker 1: to move down to the dollar this year, which ought
Speaker 1: to increase import prices by a comparable amount, and so
Speaker 1: the fact that import prices look relatively flat could just
Speaker 1: be the increase in import prices from the weeker dollar
Speaker 1: just offsetting the decrease in dollar prices from the incidents
Speaker 1: of the tariff being borne by the exporter. The other
Speaker 1: reason why it doesn't really make sense to me is
Speaker 1: because I think that a lot of the a lot
Speaker 1: of the importers of record are ultimately US subsidiaries of
Speaker 1: foreign companies. And so you've got a Japanese or German
Speaker 1: exporter selling to the United States, but the exports are
Speaker 1: bought by the exports are bought by US subsidiary of them,
Speaker 1: so Mitsubishi Japan or whoever is selling to Mitsubishi US
Speaker 1: or whoever right. And then if this is the case,
Speaker 1: then what winds up happening is that the incidence ends
Speaker 1: up falling on the falling on the importer of record,
Speaker 1: without necessarily pushing a decline down in import prices. And
Speaker 1: so I'm not exactly sure on the magnitude of this
Speaker 1: channel yet. It's something that I'm looking into, but it
Speaker 1: is a possible disruptor of that argument.
Speaker 3: But in any case, for sure, what we're.
Speaker 1: Seeing is not a broad based increase in consumer inflation
Speaker 1: as resultive tariffs.
Speaker 2: Governor, I want to ask about a piece that Mark
Speaker 2: Summerlin wrote in the Wall Street Journal Today previously of
Speaker 2: the NEEC under the Bush administration. Basically says that the
Speaker 2: FED suffers from the same kind of bias inherent in
Speaker 2: media or academia because it's so focused in the northeast. Right,
Speaker 2: we have four FED banks between Richmond and Boston, and
Speaker 2: only one west of Kansas, right, only two in the South.
Speaker 2: He says there should be a FED bank in Miami
Speaker 2: and Phoenix, which would make sense.
Speaker 3: He also points out that of the six.
Speaker 2: Hundred thousand dollars donated by FED staffers in the twenty
Speaker 2: twenty four election cycle, ninety two percent went to Democratic candidates.
Speaker 2: I assume that's because they're in the Northeast and they're
Speaker 2: underpaid relative to Wall Street.
Speaker 3: So can you make reforms.
Speaker 2: Especially on those two issues, while you're at the FED.
Speaker 1: Well, look, you know, reforms to the Federal Reserve, to
Speaker 1: the structure of the Federal Reserve are ultimately an issue
Speaker 1: for Congress to take up and not one for me
Speaker 1: to address. But I do see part of my job
Speaker 1: as bringing fresh an out of consensus ideas to what
Speaker 1: can be you know, at times a settled way of thinking.
Speaker 1: And that's what I'm going to continue doing. And so,
Speaker 1: for example, you know, you sort of you think about
Speaker 1: tariffs and whether they're causing inflation or not. I think
Speaker 1: there's an attitude among a lot of people which is
Speaker 1: that the correct counterfactual for thinking about tariffs is to
Speaker 1: compare them to pre trends for what was the trend
Speaker 1: in those goods before the pandemic? Right, to me, that's
Speaker 1: the wrong counterfactional because there was so much else different
Speaker 1: about the structure of the economy. When you look at
Speaker 1: long from trends before the pandemic, they include you know,
Speaker 1: you look at twenty year trends before the pandemic, which
Speaker 1: is what a lot of people do. It includes the
Speaker 1: entry of China to the WTO and shipping deflation to
Speaker 1: the entire world. Is that the correct counterfactual for thinking
Speaker 1: about the impact of tariffs on the economy today if
Speaker 1: we're not experiencing the same deflation we experienced in two
Speaker 1: thousand and four and goods when China had just entered
Speaker 1: the WTO, and then attributing all excess inflation relative to
Speaker 1: that pre trend to tariffs. I think that's the wrong
Speaker 1: counterfactual for me. My mind is the right counterfactual is
Speaker 1: non import goods. And that's why the way that I've
Speaker 1: looked at it is to compare the prices of import intensive.
Speaker 3: Core goods to overall core goods.
Speaker 1: And I would think that if terrorists are driving inflation,
Speaker 1: import intensive core goods would inflate at a materially higher
Speaker 1: rate than overall core goods. And that is just not
Speaker 1: the case. That is not what you see in the data.
Speaker 1: That's the study that I did when I was the
Speaker 1: CAA chairman, and I asked the FED staff to replicate it,
Speaker 1: and they found that when you use this counterfactual, you
Speaker 1: get the same outcome. Right, So the question is what's
Speaker 1: the choice of the counterfactual, and that drives the decision,
Speaker 1: that drives the inference from me. The other counterfacture that
Speaker 1: I think appropriate to use is to say, our core
Speaker 1: goods in the United States inflating at a faster rate,
Speaker 1: at a noticeably faster rate or markedly different trend than
Speaker 1: core goods in other countries. And again when I run
Speaker 1: that experiment, I see no discernible, substantial difference that would
Speaker 1: make me think that core goods inflation the United States
Speaker 1: have broken away from core goods inflation globally, and so
Speaker 1: for me, I think.
Speaker 3: That there's a question of how do you think about
Speaker 3: these things?
Speaker 1: And I think everyone was thinking about it one way
Speaker 1: and I think about it a different way. And I
Speaker 1: view my job as bringing in new and interesting ideas
Speaker 1: to try and get people to think about things different.
Speaker 2: Can you do that when the ideological heart of the
Speaker 2: FED is in New York, it's at Harvard University, it's
Speaker 2: in the Democratic Party, how do you move it away?
Speaker 3: Well?
Speaker 1: I am also of New York and of Harvard University,
Speaker 1: and have no trouble saying my view even when it's
Speaker 1: wildly out of consensus, and you know, speaking my mind.
Speaker 1: As long as I believe what I'm saying, I have
Speaker 1: no problem sort of speaking in my mind and getting
Speaker 1: my thoughts out there.
Speaker 5: Well, Governor Miyane, it's not only the rest of the
Speaker 5: FMC you have to convince. You have to convince these
Speaker 5: markets as well, especially if you are concerned about housing.
Speaker 5: You were very outspoken last year when the FED was
Speaker 5: cutting and long term rates were going higher. If that
Speaker 5: were to happen again, would you be proponent, especially as
Speaker 5: you see one of the FED goals should be for
Speaker 5: moderate long term rates, that the FED should be using
Speaker 5: the balance sheet in order to keep long term rates lower.
Speaker 1: So two things there. One, last year I was an
Speaker 1: opponent of the Federal Reserve cutting rates because I thought
Speaker 1: that neutral was higher and that therefore the FED was
Speaker 1: not as restrictive as they thought that they were, and
Speaker 1: therefore I viewed the accommodation being provided as inappropriate. And
Speaker 1: I think, as you're pointing out that long yields moving
Speaker 1: higher meant that I was actually kind of right. You know,
Speaker 1: I think that that bears that out this time thus
Speaker 1: far and still early days. The meeting was, you know,
Speaker 1: two weeks ago, three weeks ago. You know, it's still
Speaker 1: early days, but you know, thus far, we haven't seen
Speaker 1: that type of increase in long eels that we saw
Speaker 1: last year.
Speaker 5: What if it were to happen, though, well, I'd be
Speaker 5: using its spella sheet.
Speaker 1: If it were to happen, The first thing I would
Speaker 1: want to do is ask why, right, why is it happening?
Speaker 1: And if I came to the conclusion that it was
Speaker 1: happening because it was inappropriate to cut rates because my
Speaker 1: inflation analysis was wrong, or my analysis of neutral or
Speaker 1: the apput gap was wrong, then the first thing to
Speaker 1: do is probably to reverse course on the front rate.
Speaker 1: My view is probably not to sort of resort to
Speaker 1: balance sheet at the first opportunity. That balance sheet is
Speaker 1: the tool that you use when your more standard tools
Speaker 1: can't work for the problem at hand.
Speaker 4: A couple of lightning round questions here, as we're getting
Speaker 4: a little short on time, do you think that if
Speaker 4: you'd take in a sort of less extreme position, do
Speaker 4: come in arguing for one hundred and fifty basis points
Speaker 4: or so of cuts, that you might have more influence
Speaker 4: on your peers on the Open Market Committee.
Speaker 1: I don't think my position as extreme as you make
Speaker 1: it sound. My dots for next year and the year
Speaker 1: after are not so dissimilar from the rest of the committee.
Speaker 1: All that's different is the fact that I want to
Speaker 1: get there a little bit faster. I think that most
Speaker 1: people on the on the FED, you know, sort of
Speaker 1: they operate with. In your tailor rule application, you probably
Speaker 1: have an inertial parameter right where there's a sluggish adjustment.
Speaker 1: So wherever policy should be set, you sort of phase
Speaker 1: it in slowly from where you are. So if you're
Speaker 1: wildly off from where you are now, there would still
Speaker 1: be a very slow adjustment to where policy should be set.
Speaker 1: And I think that that's the type of thing that
Speaker 1: some people sort of default have in their mind, right,
Speaker 1: that's not my view. My view is that if policy
Speaker 1: is out of whack you you should adjust it at
Speaker 1: a reasonably at a reasonably brisk pace, in part because
Speaker 1: if you stay restrictive for too long, you really run
Speaker 1: the risk of bringing an applecap.
Speaker 3: Materially wider that you that you don't want.
Speaker 1: And in my mind, we're not at that point yet
Speaker 1: because policy just became more restrictive, because monetary policy just
Speaker 1: became more restrictive, because our star just moved down, Right,
Speaker 1: We're not at the point yet where if you sort
Speaker 1: of keep it there another day, it's a crisis. But
Speaker 1: if you keep it there for an extra year, yeah,
Speaker 1: I think you have you have problems on your hand.
Speaker 4: Given the import that the President has attached to the FED.
Speaker 4: As a member of the Board of Governors of the
Speaker 4: Federal Reserve, do you feel like you exercise executive authority?
Speaker 3: No, I don't exercise executive authority. Whatsoever?
Speaker 4: Have you talked with the President or anybody at the
Speaker 4: White House since you came to the FED.
Speaker 1: Well, as I said, I think ago two weeks ago.
Speaker 3: I don't remember. Time runs together for me these days.
Speaker 1: The President called me after I was sworn into congratulating
Speaker 1: and that was very generous of him to sort of
Speaker 1: say congratulations. And he has never you know, he has
Speaker 1: never asked me to sort of do to take a
Speaker 1: specific policy action. He shares his views about where monetary
Speaker 1: policy should be, but he shares that with the work
Speaker 1: we talked to him.
Speaker 4: Since that congratulatory call. No, no, one, very quick question.
Speaker 4: Have you had your interview for FED chair yet?
Speaker 3: No? I have not. And personal decisions are not decisions
Speaker 3: that I make.
Speaker 2: All right, Hey, thank you so much for coming in.
Speaker 2: It's been a fantastic in you really appreciate you being
Speaker 2: so forthright. Federal Reserve Governor Stephen Myron, as well as
Speaker 2: Bloomberg's Michael McKee, our policy and economics correspondent. I will
Speaker 2: add to our terminal clients that we do have an
Speaker 2: adjustment for policy inertia in the tailor rule function. You
Speaker 2: can see it on the terminal typing t A y
Speaker 2: l go