WEBVTT - Lacker: Comfortable with four Fed rate hikes in 2016

0:00:03.360 --> 0:00:07.640
<v Speaker 1>Broadcasting live to New York, Cloomberg eleventh wo to Washington,

0:00:07.760 --> 0:00:12.760
<v Speaker 1>d C, Bloomberg to Boston, Bloomberg twelve hundreds to San Francisco,

0:00:12.880 --> 0:00:16.880
<v Speaker 1>Bloomberg nine to the Country, Joe's Exam Channel one nine

0:00:17.239 --> 0:00:20.239
<v Speaker 1>and around the globe the Bloomberg Radio Plus Save and

0:00:20.280 --> 0:00:26.639
<v Speaker 1>Bloomberg dot Com. This is Bloomberg Surveillance. Good morning, It

0:00:26.720 --> 0:00:29.360
<v Speaker 1>is thirty on Wall Street and Michael McKee along with

0:00:29.680 --> 0:00:31.920
<v Speaker 1>Tom keene Or Economic indicators are brought to you by

0:00:31.960 --> 0:00:35.040
<v Speaker 1>Commonwealth Financial Network. When it's time to change the conversation,

0:00:35.080 --> 0:00:37.360
<v Speaker 1>talk with a broker dealer r I A that's ready

0:00:37.400 --> 0:00:41.839
<v Speaker 1>to listen, Call six two. Visit Commonwealth dot com to

0:00:42.000 --> 0:00:44.400
<v Speaker 1>learn more. Here's Vinnie Dell Juday's at the First Word

0:00:44.400 --> 0:00:48.240
<v Speaker 1>desk with the jobless claims numbers. Good morning, Michael. Jobless

0:00:48.240 --> 0:00:51.080
<v Speaker 1>claims down by six thousand last week, the two hundred

0:00:51.159 --> 0:00:54.800
<v Speaker 1>seventy eight thousand, roughly in line with Wall Street estimates.

0:00:55.040 --> 0:00:58.440
<v Speaker 1>Jobless claims below the critical three hundred thousand mark for

0:00:58.520 --> 0:01:01.000
<v Speaker 1>more than a year now. We also have data from

0:01:01.000 --> 0:01:04.160
<v Speaker 1>the Philadelphia Fed their regional business and that's a negative

0:01:04.200 --> 0:01:07.840
<v Speaker 1>reading minus one point eight. And May Economist Survey by

0:01:07.840 --> 0:01:11.399
<v Speaker 1>Bloomberg had anticipated a positive reading a gang jobless claims

0:01:11.440 --> 0:01:14.240
<v Speaker 1>the main report at this hour down the two hundred

0:01:14.319 --> 0:01:17.679
<v Speaker 1>seventy eight thousand at the Bloomberg first work desk Companytel Judice.

0:01:17.720 --> 0:01:21.600
<v Speaker 1>Let's go back to Washington and New York. Thank you

0:01:21.640 --> 0:01:25.560
<v Speaker 1>any well? Jobless claims, uh, Philly FED, the Chicago FED

0:01:25.959 --> 0:01:31.600
<v Speaker 1>Activity Index all what you might consider tertiary information right now,

0:01:31.720 --> 0:01:34.680
<v Speaker 1>tertiary data jobs claim is important, but they're not moving

0:01:34.680 --> 0:01:36.440
<v Speaker 1>out of a range that they have been in. But

0:01:36.480 --> 0:01:38.440
<v Speaker 1>every bit of data is going to be important to

0:01:38.520 --> 0:01:40.959
<v Speaker 1>a federal reserve that says it is data dependent, and

0:01:41.040 --> 0:01:45.479
<v Speaker 1>if the data come in as they expected, they would

0:01:45.480 --> 0:01:48.600
<v Speaker 1>be inclined to raise rates in June. Will they do that?

0:01:49.200 --> 0:01:52.360
<v Speaker 1>Jeffrey Lacker is the president of the Federal Reserve Bank

0:01:52.440 --> 0:01:54.440
<v Speaker 1>of Richmond, and he's been nice enough to drive up

0:01:54.440 --> 0:01:57.880
<v Speaker 1>here to Washington join us in the Bloomberg newsroom to

0:01:58.320 --> 0:02:03.160
<v Speaker 1>talk about the minutes yesterday in the direction of the Fed. So, uh, surprise,

0:02:04.240 --> 0:02:07.920
<v Speaker 1>you guys caught the markets unaware. Somebody said you hit

0:02:07.960 --> 0:02:12.200
<v Speaker 1>them upside the hay as they say, rather rapid adjustment

0:02:12.240 --> 0:02:15.720
<v Speaker 1>of the markets after yesterday's FED minutes. Why do you

0:02:15.760 --> 0:02:21.960
<v Speaker 1>think investors have ignored the FED for so long after

0:02:22.440 --> 0:02:26.040
<v Speaker 1>the April meeting, they basically priced out the FED doing

0:02:26.080 --> 0:02:30.280
<v Speaker 1>anything until two thousand seventeen. So my sense of things

0:02:30.720 --> 0:02:34.000
<v Speaker 1>is that markets took the wrong signal from us pausing

0:02:34.000 --> 0:02:37.200
<v Speaker 1>in in March and April. Uh. The sense I got

0:02:37.320 --> 0:02:41.080
<v Speaker 1>is that they their interpretation was that we that that

0:02:41.240 --> 0:02:43.680
<v Speaker 1>the threshold we have for what it takes to get

0:02:43.760 --> 0:02:46.880
<v Speaker 1>us to pause in the rate increases that in December

0:02:46.960 --> 0:02:50.320
<v Speaker 1>we outlined we sort of expected to see this year

0:02:50.919 --> 0:02:53.720
<v Speaker 1>was fairly low, and I think they said it too low,

0:02:54.240 --> 0:02:57.240
<v Speaker 1>and so I think they just overestimated how likely we

0:02:57.240 --> 0:02:59.280
<v Speaker 1>were to pause for the rest of the year. Uh.

0:02:59.360 --> 0:03:02.680
<v Speaker 1>Your old friend and predecessor at the Richmond Fed in

0:03:02.760 --> 0:03:06.359
<v Speaker 1>the research job, Marvin Goodfriend, was just done with us

0:03:06.360 --> 0:03:09.520
<v Speaker 1>suggesting that the FED has a credibility problem because it

0:03:09.600 --> 0:03:12.640
<v Speaker 1>has set the markets up for a rate increase a

0:03:12.800 --> 0:03:16.680
<v Speaker 1>number of times and then not followed through the broader

0:03:16.800 --> 0:03:19.280
<v Speaker 1>context here is that all of our benchmarks he talked

0:03:19.280 --> 0:03:22.000
<v Speaker 1>about a rule, but you know, these are really um

0:03:22.720 --> 0:03:25.840
<v Speaker 1>measures of where interest rates would otherwise be would have

0:03:25.880 --> 0:03:28.880
<v Speaker 1>been in the past, if we're behaving the way we

0:03:28.960 --> 0:03:32.760
<v Speaker 1>usually behave when growth employment and inflation are where they

0:03:32.760 --> 0:03:35.080
<v Speaker 1>are now. They're all well above where we are now.

0:03:35.120 --> 0:03:39.120
<v Speaker 1>So it's pretty clear that we're departing relatively substantially from

0:03:39.720 --> 0:03:43.080
<v Speaker 1>patterns of past behavior that have been successful for US. UM.

0:03:43.080 --> 0:03:45.000
<v Speaker 1>I think he's right that in times we've gotten in

0:03:45.040 --> 0:03:48.200
<v Speaker 1>trouble in the past, have have usually been episodes where

0:03:48.200 --> 0:03:50.560
<v Speaker 1>we're about to increase rates or we're in the midst

0:03:50.560 --> 0:03:55.840
<v Speaker 1>of increasing rates, and other things distract us, other things

0:03:56.000 --> 0:03:58.800
<v Speaker 1>dissuade us UM, and uh, we get a little bit

0:03:59.000 --> 0:04:01.360
<v Speaker 1>behind the curve. I think that happened, has happened a

0:04:01.360 --> 0:04:03.480
<v Speaker 1>couple of times the last couple of decades. Well, there's

0:04:03.480 --> 0:04:07.240
<v Speaker 1>two issues there. One is where you are relative to inflation.

0:04:07.280 --> 0:04:13.040
<v Speaker 1>The other is FED credibility. Have you failed in communications? Well, UM,

0:04:13.440 --> 0:04:16.719
<v Speaker 1>so to the extent that markets, um, you know, misunderstood

0:04:16.839 --> 0:04:19.440
<v Speaker 1>the meaning of of our US pausing in March and April.

0:04:19.480 --> 0:04:21.000
<v Speaker 1>I think that might have been the case. I think

0:04:21.000 --> 0:04:24.080
<v Speaker 1>you can, in hindsight, you can argue that the FEDS

0:04:24.080 --> 0:04:28.280
<v Speaker 1>decisions to pause in January, March in April. Would you

0:04:28.320 --> 0:04:30.800
<v Speaker 1>say they were a mistake. You're not a voter this year,

0:04:30.839 --> 0:04:34.160
<v Speaker 1>so we don't have your official vote, but suggestions from

0:04:34.200 --> 0:04:37.440
<v Speaker 1>you in your public remarks are that you would have

0:04:37.560 --> 0:04:41.000
<v Speaker 1>approved of raising rates already. I certainly supported the rate

0:04:41.040 --> 0:04:44.159
<v Speaker 1>increase at the April meeting, um And I think a

0:04:44.279 --> 0:04:46.960
<v Speaker 1>rate increase at the March meeting would have been um

0:04:46.960 --> 0:04:50.640
<v Speaker 1>perfectly reasonable as well. UM So, I think that would

0:04:50.640 --> 0:04:53.840
<v Speaker 1>have kept us on course. I think markets, you know,

0:04:53.839 --> 0:04:56.160
<v Speaker 1>wouldn't been as confused about our intentions for the rest

0:04:56.240 --> 0:04:59.479
<v Speaker 1>of the year. If uh, if we are to believe

0:04:59.480 --> 0:05:04.560
<v Speaker 1>the minutes, more than two people suggested a rate increase

0:05:04.920 --> 0:05:07.719
<v Speaker 1>at the April meeting would have been acceptable. I know

0:05:07.760 --> 0:05:09.520
<v Speaker 1>you're not gonna speak for others on the thoat, but

0:05:09.520 --> 0:05:12.680
<v Speaker 1>it does raise the question of whether Janet Yellen has

0:05:12.760 --> 0:05:17.080
<v Speaker 1>some sort of rebellion on her hands, whether the board

0:05:17.160 --> 0:05:21.400
<v Speaker 1>is not very united over this question. Well, as you know,

0:05:21.440 --> 0:05:23.919
<v Speaker 1>the committee has always had um comes to range of views.

0:05:23.960 --> 0:05:26.600
<v Speaker 1>It's real strength of the committee. Uh, diverse us are

0:05:26.640 --> 0:05:29.760
<v Speaker 1>brought to bear. We all expect each other to bring

0:05:29.800 --> 0:05:33.240
<v Speaker 1>our our best game, bring our best independent analysis of

0:05:33.720 --> 0:05:38.560
<v Speaker 1>what we should do. People didn't bring different perspectives, different orientations.

0:05:39.120 --> 0:05:41.400
<v Speaker 1>UM So, I wouldn't characterize things as a rebellion by

0:05:41.400 --> 0:05:44.880
<v Speaker 1>any means. I think we have the usual um diversity

0:05:44.880 --> 0:05:48.480
<v Speaker 1>of views in the committee right now? Well, Uh, usual

0:05:48.560 --> 0:05:53.000
<v Speaker 1>diversity is a fairly broad phrase for it's a binary decision.

0:05:53.600 --> 0:05:58.160
<v Speaker 1>And H is the raise rates camp growing? Is it?

0:05:58.200 --> 0:06:01.160
<v Speaker 1>Is it that the f O m C is now

0:06:02.000 --> 0:06:05.600
<v Speaker 1>broadly in favor if the data come through with a

0:06:05.720 --> 0:06:08.120
<v Speaker 1>rate increase. I think the minutes did a good job

0:06:08.160 --> 0:06:13.039
<v Speaker 1>of of uh conveying the breadth of expectation within the

0:06:13.080 --> 0:06:17.640
<v Speaker 1>committee about UM what they'd likely to what would they

0:06:17.680 --> 0:06:20.159
<v Speaker 1>would be likely to favor doing in June given the

0:06:20.240 --> 0:06:23.760
<v Speaker 1>data coming in is expected. I thought that passage was clear.

0:06:23.800 --> 0:06:25.120
<v Speaker 1>I thought it was accurate. I thought it was a

0:06:25.160 --> 0:06:28.039
<v Speaker 1>good reflection of the extent to which Yeah, I think

0:06:28.160 --> 0:06:31.440
<v Speaker 1>if we did come in with data that along lines

0:06:31.480 --> 0:06:33.719
<v Speaker 1>were expecting the pick up growth in the second quarter,

0:06:34.240 --> 0:06:37.720
<v Speaker 1>inflation kind of remaining where it is now or maybe

0:06:37.720 --> 0:06:42.360
<v Speaker 1>advancing further towards two percent UNI measured by the PC index, UM,

0:06:42.400 --> 0:06:44.440
<v Speaker 1>I think that UM, I think the case would be

0:06:44.480 --> 0:06:46.920
<v Speaker 1>very strong for raising rates in June as well. Well,

0:06:46.960 --> 0:06:51.159
<v Speaker 1>that's an interesting point you just made about inflation. Uh,

0:06:51.360 --> 0:06:53.240
<v Speaker 1>it doesn't have to go up, you think it just

0:06:53.279 --> 0:06:56.440
<v Speaker 1>has to remain approximately where it is now. We get

0:06:56.440 --> 0:07:00.800
<v Speaker 1>the PC number one it doesn't have to even higher

0:07:01.160 --> 0:07:04.360
<v Speaker 1>for so we get we had this UM a couple

0:07:04.400 --> 0:07:07.920
<v Speaker 1>of strong inflation months on January and February UM, and

0:07:07.960 --> 0:07:11.280
<v Speaker 1>then a little bit weaker in March. UM. April CPI

0:07:11.520 --> 0:07:16.640
<v Speaker 1>looks stronger than than eight UH than March UH, suggesting

0:07:16.960 --> 0:07:20.640
<v Speaker 1>UM pc UH could be stronger on a year over

0:07:20.760 --> 0:07:23.320
<v Speaker 1>year basis. We have some strong numbers falling off of

0:07:23.400 --> 0:07:27.200
<v Speaker 1>the twelve months average moving average, and so UM that

0:07:27.360 --> 0:07:30.720
<v Speaker 1>suggests that we might get inflation readings that are twelve

0:07:30.720 --> 0:07:34.640
<v Speaker 1>month basis don't move up much, even though the monthly

0:07:34.720 --> 0:07:37.520
<v Speaker 1>numbers are are firmer than they had been in the

0:07:37.560 --> 0:07:40.520
<v Speaker 1>middle of last year. And so just by the algebra

0:07:40.560 --> 0:07:45.480
<v Speaker 1>of it, UM I think UH twelve month numbers that

0:07:45.520 --> 0:07:48.239
<v Speaker 1>don't decline from here, UM, I think you're gonna reflect

0:07:48.480 --> 0:07:52.360
<v Speaker 1>good progress towards two percent. We are Bloomberg surveillance and

0:07:52.360 --> 0:07:55.560
<v Speaker 1>we're talking which every Lacquer, the president of the Richmond

0:07:55.640 --> 0:08:00.760
<v Speaker 1>Fed live from the Bloomberg newsroom in Washington. UH. The

0:08:00.760 --> 0:08:04.400
<v Speaker 1>Federal Reserve noted in UH the earlier part of this

0:08:04.480 --> 0:08:10.240
<v Speaker 1>year that global risks were the reason for them holding

0:08:10.280 --> 0:08:14.760
<v Speaker 1>off on rate increases. In the April meeting, the minutes

0:08:14.800 --> 0:08:18.040
<v Speaker 1>show that they felt global risk had diminished, but a

0:08:18.040 --> 0:08:20.840
<v Speaker 1>lot of people thought they were still there. So what's

0:08:20.920 --> 0:08:25.160
<v Speaker 1>changed enough to suggest that you can go ahead in

0:08:25.400 --> 0:08:29.440
<v Speaker 1>June if the global risks are still out there? So

0:08:29.560 --> 0:08:33.400
<v Speaker 1>I I see the risks from global economic and financial

0:08:33.400 --> 0:08:38.560
<v Speaker 1>developments as having substantially and virtually entirely um dissipated. I

0:08:38.559 --> 0:08:40.880
<v Speaker 1>think I think there there always are some risks out there,

0:08:40.960 --> 0:08:43.520
<v Speaker 1>but I think that relative to times in the past

0:08:43.559 --> 0:08:47.400
<v Speaker 1>when we've we've been able to hold our thoughts about them,

0:08:47.800 --> 0:08:50.839
<v Speaker 1>uh and recognize them but move ahead anyway. I think

0:08:50.880 --> 0:08:53.480
<v Speaker 1>they're they're about where they you know, at a certain

0:08:53.480 --> 0:08:56.040
<v Speaker 1>nominal level. UM. So I don't think there at a

0:08:56.120 --> 0:08:58.400
<v Speaker 1>level that we should dissuade us. You know, as I said,

0:08:58.440 --> 0:09:00.640
<v Speaker 1>I thought we should raise rates and April I didn't

0:09:00.640 --> 0:09:03.400
<v Speaker 1>think global risks at that point post enough threat to

0:09:03.400 --> 0:09:06.360
<v Speaker 1>the U S economy that we needed insurance in the

0:09:06.440 --> 0:09:09.880
<v Speaker 1>form of longer delay and rate increases. Moody's out Living

0:09:09.920 --> 0:09:12.679
<v Speaker 1>report last night, they cut their US growth forecast for

0:09:12.720 --> 0:09:17.480
<v Speaker 1>the year, arguing that investors and policymakers are underestimating the

0:09:17.480 --> 0:09:20.520
<v Speaker 1>slowdown in China and its potential to have a significant

0:09:20.559 --> 0:09:26.240
<v Speaker 1>impact on markets and global demand. It's uh interesting point

0:09:26.240 --> 0:09:29.520
<v Speaker 1>of view. UM you know, certainly there's um you know,

0:09:29.600 --> 0:09:31.920
<v Speaker 1>uncertainty about the extent to which they can maintain the

0:09:31.960 --> 0:09:35.360
<v Speaker 1>growth process they've been um you know showing for the

0:09:35.440 --> 0:09:39.040
<v Speaker 1>last a couple of decades, it's been breathtaking the pace

0:09:39.120 --> 0:09:43.000
<v Speaker 1>of their GDP growth. UM. They seem to have managed

0:09:43.240 --> 0:09:48.040
<v Speaker 1>to keep growth going so far this year, um you

0:09:48.080 --> 0:09:50.000
<v Speaker 1>know by hooker by kruk might be a good phrase

0:09:50.040 --> 0:09:52.880
<v Speaker 1>for it, um and um. But they seem to have

0:09:52.920 --> 0:09:56.000
<v Speaker 1>the capacity to do so going forward as well. UM

0:09:56.120 --> 0:09:58.280
<v Speaker 1>and uh. So it's it's not clear it's going to

0:09:58.400 --> 0:10:01.520
<v Speaker 1>falter substantially from here, and I think the risks to

0:10:01.760 --> 0:10:04.920
<v Speaker 1>Chinese growth look certainly less than they were several months ago.

0:10:05.480 --> 0:10:08.760
<v Speaker 1>The other big question for people is the dollar. The

0:10:08.800 --> 0:10:13.280
<v Speaker 1>dollar rallied after the minutes came out. How concerned are

0:10:13.320 --> 0:10:16.480
<v Speaker 1>you that it does have the impact that the head

0:10:16.559 --> 0:10:19.960
<v Speaker 1>sighted at the January meeting and on that it will

0:10:20.000 --> 0:10:23.320
<v Speaker 1>slow growth in the United States. So last year we

0:10:23.360 --> 0:10:27.040
<v Speaker 1>saw a sustained trend in the dollar um and uh.

0:10:27.120 --> 0:10:29.920
<v Speaker 1>This year we there's been some retrenchment and moved back

0:10:30.520 --> 0:10:33.520
<v Speaker 1>um you know at uh five or ten percent move

0:10:33.559 --> 0:10:35.559
<v Speaker 1>would be pretty notable. From here, I would be pretty

0:10:35.600 --> 0:10:39.319
<v Speaker 1>unusual and pretty unexpected. UM. So at this point, I'm

0:10:39.360 --> 0:10:41.880
<v Speaker 1>not expecting the path of the dollar of the remainder

0:10:41.880 --> 0:10:44.560
<v Speaker 1>of the year to pose a big threat to US growth.

0:10:44.880 --> 0:10:46.840
<v Speaker 1>It's notable. I think that we have been able to

0:10:46.880 --> 0:10:50.680
<v Speaker 1>absorb um uh the impact of the dollar changed last

0:10:50.760 --> 0:10:55.840
<v Speaker 1>year in manufacturing and still turn in reasonable growth numbers.

0:10:55.880 --> 0:10:59.760
<v Speaker 1>I think still see labor markets tight and substantially still

0:10:59.760 --> 0:11:03.400
<v Speaker 1>see consumer spending expand substantially. So I think that's an

0:11:03.440 --> 0:11:07.840
<v Speaker 1>indicator extent to which export oriented manufacturing, Although it's important

0:11:07.840 --> 0:11:10.400
<v Speaker 1>to a lot of people. UM, is this a small

0:11:10.480 --> 0:11:12.800
<v Speaker 1>enough fraction of the economy that we can we can

0:11:12.840 --> 0:11:15.760
<v Speaker 1>have some weakness there and still see looks like real

0:11:15.840 --> 0:11:19.680
<v Speaker 1>rates ought to be around one percent or so, and

0:11:19.720 --> 0:11:22.800
<v Speaker 1>we ought to be moving towards UH that that level

0:11:23.000 --> 0:11:25.559
<v Speaker 1>UM positive one percent UM and that's a measure of

0:11:25.600 --> 0:11:27.560
<v Speaker 1>sort of how far behind me are in nominal terms.

0:11:27.600 --> 0:11:31.079
<v Speaker 1>I think you know, if you factor in a UM,

0:11:31.160 --> 0:11:32.840
<v Speaker 1>you know, let's say inflation is one and a half

0:11:32.880 --> 0:11:36.040
<v Speaker 1>percent right now, UM, you know, our benchmarks are the

0:11:36.080 --> 0:11:38.720
<v Speaker 1>inflation that the interest rate, nominal interest rate should be

0:11:38.720 --> 0:11:43.160
<v Speaker 1>between two and three and Um, we're significantly behind that.

0:11:43.280 --> 0:11:46.720
<v Speaker 1>Right now, Jeffrey Lacker is with us from the Richmond FED.

0:11:46.760 --> 0:11:50.000
<v Speaker 1>We're gonna go straight through there. Enjoying this interview so

0:11:50.080 --> 0:11:54.880
<v Speaker 1>much here on the Bloomberg Radio. Assuming there's no black swan,

0:11:54.920 --> 0:11:57.040
<v Speaker 1>the data are okay, but you want to pause because

0:11:57.080 --> 0:12:00.400
<v Speaker 1>of Brexit or some reason in June. Would you, ever, then,

0:12:00.480 --> 0:12:03.800
<v Speaker 1>in terms of UH communication with the market in October,

0:12:03.840 --> 0:12:08.800
<v Speaker 1>like promise that you will go in July. What do

0:12:08.840 --> 0:12:12.000
<v Speaker 1>you mean by October like promise well in October in

0:12:12.040 --> 0:12:16.080
<v Speaker 1>the FED statement in October you basically right right, sort

0:12:16.080 --> 0:12:18.719
<v Speaker 1>of laid down a strong marker. Um. Yeah, that's one

0:12:18.720 --> 0:12:20.360
<v Speaker 1>way we could do it. I mean we can, you know,

0:12:20.440 --> 0:12:22.959
<v Speaker 1>we should say what we think, say what we know, UM,

0:12:23.360 --> 0:12:26.120
<v Speaker 1>don't say what we've done now. So, UM, you know,

0:12:26.160 --> 0:12:29.000
<v Speaker 1>certainly if in a Brexit type pause scenario in June,

0:12:29.080 --> 0:12:31.439
<v Speaker 1>in June, that's the kind of thing that would materialize.

0:12:31.480 --> 0:12:33.800
<v Speaker 1>But I have to emphasize that I don't think it's likely.

0:12:33.880 --> 0:12:36.840
<v Speaker 1>It doesn't at this point look at all likely that Um,

0:12:37.200 --> 0:12:38.680
<v Speaker 1>you know, Breggs, it's going to be enough of a

0:12:38.760 --> 0:12:41.360
<v Speaker 1>risk in June to be at least Um, it's a

0:12:41.480 --> 0:12:44.960
<v Speaker 1>stair hand Uh. We talked a little bit earlier about

0:12:45.040 --> 0:12:48.440
<v Speaker 1>the minute suggestion that there were members who felt that

0:12:49.520 --> 0:12:52.560
<v Speaker 1>based on standard benchmarks like policy rules, the FEDS behind

0:12:52.600 --> 0:12:55.280
<v Speaker 1>the curve. And I think you told us that you would.

0:12:55.480 --> 0:13:00.199
<v Speaker 1>You were one of the Uh how far behind are we? Well,

0:13:00.400 --> 0:13:02.960
<v Speaker 1>you know, as I said, significantly, I know it's UM.

0:13:03.000 --> 0:13:06.640
<v Speaker 1>About a year or two ago, these benchmarks UM rose

0:13:06.720 --> 0:13:10.360
<v Speaker 1>above zero. Uh and uh, you know, I think that's

0:13:10.360 --> 0:13:14.520
<v Speaker 1>why last year was the beginning of the sense that yes,

0:13:14.559 --> 0:13:17.400
<v Speaker 1>it's time to raise rates. Uh. You know, that was

0:13:17.400 --> 0:13:19.719
<v Speaker 1>the analytics behind it. People often ask, well, you know,

0:13:19.760 --> 0:13:22.440
<v Speaker 1>how do you know when to raise rates? That was it.

0:13:23.000 --> 0:13:26.199
<v Speaker 1>We paused last year. We sort of delayed getting started

0:13:27.160 --> 0:13:30.400
<v Speaker 1>for various reasons UM. And then some other reasons came

0:13:30.440 --> 0:13:33.840
<v Speaker 1>along and we paused to more. We got started in

0:13:33.880 --> 0:13:37.640
<v Speaker 1>December than January February, and the turmoil and markets and

0:13:38.400 --> 0:13:40.880
<v Speaker 1>the risk of people saw from the on the global front,

0:13:41.160 --> 0:13:45.520
<v Speaker 1>UM let us to pause again. Meanwhile, those benchmarks have

0:13:45.640 --> 0:13:51.520
<v Speaker 1>kept rising because they're based on real things inflation, UM employment.

0:13:52.240 --> 0:13:55.880
<v Speaker 1>Uh and uh, so we're we're behind. And you know,

0:13:55.920 --> 0:13:57.720
<v Speaker 1>as I said, there been times in the past when

0:13:58.840 --> 0:14:02.440
<v Speaker 1>purely financial mark a phenomenon Uh, that you know are

0:14:02.520 --> 0:14:06.400
<v Speaker 1>forward looking, but still they're just financial market jitters have

0:14:06.520 --> 0:14:11.160
<v Speaker 1>stayed our hand. Is a great example, Uh, that you

0:14:11.200 --> 0:14:13.960
<v Speaker 1>had the Russian debt default, you had some turmoil and

0:14:13.960 --> 0:14:18.120
<v Speaker 1>financial markets, you had the LTCM episode, and we cut

0:14:18.160 --> 0:14:20.960
<v Speaker 1>interest rates three times in the fall. We took our

0:14:21.000 --> 0:14:24.400
<v Speaker 1>time turning around and recovering those in ninety nine. And

0:14:24.440 --> 0:14:28.280
<v Speaker 1>I think in hindsight, that's a clear case of US. Um,

0:14:28.320 --> 0:14:31.720
<v Speaker 1>you know, cutting too much, easing too much in response

0:14:31.800 --> 0:14:36.960
<v Speaker 1>to purely financial market phenomena. Uh. And um, we got

0:14:37.000 --> 0:14:39.640
<v Speaker 1>behind the curve in ninety nine, and and arguably that

0:14:39.680 --> 0:14:42.400
<v Speaker 1>contributed to the sequence over the course of two thousand,

0:14:42.480 --> 0:14:45.320
<v Speaker 1>two thousand one, two two that led to to what

0:14:45.400 --> 0:14:47.960
<v Speaker 1>we saw them. We don't know what your dot is

0:14:48.040 --> 0:14:49.840
<v Speaker 1>on the on the dot plot, but if we are

0:14:49.960 --> 0:14:54.440
<v Speaker 1>to say, I think they'd let you. Uh, if we

0:14:54.480 --> 0:14:57.720
<v Speaker 1>are behind on inflation, does that change your view of

0:14:57.720 --> 0:15:00.240
<v Speaker 1>how many times and how quickly they f used to

0:15:00.320 --> 0:15:03.680
<v Speaker 1>raise rates? Uh? Yeah, So I've been, um, you guys

0:15:03.720 --> 0:15:08.040
<v Speaker 1>comfortable with the December projection. Um of the sort of

0:15:08.040 --> 0:15:12.560
<v Speaker 1>the media and SEP projection of four rate increases this year. Um,

0:15:12.680 --> 0:15:19.280
<v Speaker 1>And uh, you know, I I don't think the data suggests,

0:15:19.480 --> 0:15:22.280
<v Speaker 1>you know, the US economy suggests much of a change

0:15:22.280 --> 0:15:25.920
<v Speaker 1>in views about about the appropriateness event. Um. I'd like

0:15:25.960 --> 0:15:28.440
<v Speaker 1>to get um, you know, as close to that as

0:15:28.440 --> 0:15:30.360
<v Speaker 1>we can by the end of the year. You can,

0:15:31.440 --> 0:15:35.800
<v Speaker 1>you can get back what we've lost. Yeah, So we're

0:15:35.800 --> 0:15:40.360
<v Speaker 1>in this this process of of of pausing and delaying,

0:15:42.440 --> 0:15:47.040
<v Speaker 1>UM has runs the risk of becoming a one way street. Uh,

0:15:47.080 --> 0:15:50.600
<v Speaker 1>sort of a ratchet effect where when when when some

0:15:50.840 --> 0:15:55.320
<v Speaker 1>risks arise, we delay, but when the risks subside, we

0:15:55.360 --> 0:15:58.760
<v Speaker 1>shouldn't just start raising again. We need to get back

0:15:58.880 --> 0:16:00.960
<v Speaker 1>on the path we thought we were going to be on.

0:16:02.080 --> 0:16:05.720
<v Speaker 1>So um, you know, instead we seem to be in

0:16:05.720 --> 0:16:10.680
<v Speaker 1>this this process of delaying and then we people expect

0:16:10.760 --> 0:16:14.120
<v Speaker 1>us to start increasing again, but we'll never get back

0:16:14.160 --> 0:16:16.680
<v Speaker 1>to the path we thought we we thought was appropriate

0:16:16.680 --> 0:16:19.280
<v Speaker 1>in December if we do that. And I think that

0:16:19.360 --> 0:16:21.560
<v Speaker 1>kind of one way ratchet effect has some some real

0:16:21.640 --> 0:16:24.880
<v Speaker 1>risks to it. We talked about a one way effect.

0:16:24.920 --> 0:16:28.520
<v Speaker 1>Jenny Yellen has argued asymmetry is a real problem for

0:16:28.560 --> 0:16:32.920
<v Speaker 1>the FED. It's much easier to deal with inflation than deflation.

0:16:33.760 --> 0:16:38.240
<v Speaker 1>How does that fit into this scenario? Now I'm I'm

0:16:38.280 --> 0:16:42.040
<v Speaker 1>not in the camp of being really confident about UM

0:16:42.200 --> 0:16:46.520
<v Speaker 1>how to handle an erosion of UM inflation expectations on

0:16:46.560 --> 0:16:50.400
<v Speaker 1>the high side, we haven't seen it um and in

0:16:50.400 --> 0:16:53.320
<v Speaker 1>a long time. And when we did see it that

0:16:53.480 --> 0:16:56.800
<v Speaker 1>the environment was so different the late nineties sixties, when

0:16:56.800 --> 0:17:00.600
<v Speaker 1>inflation got away from us. We had some little inflation

0:17:00.680 --> 0:17:05.199
<v Speaker 1>scares back in the nineteen eighties and nineteen nineties. Marvin

0:17:05.240 --> 0:17:08.080
<v Speaker 1>documented those very well, and some some work he did

0:17:08.119 --> 0:17:12.239
<v Speaker 1>in the nineteen nineties um And emphasize the importance of

0:17:12.280 --> 0:17:14.520
<v Speaker 1>getting on top of those. But each one of them

0:17:14.560 --> 0:17:17.560
<v Speaker 1>was very different and and it came into different contexts,

0:17:17.600 --> 0:17:21.680
<v Speaker 1>had a different genesis. If it happened again, it would

0:17:21.720 --> 0:17:23.960
<v Speaker 1>it would be very different. And so I'm you know,

0:17:24.000 --> 0:17:26.520
<v Speaker 1>I'm not UM. I'm not sanguine about being able to

0:17:26.520 --> 0:17:30.119
<v Speaker 1>handle it. Very easily mentioned Uh in our conversation with

0:17:30.160 --> 0:17:32.960
<v Speaker 1>Marvin good friend UH the story on the Bloomberg Today,

0:17:33.000 --> 0:17:36.120
<v Speaker 1>where Uh in a fascinating interview with Lars Roady, the

0:17:36.240 --> 0:17:41.359
<v Speaker 1>Danish Central Bank governor. He suggested that maybe there is

0:17:41.400 --> 0:17:44.720
<v Speaker 1>something different about the link between monetary policy and inflation

0:17:44.920 --> 0:17:48.280
<v Speaker 1>these days because there's no demand out there. UM. So

0:17:48.359 --> 0:17:50.320
<v Speaker 1>I I agree with Marvin. I was listening in on

0:17:50.400 --> 0:17:53.440
<v Speaker 1>his um some of his interview. UM, I agree, I

0:17:53.480 --> 0:17:55.400
<v Speaker 1>don't think there's a demand problem in the United States.

0:17:55.440 --> 0:17:58.679
<v Speaker 1>I think the fundamentals are strong for US growth. Prodecuty

0:17:58.680 --> 0:18:01.960
<v Speaker 1>growth is low. But um, you know, nonetheless, it's there

0:18:01.960 --> 0:18:03.959
<v Speaker 1>and there there are innovations taking place in there are

0:18:04.359 --> 0:18:07.440
<v Speaker 1>advances being made that are pushing real incomes up. Uh.

0:18:07.480 --> 0:18:10.919
<v Speaker 1>And so I mean you've seen American consumers act with

0:18:10.960 --> 0:18:14.800
<v Speaker 1>a fair amount of confidence in the last couple of years. Uh.

0:18:14.840 --> 0:18:17.240
<v Speaker 1>And so I don't think it's a demand issue in

0:18:17.280 --> 0:18:20.080
<v Speaker 1>the United States. I have to shift gears a little

0:18:20.080 --> 0:18:23.160
<v Speaker 1>bit and bring in some politics. Uh. I know. FED

0:18:23.200 --> 0:18:26.880
<v Speaker 1>officials never admit that political pressure will affect policy decisions.

0:18:26.920 --> 0:18:29.159
<v Speaker 1>But are you at least worried about the FED bashing

0:18:29.200 --> 0:18:32.879
<v Speaker 1>on the campaign trail? Now? That always makes me nervous.

0:18:32.880 --> 0:18:35.440
<v Speaker 1>There was an issue in two thousand twelve as well. Um.

0:18:35.720 --> 0:18:38.879
<v Speaker 1>We are scrupulously nonpartisan institution, and I think if you

0:18:38.920 --> 0:18:41.720
<v Speaker 1>read the transcripts, it's very easy to see what plays

0:18:41.720 --> 0:18:45.000
<v Speaker 1>no role in what we do. Um. You know, I

0:18:45.840 --> 0:18:48.320
<v Speaker 1>I like it when I hear on the campaign trails

0:18:48.680 --> 0:18:53.159
<v Speaker 1>respect for the fed's independence, importance of the independence of

0:18:53.200 --> 0:18:56.600
<v Speaker 1>monetary policy. I think we've seen historically in the United

0:18:56.640 --> 0:19:00.600
<v Speaker 1>States the danger of UM a federal reserve of that's

0:19:00.720 --> 0:19:07.040
<v Speaker 1>UM excessively sensitive to UM politicians and UH their interests,

0:19:07.320 --> 0:19:10.440
<v Speaker 1>because that can tilt monetary policy and direction. That's UM

0:19:10.480 --> 0:19:12.840
<v Speaker 1>focused on the short run to the detriment of long

0:19:12.960 --> 0:19:18.560
<v Speaker 1>run UH missions like price stability. Well, they're even leaving

0:19:18.560 --> 0:19:20.680
<v Speaker 1>the presidential candidates out of it. A lot of people

0:19:20.840 --> 0:19:23.960
<v Speaker 1>up on Capitol Hill suggesting we should change the governance

0:19:23.960 --> 0:19:27.639
<v Speaker 1>structure of the FED. You're pushing back strongly against that.

0:19:28.119 --> 0:19:32.080
<v Speaker 1>It's our governance structure strikes people peculiar. But UM, there's

0:19:32.080 --> 0:19:34.200
<v Speaker 1>a logic to it. It came out of the fact

0:19:34.200 --> 0:19:37.960
<v Speaker 1>that we were founded as a network of twelve clearing

0:19:38.040 --> 0:19:42.480
<v Speaker 1>houses universal membership instead of just restricted to a club

0:19:42.480 --> 0:19:46.040
<v Speaker 1>in a city like New York and Chicago. UM and UM.

0:19:46.320 --> 0:19:49.439
<v Speaker 1>The natural governance model for a clearing house is it's

0:19:49.480 --> 0:19:52.440
<v Speaker 1>a joint venture of the banking industry, and so bankers

0:19:52.920 --> 0:19:55.800
<v Speaker 1>own your capital and they sit on your board and

0:19:55.800 --> 0:20:00.080
<v Speaker 1>elect your members. Wilson, the great progressive UM insisted it

0:20:00.160 --> 0:20:03.960
<v Speaker 1>on a board of governors, a technocratic federal agency to

0:20:04.000 --> 0:20:07.160
<v Speaker 1>oversee this, and UM so the Board of Governors has

0:20:07.400 --> 0:20:11.080
<v Speaker 1>responsibility for three of our directors out of nine. UM.

0:20:11.080 --> 0:20:14.760
<v Speaker 1>Our governance structure serves a very valuable purpose. It's a

0:20:14.840 --> 0:20:19.199
<v Speaker 1>hybrid public private governance structure UM, and that's played an

0:20:19.240 --> 0:20:23.720
<v Speaker 1>important role in the independence of monetary policy in the US.

0:20:23.760 --> 0:20:28.520
<v Speaker 1>I'm open to considering other ideas, UM, but UM, for me,

0:20:28.560 --> 0:20:32.200
<v Speaker 1>it's going to be important that they preserve monetary policy independence.

0:20:32.200 --> 0:20:37.000
<v Speaker 1>And I haven't heard of a governance reform proposal that

0:20:37.080 --> 0:20:39.560
<v Speaker 1>I think does that. Very very quickly. Let me ask

0:20:39.600 --> 0:20:41.920
<v Speaker 1>you last question. Donald Trump says he get rid of

0:20:41.960 --> 0:20:45.119
<v Speaker 1>Janet yelling and appoints someone who shares his views on

0:20:45.200 --> 0:20:48.520
<v Speaker 1>interest rates and policy. Uh. What would that mean for

0:20:48.560 --> 0:20:53.000
<v Speaker 1>FED credibility? UM? So I think it would be problematic

0:20:53.080 --> 0:20:57.520
<v Speaker 1>and and uh for UM, a presidential candidate to dismiss

0:20:57.840 --> 0:21:01.000
<v Speaker 1>a FED chair on the basis will leave the perceived

0:21:01.040 --> 0:21:04.920
<v Speaker 1>party affiliation. Jeffrey Lecker, thank you very much for joining

0:21:04.960 --> 0:21:07.240
<v Speaker 1>us today. He's the president of the Federal Reserve Bank

0:21:07.800 --> 0:21:10.920
<v Speaker 1>of Richmond, and of course, the FED suggesting that we

0:21:11.000 --> 0:21:16.280
<v Speaker 1>are going to be looking to be June meeting June,

0:21:17.080 --> 0:21:20.280
<v Speaker 1>and we'll see how the FED votes. Jeff doesn't have

0:21:20.359 --> 0:21:24.199
<v Speaker 1>a vote this time, so he gets to avoid a

0:21:24.240 --> 0:21:27.960
<v Speaker 1>mere participant participant as opposed to a member. Tom Keane

0:21:28.320 --> 0:21:31.920
<v Speaker 1>is always a participant and a member of Blueberg Surveillance. Tom,

0:21:32.119 --> 0:21:34.959
<v Speaker 1>how are the markets doing as Uh, well, I'm not

0:21:35.000 --> 0:21:37.200
<v Speaker 1>sure if you move the market or Jeff Lacher move

0:21:37.280 --> 0:21:39.040
<v Speaker 1>the market, but one of you move the market. The

0:21:39.080 --> 0:21:41.840
<v Speaker 1>two year ye old point nine zero eight three a

0:21:41.960 --> 0:21:44.879
<v Speaker 1>spike up off economic data, but then um like a

0:21:44.960 --> 0:21:48.119
<v Speaker 1>real advance on what we heard from Dr Lacker, No

0:21:48.280 --> 0:21:52.200
<v Speaker 1>question about that is yields move higher off the tone

0:21:52.920 --> 0:21:56.280
<v Speaker 1>that we heard is well, futures were negative seven doing

0:21:56.359 --> 0:22:01.240
<v Speaker 1>better off buoyant Walmart earnings, which I guess somewhat links

0:22:01.280 --> 0:22:06.679
<v Speaker 1>into Mr Lacker's optimism on the American demand economy, on

0:22:06.720 --> 0:22:10.000
<v Speaker 1>our innovation, on our ability to move forward. So maybe

0:22:10.040 --> 0:22:13.440
<v Speaker 1>that's a weak linkage into the equity markets as well.

0:22:13.520 --> 0:22:16.560
<v Speaker 1>We will give you more in economics, finance, investment, and

0:22:16.600 --> 0:22:19.119
<v Speaker 1>on our international relations and of course across all of

0:22:19.119 --> 0:22:23.320
<v Speaker 1>Bloomberg Radio. Updates on the plane crash in the Mediterranean

0:22:23.800 --> 0:22:27.080
<v Speaker 1>of Egypt. Are Michael McKee in Washington. I'm Tim keenan

0:22:27.119 --> 0:22:29.440
<v Speaker 1>New York. Bloomberg Surveillance