1
00:00:02,520 --> 00:00:08,800
Speaker 1: Bloomberg Audio Studios, podcasts, radio news, The.

2
00:00:08,800 --> 00:00:24,880
Speaker 2: Money, I need the Money, money, money, tariffs, egg prices, commodities, geopolitics, war,

3
00:00:25,640 --> 00:00:28,000
Speaker 2: all of these things affect inflation.

4
00:00:28,840 --> 00:00:31,120
Speaker 3: I'm Barry Ritolts, and we're going to bring you an

5
00:00:31,240 --> 00:00:35,680
Speaker 3: extra special in large edition of At the Money, where

6
00:00:35,680 --> 00:00:39,720
Speaker 3: we're going to discuss how investors should think about inflation

7
00:00:40,360 --> 00:00:42,040
Speaker 3: to help us unpack all of this and what it

8
00:00:42,080 --> 00:00:46,200
Speaker 3: means for your portfolio. Let's bring in Austin Goldsby. He's

9
00:00:46,400 --> 00:00:49,400
Speaker 3: President of the Federal Reserve Bank of Chicago. He is

10
00:00:49,479 --> 00:00:53,279
Speaker 3: a voting member of the f o MC. Previously, he

11
00:00:53,360 --> 00:00:56,920
Speaker 3: was chairman of the Council of Economic Advisors and was

12
00:00:56,960 --> 00:01:01,760
Speaker 3: in President Barack Obama's cabinet. So let's just start out

13
00:01:01,800 --> 00:01:06,839
Speaker 3: with a simple question. You've talked about the golden path

14
00:01:06,959 --> 00:01:11,639
Speaker 3: between inflation and recession. What lesson should the Federal Reserve

15
00:01:11,760 --> 00:01:18,600
Speaker 3: take from our recent and rather successful about with disinflation.

16
00:01:19,840 --> 00:01:23,000
Speaker 1: Yeah, Verry, thanks for having me on. I called the

17
00:01:23,000 --> 00:01:26,320
Speaker 1: golden path. You remember, as I came into the Fed,

18
00:01:26,400 --> 00:01:29,119
Speaker 1: I started at the very beginning of twenty twenty three.

19
00:01:29,840 --> 00:01:33,440
Speaker 1: In December of twenty twenty two, it was the Bloomberg

20
00:01:33,600 --> 00:01:36,800
Speaker 1: Economists who said there was a one hundred percent chance

21
00:01:36,920 --> 00:01:43,160
Speaker 1: of recession in twenty twenty three, because the historical record

22
00:01:43,800 --> 00:01:47,720
Speaker 1: suggested that to get rid of inflation you had to

23
00:01:47,760 --> 00:01:51,880
Speaker 1: have a big, nasty recession. That's what had happened at

24
00:01:51,920 --> 00:01:55,480
Speaker 1: old times. And what I called the Golden Path was

25
00:01:55,880 --> 00:01:59,760
Speaker 1: in twenty three we had as almost as large ad

26
00:02:00,720 --> 00:02:03,560
Speaker 1: in inflation that we have ever had.

27
00:02:03,320 --> 00:02:04,240
Speaker 4: In a single year.

28
00:02:04,880 --> 00:02:07,960
Speaker 1: And not only was there not a recession, the unemployment

29
00:02:08,080 --> 00:02:12,680
Speaker 1: rate never even got above four percent, a level that

30
00:02:12,919 --> 00:02:17,840
Speaker 1: a lot of folks thought is below full employment. So

31
00:02:18,600 --> 00:02:21,799
Speaker 1: that was a golden Path year, and I think one

32
00:02:21,840 --> 00:02:25,160
Speaker 1: of the principal lessons. There were a couple of principal

33
00:02:25,240 --> 00:02:29,799
Speaker 1: lessons that explain how it was possible. One was the

34
00:02:29,840 --> 00:02:34,400
Speaker 1: supply side was healing on the supply chain, and there

35
00:02:34,480 --> 00:02:40,400
Speaker 1: was a big surge of labor force participation from a

36
00:02:40,480 --> 00:02:44,280
Speaker 1: number of groups. I think a lot of it tied

37
00:02:44,320 --> 00:02:49,520
Speaker 1: to the workforce flexibility, but if you looked at self

38
00:02:49,560 --> 00:02:54,959
Speaker 1: described disabled workers, highest labor force participation ever, so you

39
00:02:55,080 --> 00:02:59,840
Speaker 1: got a number of positive supply shocks that are exactly

40
00:03:00,080 --> 00:03:04,720
Speaker 1: it allowed for the immaculate disinflation, which the people who

41
00:03:04,760 --> 00:03:08,760
Speaker 1: thought that was impossible use that phrase mockingly, but that

42
00:03:08,960 --> 00:03:13,320
Speaker 1: is exactly what happened. And now fast forward to today.

43
00:03:14,400 --> 00:03:21,560
Speaker 1: So in a way, transitory became Steve Leisman's phrase transsatory.

44
00:03:22,080 --> 00:03:27,400
Speaker 1: But it was all because the supply side. When you

45
00:03:27,440 --> 00:03:31,360
Speaker 1: get negative supply shocks, they do heal. But one of

46
00:03:31,360 --> 00:03:36,119
Speaker 1: the lessons of COVID was that might take longer than

47
00:03:36,160 --> 00:03:41,760
Speaker 1: you thought ahead of time because the supply chain is complicated,

48
00:03:42,000 --> 00:03:47,160
Speaker 1: the modern supply chain. And you know that the Chicago

49
00:03:47,240 --> 00:03:50,200
Speaker 1: FED is the seventh District, and we're like the Saudi

50
00:03:50,200 --> 00:03:52,200
Speaker 1: Arabia of auto production.

51
00:03:53,040 --> 00:03:54,400
Speaker 4: In the seventh district, we.

52
00:03:54,440 --> 00:04:01,640
Speaker 1: Got Indiana, Illinois, Michigan, Wisconsin. If you go talk to

53
00:04:02,080 --> 00:04:06,200
Speaker 1: the auto suppliers, that something like the mother of all

54
00:04:06,240 --> 00:04:10,520
Speaker 1: supply chains. Okay, so a single car has up to

55
00:04:10,760 --> 00:04:14,720
Speaker 1: thirty thousand different parts and components in it, and every

56
00:04:14,760 --> 00:04:17,240
Speaker 1: single one of them has its own supply chain. And

57
00:04:17,279 --> 00:04:21,159
Speaker 1: you've probably seen some of these people that will track

58
00:04:21,400 --> 00:04:27,120
Speaker 1: one individual part through the US supply chain and the

59
00:04:27,160 --> 00:04:31,120
Speaker 1: way that it transistor came from Asia. Then they sent

60
00:04:31,160 --> 00:04:34,320
Speaker 1: it to Mexico, they put it into a capacitor, they

61
00:04:34,320 --> 00:04:37,039
Speaker 1: put the capacitor in a seat, get sent to the

62
00:04:37,080 --> 00:04:40,560
Speaker 1: seat manufacturer in Michigan, it goes to Canada, comes back

63
00:04:40,560 --> 00:04:42,800
Speaker 1: to the US, finally gets put in a car, and

64
00:04:42,839 --> 00:04:44,719
Speaker 1: you go buy it on the lot and drive it out.

65
00:04:45,440 --> 00:04:50,159
Speaker 1: In an environment like that, the spillovers can't take a

66
00:04:50,160 --> 00:04:53,160
Speaker 1: long time. That's what we saw in COVID. That you

67
00:04:53,200 --> 00:04:58,280
Speaker 1: couldn't get computer chips, so you couldn't make the electronic.

68
00:04:57,720 --> 00:05:00,440
Speaker 4: Seat, so they couldn't make the car. The price of

69
00:05:00,520 --> 00:05:01,240
Speaker 4: cars went up.

70
00:05:01,680 --> 00:05:06,359
Speaker 1: Then that meant the rental car companies couldn't get new cars,

71
00:05:06,360 --> 00:05:08,600
Speaker 1: so the price of rental cars went up. Then the

72
00:05:09,320 --> 00:05:12,120
Speaker 1: whatever the US car salesman who used the rental car,

73
00:05:12,400 --> 00:05:16,159
Speaker 1: and so that thing played out over years, not weeks.

74
00:05:17,240 --> 00:05:21,200
Speaker 1: My fear now is that if you're going to do

75
00:05:21,279 --> 00:05:24,240
Speaker 1: something negative on the supply side, and make no doubt

76
00:05:24,279 --> 00:05:30,680
Speaker 1: about it, tariffs on intermediate goods like steel, like parts

77
00:05:30,680 --> 00:05:33,520
Speaker 1: and components like the things that are getting sent from

78
00:05:33,560 --> 00:05:38,520
Speaker 1: auto factories from suppliers in Canada that are getting sent

79
00:05:38,680 --> 00:05:42,400
Speaker 1: over the border to be fabricated into the car in Michigan.

80
00:05:42,920 --> 00:05:47,039
Speaker 1: That's a negative supply shock. And I hope that it's

81
00:05:47,080 --> 00:05:52,560
Speaker 1: small enough or short lived enough that it doesn't reteach

82
00:05:52,680 --> 00:05:57,120
Speaker 1: us the lessons of COVID, But it might The lesson

83
00:05:57,120 --> 00:06:00,640
Speaker 1: of COVID was that can have if it's big enough,

84
00:06:00,880 --> 00:06:05,279
Speaker 1: that can have a longer lasting impact than you might

85
00:06:05,360 --> 00:06:06,679
Speaker 1: have thought at the beginning.

86
00:06:06,880 --> 00:06:10,880
Speaker 3: So let me ask you a question about that recession

87
00:06:10,920 --> 00:06:14,080
Speaker 3: that never showed up. Forget one hundred percent chance of

88
00:06:14,120 --> 00:06:18,080
Speaker 3: recession twenty two, twenty three, twenty four, half of the

89
00:06:18,120 --> 00:06:23,680
Speaker 3: Wall Street economists were forecasting recessions, and no less in

90
00:06:23,920 --> 00:06:29,680
Speaker 3: August and well regarded economist than Lauren Summers was saying, Hey,

91
00:06:29,680 --> 00:06:33,200
Speaker 3: you'll need ten percent unemployment to bring this inflation down.

92
00:06:33,920 --> 00:06:34,840
Speaker 2: What was it.

93
00:06:35,040 --> 00:06:40,320
Speaker 3: About the historical models that seems to have gotten this

94
00:06:40,600 --> 00:06:42,159
Speaker 3: economic cycle so wrong?

95
00:06:42,600 --> 00:06:49,080
Speaker 1: Well, that's the critical question, and Summers said it either

96
00:06:49,120 --> 00:06:52,600
Speaker 1: had to go to ten percent or if it went

97
00:06:52,640 --> 00:06:57,000
Speaker 1: to six percent, it would take five years of unemployment

98
00:06:57,040 --> 00:07:00,839
Speaker 1: above six percent. I think the thing that got wrong

99
00:07:01,600 --> 00:07:05,960
Speaker 1: that worldview got wrong is that it was rooted in

100
00:07:06,720 --> 00:07:12,960
Speaker 1: almost all previous business cycles were regular demand driven business cycles,

101
00:07:13,520 --> 00:07:14,840
Speaker 1: and that's the logic.

102
00:07:14,920 --> 00:07:16,120
Speaker 4: In a demand driven.

103
00:07:15,920 --> 00:07:22,240
Speaker 1: Business cycle, you overstimulate, inflation goes up, inflation expectations go up,

104
00:07:22,520 --> 00:07:24,520
Speaker 1: and you have a hell of a time getting it

105
00:07:24,560 --> 00:07:25,000
Speaker 1: out of there.

106
00:07:25,400 --> 00:07:27,600
Speaker 4: As you know, I was an old.

107
00:07:27,320 --> 00:07:30,560
Speaker 1: Dear friend with Paul Volker, and he was a mentor

108
00:07:31,360 --> 00:07:35,320
Speaker 1: of mine and a personal he wrote really and one

109
00:07:35,360 --> 00:07:39,680
Speaker 1: of the lessons of the Vulgar episode, which was a

110
00:07:39,760 --> 00:07:44,640
Speaker 1: time when inflation expectations went way up, is that it's

111
00:07:44,720 --> 00:07:49,440
Speaker 1: extremely painful if the FED or the central Bank does

112
00:07:49,520 --> 00:07:50,880
Speaker 1: not have credibility.

113
00:07:51,200 --> 00:07:53,080
Speaker 4: It's extremely painful to.

114
00:07:53,040 --> 00:07:57,960
Speaker 1: Get rid of inflation in an environment where the FED

115
00:07:58,320 --> 00:08:03,320
Speaker 1: is credible. So that even as headline CPI inflation was

116
00:08:03,360 --> 00:08:07,200
Speaker 1: approaching double digits, the FED was announcing, we will get

117
00:08:07,240 --> 00:08:09,920
Speaker 1: inflation back to two percent. And if you go look

118
00:08:10,000 --> 00:08:15,000
Speaker 1: at the market estimation from tips or from others, people

119
00:08:15,040 --> 00:08:17,640
Speaker 1: believed it. If you looked at the what do you

120
00:08:17,760 --> 00:08:21,000
Speaker 1: think inflation will be in five years, they were saying

121
00:08:21,000 --> 00:08:22,440
Speaker 1: it will be back to two percent.

122
00:08:23,000 --> 00:08:24,040
Speaker 4: That is a.

123
00:08:23,960 --> 00:08:28,920
Speaker 1: Sign of credibility of the central bank. So A, you

124
00:08:29,000 --> 00:08:33,320
Speaker 1: must have credibility, and B you must have the good

125
00:08:33,400 --> 00:08:39,400
Speaker 1: fortune that positive supply shocks in our case one a

126
00:08:39,440 --> 00:08:45,360
Speaker 1: big increase in labor force participation that was enabled I

127
00:08:45,400 --> 00:08:48,560
Speaker 1: think by some of the more flexible work arrangements. Two

128
00:08:48,920 --> 00:08:53,160
Speaker 1: that we had had such a horrible supply chain experience

129
00:08:53,480 --> 00:08:55,760
Speaker 1: coming through COVID with shortages.

130
00:08:55,200 --> 00:08:59,880
Speaker 4: Et cetera. That could heal, and then three a pretty.

131
00:08:59,559 --> 00:09:04,320
Speaker 1: Subst stanchel uptick in the rate of productivity growth. That

132
00:09:04,480 --> 00:09:08,320
Speaker 1: combination was a lovely combination that allowed inflation to come

133
00:09:08,360 --> 00:09:12,280
Speaker 1: down without a recession. And I think that the chat

134
00:09:12,360 --> 00:09:16,400
Speaker 1: GPTAI version of a central bank would have got it

135
00:09:16,440 --> 00:09:18,600
Speaker 1: wrong because it would have been based on a training

136
00:09:18,679 --> 00:09:21,679
Speaker 1: sample that was a whole bunch of demand shocks, and

137
00:09:21,720 --> 00:09:25,800
Speaker 1: this really wasn't a demand shock induced business cycle. And

138
00:09:25,840 --> 00:09:29,480
Speaker 1: you know, look, it doesn't take somebody with the market

139
00:09:29,559 --> 00:09:33,079
Speaker 1: acumen that you have, Barry, and it certainly doesn't take

140
00:09:33,080 --> 00:09:37,199
Speaker 1: a PhD to look out and recognize that the COVID

141
00:09:37,320 --> 00:09:43,480
Speaker 1: business cycle was driven by industries that are not normally cyclical.

142
00:09:43,800 --> 00:09:49,720
Speaker 1: Normally cyclicals like consumer durables or business investment are the

143
00:09:49,800 --> 00:09:53,480
Speaker 1: thing that drives the recession. And here the demand for

144
00:09:53,520 --> 00:09:57,720
Speaker 1: consumer durables went up because people could not spend money

145
00:09:58,160 --> 00:10:02,320
Speaker 1: on services. But this is the only recession we ever

146
00:10:02,360 --> 00:10:04,240
Speaker 1: had that came from people not being able to go

147
00:10:04,280 --> 00:10:04,959
Speaker 1: to the dentist.

148
00:10:05,320 --> 00:10:06,480
Speaker 4: And the thing.

149
00:10:06,360 --> 00:10:10,200
Speaker 1: About that, and like the dentist is normally recession proof.

150
00:10:10,679 --> 00:10:14,160
Speaker 1: And so that's why we everybody should have been more

151
00:10:14,240 --> 00:10:19,600
Speaker 1: humble in pronouncing what the future would be coming out

152
00:10:19,600 --> 00:10:23,400
Speaker 1: of such a weird o business cycle and we're still kind.

153
00:10:23,240 --> 00:10:24,000
Speaker 4: Of living with that.

154
00:10:24,120 --> 00:10:28,719
Speaker 3: So let's talk about humility. You have specifically mentioned that

155
00:10:28,760 --> 00:10:32,600
Speaker 3: the FED needs to be quote more careful and more

156
00:10:32,720 --> 00:10:37,000
Speaker 3: prudent about rate cuts due to the risk of inflation

157
00:10:37,480 --> 00:10:41,920
Speaker 3: kicking back up again. So what specific inflation indicators are

158
00:10:41,960 --> 00:10:44,880
Speaker 3: you watching closely in twenty twenty five.

159
00:10:46,440 --> 00:10:49,800
Speaker 4: Okay, I'm thankful, Barry. I thought you were gonna be like, let's.

160
00:10:49,600 --> 00:10:52,240
Speaker 1: Talk about humility, you once said, and I thought you're

161
00:10:52,240 --> 00:10:55,079
Speaker 1: going to be like, You're You're not a humble person. Look,

162
00:10:56,720 --> 00:11:01,559
Speaker 1: I have actually been before we got to this dust

163
00:11:01,720 --> 00:11:08,920
Speaker 1: in the air period where everybody's talking about major either

164
00:11:09,080 --> 00:11:13,439
Speaker 1: geopolitical changes to conditions or changes of policy conditions that

165
00:11:13,559 --> 00:11:20,680
Speaker 1: might affect inflation. I've been more confident. I've had comfort

166
00:11:21,040 --> 00:11:23,640
Speaker 1: we're still on the path to get inflation to two

167
00:11:23,640 --> 00:11:25,880
Speaker 1: percent and we could cut rates.

168
00:11:26,400 --> 00:11:26,640
Speaker 4: Now.

169
00:11:27,520 --> 00:11:34,000
Speaker 1: I'm open to being proven wrong, and if I adjust the.

170
00:11:35,559 --> 00:11:37,599
Speaker 4: I'm in the data dog caucus.

171
00:11:38,080 --> 00:11:43,400
Speaker 1: If the data come in and the outlook is changing,

172
00:11:43,880 --> 00:11:48,880
Speaker 1: for sure, I would change my view. But the I

173
00:11:48,920 --> 00:11:52,520
Speaker 1: think it's critical to answer your question specifically, what should

174
00:11:52,559 --> 00:11:56,400
Speaker 1: we look at inflation? I think number one, you want

175
00:11:56,440 --> 00:12:00,160
Speaker 1: to look at the through line on inflation, not get

176
00:12:00,200 --> 00:12:05,280
Speaker 1: overly indexed on monthly gyrations. It's a very noisy series, okay,

177
00:12:05,360 --> 00:12:09,560
Speaker 1: So looking over a longer period and what matters is

178
00:12:09,600 --> 00:12:15,520
Speaker 1: the new months coming in the inflation that's a twelve

179
00:12:15,679 --> 00:12:19,880
Speaker 1: month backward looking average, which is usually what we're reporting

180
00:12:19,880 --> 00:12:24,200
Speaker 1: in Eleven of the twelve months that are included in

181
00:12:24,240 --> 00:12:25,960
Speaker 1: that are not new information.

182
00:12:26,320 --> 00:12:27,280
Speaker 4: We already knew that.

183
00:12:27,600 --> 00:12:32,880
Speaker 1: We knew, for example, that the blip up in inflation

184
00:12:33,240 --> 00:12:36,680
Speaker 1: last January more than a year ago, was going to

185
00:12:36,800 --> 00:12:39,800
Speaker 1: fall out the back and so that it would be

186
00:12:39,920 --> 00:12:43,120
Speaker 1: very likely that the twelve month average would start dropping

187
00:12:43,400 --> 00:12:45,880
Speaker 1: here in the first quarter, but that would not be

188
00:12:45,960 --> 00:12:49,960
Speaker 1: a sign that the inflation is falling right now. The

189
00:12:50,040 --> 00:12:51,320
Speaker 1: inflation already fell.

190
00:12:51,840 --> 00:12:54,160
Speaker 4: It is just like how we do the average.

191
00:12:54,200 --> 00:12:58,400
Speaker 1: So Number one, I put a lot of weight on

192
00:12:58,520 --> 00:13:01,520
Speaker 1: the new months coming in and trying to get the

193
00:13:01,559 --> 00:13:03,199
Speaker 1: through line of.

194
00:13:03,040 --> 00:13:06,679
Speaker 4: That, not just react to one month.

195
00:13:07,200 --> 00:13:12,480
Speaker 1: And second thing that helps me that I find outpal

196
00:13:12,920 --> 00:13:16,080
Speaker 1: is looking at the components of core inflation. Now I

197
00:13:16,120 --> 00:13:18,880
Speaker 1: know it can drive people nuts, like to drive my

198
00:13:18,960 --> 00:13:23,120
Speaker 1: mom nuts, that we put our focus on core inflation

199
00:13:23,679 --> 00:13:28,800
Speaker 1: and not food and energy inflation, because.

200
00:13:28,440 --> 00:13:30,480
Speaker 4: My mom's like, what do you mean you're not.

201
00:13:30,840 --> 00:13:34,120
Speaker 1: Paying attention to food and energy inflation that's very public

202
00:13:34,520 --> 00:13:39,760
Speaker 1: top of mind for her. It's because those are so variable,

203
00:13:40,000 --> 00:13:44,440
Speaker 1: they're up there, down we think the better observation is

204
00:13:44,480 --> 00:13:48,679
Speaker 1: to look at core, and then within core, there's goods,

205
00:13:48,720 --> 00:13:54,960
Speaker 1: there's services, there's housing. Our problem has been goods inflation

206
00:13:55,120 --> 00:13:56,920
Speaker 1: had returned to deflation and.

207
00:13:56,920 --> 00:13:57,720
Speaker 4: Was looking good.

208
00:13:58,640 --> 00:14:04,239
Speaker 1: Housing inflation's in the biggest puzzle, and services inflation pretty persistent.

209
00:14:05,120 --> 00:14:07,360
Speaker 1: The things that have given me a little more confidence

210
00:14:07,520 --> 00:14:10,280
Speaker 1: lately is that even as we had a bit of

211
00:14:10,280 --> 00:14:15,160
Speaker 1: a blip up in the inflation here, the components still

212
00:14:15,200 --> 00:14:18,880
Speaker 1: look pretty good. The housing inflation has finally started falling

213
00:14:19,200 --> 00:14:22,880
Speaker 1: on a pretty persistent basis, as we've been wanting it to,

214
00:14:23,640 --> 00:14:27,600
Speaker 1: Services getting closer, much closer to what it was pre COVID,

215
00:14:27,720 --> 00:14:29,440
Speaker 1: housing back close to what.

216
00:14:29,400 --> 00:14:30,400
Speaker 4: It was pre COVID.

217
00:14:31,080 --> 00:14:33,280
Speaker 1: And the thing that has been firmed up here in

218
00:14:33,320 --> 00:14:36,000
Speaker 1: the last couple of months has actually been goods.

219
00:14:36,840 --> 00:14:38,280
Speaker 4: And the thing about goods.

220
00:14:37,960 --> 00:14:43,200
Speaker 1: Inflation is, as you know, and as some of my

221
00:14:43,880 --> 00:14:47,560
Speaker 1: research showed before I ever got to the FED, goods

222
00:14:47,640 --> 00:14:54,080
Speaker 1: inflation over long periods is actually deflation. The two percent

223
00:14:54,280 --> 00:14:59,560
Speaker 1: inflation that we were at before COVID was housing three

224
00:14:59,640 --> 00:15:03,680
Speaker 1: and a half the four per year, services two and

225
00:15:03,720 --> 00:15:07,400
Speaker 1: a half per year, and goods minus a half to

226
00:15:07,520 --> 00:15:11,240
Speaker 1: minus one per year. And so I think it's overwhelmingly

227
00:15:11,480 --> 00:15:14,880
Speaker 1: likely that goods will go back to that very long

228
00:15:14,920 --> 00:15:18,880
Speaker 1: standing trend and as it does, so that's Those are

229
00:15:18,920 --> 00:15:20,560
Speaker 1: the kinds of things that give me confidence.

230
00:15:20,760 --> 00:15:25,000
Speaker 3: So you mentioned housing. We seem to have two ongoing

231
00:15:25,040 --> 00:15:29,200
Speaker 3: issues with housing. The first is it appears that since

232
00:15:29,240 --> 00:15:34,760
Speaker 3: the financial crisis we've significantly underbuilt single family homes as

233
00:15:34,760 --> 00:15:39,160
Speaker 3: built yeah as the population can and multifamily. So you

234
00:15:39,240 --> 00:15:45,600
Speaker 3: have the population growing, you still have fairly decent immigration numbers.

235
00:15:45,920 --> 00:15:49,400
Speaker 3: Too much demand, not enough supply. The first question is

236
00:15:50,240 --> 00:15:53,960
Speaker 3: what can we do to generate more supply in housing?

237
00:15:54,120 --> 00:15:59,680
Speaker 3: Do higher rates operate as a headwind against builders, contractors,

238
00:15:59,680 --> 00:16:01,880
Speaker 3: developed helopers putting up more housing.

239
00:16:02,880 --> 00:16:08,040
Speaker 1: Look, this is a tangled This is a tangled web

240
00:16:09,840 --> 00:16:14,560
Speaker 1: that is critically important to the economy. You've seen the

241
00:16:14,680 --> 00:16:20,680
Speaker 1: relative price of housing go way up post COVID. But

242
00:16:20,880 --> 00:16:24,880
Speaker 1: the one thing that I want to highlight is, yes,

243
00:16:25,160 --> 00:16:29,280
Speaker 1: it's very noticeable, but it's not new. If you look

244
00:16:29,480 --> 00:16:33,200
Speaker 1: like I said, for the whole decade plus pre COVID,

245
00:16:33,720 --> 00:16:37,080
Speaker 1: you had house prices going up three and a half

246
00:16:37,160 --> 00:16:41,280
Speaker 1: percent a year, goods prices going down one percent a year.

247
00:16:41,680 --> 00:16:46,200
Speaker 1: If you just compare housing relative price versus going to

248
00:16:46,400 --> 00:16:51,440
Speaker 1: costco relative price a thing that compounds five percent a

249
00:16:51,520 --> 00:16:54,560
Speaker 1: year for fifteen or twenty years, Yeah, that's gonna be

250
00:16:54,680 --> 00:16:57,120
Speaker 1: a really big difference at the end of that time.

251
00:16:57,480 --> 00:17:01,680
Speaker 1: And so I think one component that people are seeing,

252
00:17:01,680 --> 00:17:04,600
Speaker 1: and they're not wrong. You see the frustration of young people.

253
00:17:04,600 --> 00:17:09,160
Speaker 1: They say, you know, when my dad was twenty five

254
00:17:09,240 --> 00:17:13,920
Speaker 1: years old, he on one job could afford a decent house,

255
00:17:13,960 --> 00:17:17,080
Speaker 1: and I can't buy a condo. And they're not wrong.

256
00:17:17,200 --> 00:17:19,919
Speaker 1: The relative price of housing has gone way up. I

257
00:17:19,960 --> 00:17:21,359
Speaker 1: think some component of.

258
00:17:21,240 --> 00:17:21,920
Speaker 4: That is.

259
00:17:23,560 --> 00:17:27,800
Speaker 1: Regulatory in nature and business permits. And I've been convinced

260
00:17:28,119 --> 00:17:30,480
Speaker 1: by a bunch of the evidence that land use regulation

261
00:17:31,400 --> 00:17:35,320
Speaker 1: have made it very difficult for us to build housing

262
00:17:35,480 --> 00:17:39,239
Speaker 1: of any form, single family homes, multi family homes. I

263
00:17:39,400 --> 00:17:42,320
Speaker 1: have a I did some research. It was about the

264
00:17:42,320 --> 00:17:48,160
Speaker 1: construction industry, and another thing going on is that overall

265
00:17:48,280 --> 00:17:52,640
Speaker 1: productivity in the construction industry has not only been stagnant,

266
00:17:52,840 --> 00:17:56,360
Speaker 1: actually over long periods of time, been negative that we've

267
00:17:56,400 --> 00:18:00,480
Speaker 1: got worse at building the same things that that we

268
00:18:00,560 --> 00:18:02,879
Speaker 1: did twenty thirty years ago.

269
00:18:03,200 --> 00:18:05,080
Speaker 4: So I think that's part of it.

270
00:18:05,320 --> 00:18:11,439
Speaker 1: And I think you're highlighting that rates do have.

271
00:18:11,359 --> 00:18:12,240
Speaker 4: A twin.

272
00:18:13,640 --> 00:18:18,239
Speaker 1: They do have a twin twined effect. One as they

273
00:18:18,280 --> 00:18:21,440
Speaker 1: affect demand, but the other is they do affect construction.

274
00:18:22,720 --> 00:18:26,440
Speaker 1: And so I think in a higher rate environment, if

275
00:18:26,440 --> 00:18:28,040
Speaker 1: you're trying to cool the economy, this.

276
00:18:28,080 --> 00:18:29,080
Speaker 4: Is always true.

277
00:18:29,600 --> 00:18:32,840
Speaker 1: But the shift of more and more of our mortgages

278
00:18:33,359 --> 00:18:37,920
Speaker 1: to being thirty year fixed than they were saying two

279
00:18:37,960 --> 00:18:43,160
Speaker 1: thousand and seven have meant that changing rates can have

280
00:18:43,320 --> 00:18:46,840
Speaker 1: more of a lock in effect than and it kind

281
00:18:46,840 --> 00:18:51,159
Speaker 1: of dull the immediate impact of monetary policy than it

282
00:18:51,200 --> 00:18:54,360
Speaker 1: does in a more immediate mortgage impact environment.

283
00:18:54,520 --> 00:18:59,560
Speaker 3: Let's walk out a little bit about housing owner's equivalent.

284
00:18:59,600 --> 00:19:03,399
Speaker 3: Rent has been this bugaboo for a long time that

285
00:19:03,640 --> 00:19:09,440
Speaker 3: some people following the financial crisis said had understated housing inflation.

286
00:19:10,240 --> 00:19:15,320
Speaker 3: Now there's some people saying something similar. How do we

287
00:19:15,520 --> 00:19:17,240
Speaker 3: And I know the FED has looked at this. There's

288
00:19:17,200 --> 00:19:18,840
Speaker 3: been a number of white papers that have come out

289
00:19:18,840 --> 00:19:22,120
Speaker 3: of the FED. How should we think about the equivalent

290
00:19:22,359 --> 00:19:27,480
Speaker 3: of renting versus ownership? In terms of the impact on inflation.

291
00:19:27,920 --> 00:19:32,640
Speaker 1: You raise several critical points if we're going to walk

292
00:19:32,680 --> 00:19:38,840
Speaker 1: out on housing and inflation. Point one, it's not single

293
00:19:38,960 --> 00:19:45,680
Speaker 1: family home sales prices, its owner equivalent rent plus rents.

294
00:19:45,760 --> 00:19:49,320
Speaker 1: And the reason it's that is because part of buying

295
00:19:49,359 --> 00:19:52,959
Speaker 1: a house is a financial asset. So if you're buying

296
00:19:52,960 --> 00:19:55,840
Speaker 1: a house and the values going up and you're selling

297
00:19:55,920 --> 00:20:01,000
Speaker 1: it for more, and if there's speculation, that's not really housing.

298
00:20:01,040 --> 00:20:04,320
Speaker 1: What you're trying to get, that's not really inflation, but

299
00:20:04,440 --> 00:20:08,119
Speaker 1: you're trying to get for housing inflation is something like

300
00:20:08,240 --> 00:20:11,159
Speaker 1: the CPI how much more does it cost for the

301
00:20:11,240 --> 00:20:15,879
Speaker 1: same housing services, And that's why they try to compute

302
00:20:16,160 --> 00:20:20,720
Speaker 1: owner equivalent rent and similar Point two, that's there's a

303
00:20:20,880 --> 00:20:25,239
Speaker 1: heavy lag in the way they do it. So in

304
00:20:25,280 --> 00:20:31,480
Speaker 1: a way, the critics were correct that it was understating

305
00:20:31,560 --> 00:20:36,000
Speaker 1: inflation on the way up, and the other critics are

306
00:20:36,119 --> 00:20:39,960
Speaker 1: right that now it's overstating inflation on the way down.

307
00:20:40,200 --> 00:20:43,840
Speaker 1: For the same reason that it's kind of like if

308
00:20:43,920 --> 00:20:49,080
Speaker 1: you were measuring average rent and people were raising that

309
00:20:49,160 --> 00:20:52,320
Speaker 1: it was a time when the market was raising the rent.

310
00:20:53,000 --> 00:20:55,959
Speaker 1: It's gonna take time before that shows up in average

311
00:20:56,000 --> 00:21:00,760
Speaker 1: rents because the contracts last for a year and turning over,

312
00:21:00,840 --> 00:21:04,000
Speaker 1: so you get this automatic lag in there. I think

313
00:21:04,040 --> 00:21:10,040
Speaker 1: that has been a major component of measured housing inflation

314
00:21:10,640 --> 00:21:13,320
Speaker 1: because if you go look at market based measures like

315
00:21:13,359 --> 00:21:19,240
Speaker 1: from Zillo or others, they were showing rapid drops in

316
00:21:19,320 --> 00:21:23,080
Speaker 1: the inflation rate back to or in some cases even

317
00:21:23,160 --> 00:21:28,639
Speaker 1: below what inflation was before COVID started. And so that's

318
00:21:28,720 --> 00:21:34,320
Speaker 1: been the puzzle. That's it's been our impatience. Why hasn't

319
00:21:34,359 --> 00:21:38,679
Speaker 1: it shown up yet? That's been true for quite a while,

320
00:21:38,800 --> 00:21:42,520
Speaker 1: and the lag theory it should start showing up.

321
00:21:42,600 --> 00:21:44,480
Speaker 4: Well, finally it has, and.

322
00:21:44,600 --> 00:21:49,560
Speaker 1: That's why I have a little more confidence that the

323
00:21:49,600 --> 00:21:52,760
Speaker 1: housing inflation improvement will be lasting.

324
00:21:53,200 --> 00:21:54,840
Speaker 4: Is it was, it.

325
00:21:54,800 --> 00:21:57,840
Speaker 1: Took a long time to run up, and now it's

326
00:21:57,880 --> 00:22:01,040
Speaker 1: finally started coming down, So I think it's it's probably

327
00:22:01,080 --> 00:22:04,479
Speaker 1: got legs of coming down. So I think those are

328
00:22:04,520 --> 00:22:07,879
Speaker 1: two key components on the housing inflation side.

329
00:22:08,720 --> 00:22:09,359
Speaker 4: We could get it.

330
00:22:09,480 --> 00:22:13,800
Speaker 1: We could even go into a third layer of wonky,

331
00:22:13,880 --> 00:22:17,960
Speaker 1: but it's more subtle, which is the component. If you

332
00:22:18,040 --> 00:22:23,640
Speaker 1: think about rents and say market rents in Zillo, or

333
00:22:24,160 --> 00:22:29,160
Speaker 1: who are renters versus who are new home buyers, they're

334
00:22:29,320 --> 00:22:32,560
Speaker 1: sort of different markets, and so it doesn't have to

335
00:22:32,640 --> 00:22:36,760
Speaker 1: be that the inflation rate of the zilo market rents

336
00:22:36,800 --> 00:22:43,040
Speaker 1: matches the owner equivalent rents that they're measuring at the BLS,

337
00:22:43,520 --> 00:22:48,400
Speaker 1: because they might be different. New renters and existing tenants

338
00:22:49,600 --> 00:22:52,280
Speaker 1: might be a little bit too separate markets.

339
00:22:52,320 --> 00:22:55,160
Speaker 3: It makes a lot of sense. You mentioned the two

340
00:22:55,200 --> 00:23:00,720
Speaker 3: percent inflation target. In the twenty tens, an era dominated

341
00:23:00,760 --> 00:23:05,240
Speaker 3: by monetary policy, the FED had a two percent inflation target.

342
00:23:05,960 --> 00:23:10,440
Speaker 3: Now in the twenty twenties, we have a primarily fiscally

343
00:23:10,560 --> 00:23:14,280
Speaker 3: driven economy, or at least post pandemic. That's what it

344
00:23:14,320 --> 00:23:17,560
Speaker 3: feels like. You've said, you've turned one hundred and eighty

345
00:23:17,600 --> 00:23:21,520
Speaker 3: degrees on the inflation target question since your initial thoughts

346
00:23:21,520 --> 00:23:24,520
Speaker 3: in twenty twelve. Tell us about that. Explain that.

347
00:23:25,520 --> 00:23:32,280
Speaker 1: Okay, so in twenty twelve there had been vague targets.

348
00:23:32,680 --> 00:23:36,560
Speaker 1: In twenty twelve, I believe is when the FED officially said,

349
00:23:36,600 --> 00:23:40,359
Speaker 1: where you have a two point zero zero zero percent

350
00:23:40,440 --> 00:23:42,960
Speaker 1: inflation target, and you go back and look, I wasn't

351
00:23:43,000 --> 00:23:43,520
Speaker 1: at the FED.

352
00:23:43,880 --> 00:23:44,640
Speaker 4: I was critical.

353
00:23:44,760 --> 00:23:50,080
Speaker 1: I was publicly critical on the grounds that that conveyed

354
00:23:50,119 --> 00:23:54,920
Speaker 1: a way false sense of precision. To me, that if

355
00:23:55,000 --> 00:23:59,440
Speaker 1: I asked you just take the take the standard deviation

356
00:24:00,080 --> 00:24:06,159
Speaker 1: of the inflation series and ask yourself how many observations

357
00:24:06,960 --> 00:24:09,600
Speaker 1: would you need to get to be able to distinguish

358
00:24:09,960 --> 00:24:13,240
Speaker 1: between a two point zero percent inflation rate and a

359
00:24:13,320 --> 00:24:15,760
Speaker 1: two point one percent inflation rate.

360
00:24:16,080 --> 00:24:18,119
Speaker 4: And the answer was like decades.

361
00:24:18,200 --> 00:24:22,000
Speaker 1: You need decades a monthly observation before you could tell no, no,

362
00:24:22,880 --> 00:24:25,199
Speaker 1: this is two point one not two point zero. So

363
00:24:25,280 --> 00:24:30,440
Speaker 1: that was my critique. Fast forward to the inflation. Now

364
00:24:31,119 --> 00:24:36,720
Speaker 1: it goes way up. And the one wonky thing that

365
00:24:36,800 --> 00:24:39,240
Speaker 1: you got to know, what you already know, Barry, but

366
00:24:39,359 --> 00:24:43,359
Speaker 1: the average person might not know, is the two point

367
00:24:43,600 --> 00:24:49,240
Speaker 1: zero percent inflation target is for personal consumption expenditure inflation

368
00:24:49,440 --> 00:24:53,879
Speaker 1: PCEE inflation. That's not CPI. It's a little different. They

369
00:24:53,920 --> 00:24:57,280
Speaker 1: have different weightings of what goes into it. We believe

370
00:24:57,400 --> 00:25:01,840
Speaker 1: the PCEE measure, which instead of the CPI measures a

371
00:25:01,840 --> 00:25:06,399
Speaker 1: basket and the pce measures everything consumers spend money on,

372
00:25:06,600 --> 00:25:07,919
Speaker 1: so it's the better measure.

373
00:25:08,240 --> 00:25:10,679
Speaker 4: But just as a technical.

374
00:25:12,040 --> 00:25:16,479
Speaker 1: CPI of two point three is about the equivalent of

375
00:25:16,520 --> 00:25:21,520
Speaker 1: a PCEE of two point zero. Okay, we go through COVID,

376
00:25:21,960 --> 00:25:27,879
Speaker 1: the inflation post COVID source to almost double digits. In

377
00:25:28,080 --> 00:25:33,640
Speaker 1: long run inflation expectations measured in the market never go up.

378
00:25:34,400 --> 00:25:41,320
Speaker 1: They remain exactly and they're off of CPI. Importantly, they

379
00:25:41,359 --> 00:25:46,840
Speaker 1: remain exactly two point three percent. And so I said,

380
00:25:47,119 --> 00:25:51,600
Speaker 1: either that's the biggest coincidence in the history of price indices,

381
00:25:52,240 --> 00:25:56,439
Speaker 1: or else the inflation target of two point zero is

382
00:25:56,520 --> 00:26:00,399
Speaker 1: serving as exactly the anchor that it's advocates said it

383
00:26:00,440 --> 00:26:00,760
Speaker 1: would be.

384
00:26:01,240 --> 00:26:04,000
Speaker 4: And at that point I changed one hundred and eighty degrees.

385
00:26:04,080 --> 00:26:06,879
Speaker 1: And I not only am I not opposed to the

386
00:26:06,920 --> 00:26:10,440
Speaker 1: inflation target, I think it's critical, it's vital, and it

387
00:26:10,520 --> 00:26:13,040
Speaker 1: is serving as exactly the anchor that we needed.

388
00:26:13,160 --> 00:26:17,880
Speaker 3: So it's a magnet, not necessarily a landing spot. Really

389
00:26:17,920 --> 00:26:19,960
Speaker 3: interesting you mentioned will be.

390
00:26:19,960 --> 00:26:22,000
Speaker 1: The landing spot it will be.

391
00:26:22,280 --> 00:26:23,080
Speaker 4: You may get.

392
00:26:24,000 --> 00:26:27,239
Speaker 3: You mentioned inflation expectations when when we look at some

393
00:26:27,320 --> 00:26:31,520
Speaker 3: of the survey data in twenty twenty and twenty one,

394
00:26:31,760 --> 00:26:36,800
Speaker 3: right before inflation really exploded higher, they were really low.

395
00:26:36,960 --> 00:26:39,720
Speaker 3: And then go fast forward to June twenty twenty two,

396
00:26:40,440 --> 00:26:44,240
Speaker 3: just as inflation was peaking, they were really high. How

397
00:26:44,440 --> 00:26:48,639
Speaker 3: close attention does the FED pay to inflation expectation? It

398
00:26:48,880 --> 00:26:53,080
Speaker 3: seems that it's very much a lagging not leading indicator.

399
00:26:53,600 --> 00:26:56,920
Speaker 1: Now fascinating in a way a I should have said

400
00:26:56,920 --> 00:26:57,520
Speaker 1: at the beginning.

401
00:26:58,160 --> 00:26:59,080
Speaker 4: You know the rules.

402
00:26:59,240 --> 00:27:02,080
Speaker 1: I'm not allowed to speak for the fomcing er, the FED,

403
00:27:02,200 --> 00:27:05,040
Speaker 1: only for myself. That gives them great relief, That gives

404
00:27:05,040 --> 00:27:09,639
Speaker 1: my colleagues great relive. In the world of food safety,

405
00:27:09,920 --> 00:27:16,000
Speaker 1: the thing that characterizes almost every worker in the food

406
00:27:16,040 --> 00:27:19,360
Speaker 1: supply chain is frustration. Why do we have to wash

407
00:27:19,400 --> 00:27:22,399
Speaker 1: our hands all the time. There's no nobody's ever getting

408
00:27:22,440 --> 00:27:26,480
Speaker 1: sick from the food, And it's only because they're washing

409
00:27:26,520 --> 00:27:28,800
Speaker 1: their hands all the time that nobody's getting sick from

410
00:27:28,800 --> 00:27:30,720
Speaker 1: the food. I feel that way a little bit about

411
00:27:30,760 --> 00:27:36,040
Speaker 1: inflation expectations. They are lagging indicators if the FED has

412
00:27:36,080 --> 00:27:39,040
Speaker 1: credibility and is doing it right. As soon as that's

413
00:27:39,080 --> 00:27:44,040
Speaker 1: not true, they become very instructive, forward looking indicators. The

414
00:27:44,200 --> 00:27:48,040
Speaker 1: only thing that I want to emphasize as well is

415
00:27:48,359 --> 00:27:51,359
Speaker 1: now we've actually started to get a couple of observations

416
00:27:51,359 --> 00:27:56,920
Speaker 1: where not short run expectations, but longer run expectations actually

417
00:27:56,960 --> 00:28:02,200
Speaker 1: bumped up in the University of Michigan survey. And since

418
00:28:02,320 --> 00:28:06,480
Speaker 1: I had said this about how important inflation expectations, where

419
00:28:06,480 --> 00:28:09,680
Speaker 1: as a measure. A couple of folks asked me, well,

420
00:28:09,720 --> 00:28:14,240
Speaker 1: does that make you nervous? And yes, but a I've

421
00:28:14,280 --> 00:28:18,320
Speaker 1: always said I value the market based measures more than

422
00:28:18,440 --> 00:28:22,439
Speaker 1: survey based measures, and one month is no months. But

423
00:28:23,119 --> 00:28:25,840
Speaker 1: make no doubt about it. If what we started to

424
00:28:25,880 --> 00:28:32,399
Speaker 1: see was persistent, a persistent increase in long run expectations

425
00:28:32,400 --> 00:28:37,600
Speaker 1: of inflation in surveys and market and for example, if

426
00:28:37,600 --> 00:28:41,040
Speaker 1: you started to see long rates rising one for one

427
00:28:41,400 --> 00:28:46,040
Speaker 1: with long run inflation expectations, then that fundamentally, to me,

428
00:28:46,040 --> 00:28:50,200
Speaker 1: means the Fed's job is not done, and we've got

429
00:28:50,240 --> 00:28:54,160
Speaker 1: to go address that because if you's that's one of

430
00:28:54,200 --> 00:28:59,240
Speaker 1: the main lessons of the vulgar experience and central banks

431
00:28:59,240 --> 00:29:04,000
Speaker 1: around the world. If the expectations start rising, it is

432
00:29:04,200 --> 00:29:06,760
Speaker 1: really hard to slay. You don't have to just slay

433
00:29:06,800 --> 00:29:10,680
Speaker 1: the inflation dragon. You have to go convince people that

434
00:29:10,960 --> 00:29:14,160
Speaker 1: it's going to stick. And it kind of the only

435
00:29:14,200 --> 00:29:17,320
Speaker 1: way we know, the only way we know central banks

436
00:29:17,360 --> 00:29:20,640
Speaker 1: have been able to convey that is to have awful

437
00:29:20,680 --> 00:29:25,000
Speaker 1: recessions where they grind down wages to convince people look

438
00:29:25,400 --> 00:29:29,760
Speaker 1: that we will keep the job market as suppressed as

439
00:29:29,800 --> 00:29:33,400
Speaker 1: we need to. As proved that We're serious, so we

440
00:29:33,600 --> 00:29:37,000
Speaker 1: don't ever want to get back into that situation if

441
00:29:37,000 --> 00:29:37,480
Speaker 1: we can help.

442
00:29:37,520 --> 00:29:42,800
Speaker 3: The last question on inflation, you have mentioned that prioritizing

443
00:29:43,320 --> 00:29:48,360
Speaker 3: real economic channels the real economy over wealth effects. Can

444
00:29:48,440 --> 00:29:52,120
Speaker 3: you can you explain this perspective. Why does the real

445
00:29:52,200 --> 00:29:56,880
Speaker 3: economy channels matter more to the wealth effects. I always

446
00:29:56,920 --> 00:30:00,840
Speaker 3: thought the wealth effect was so dramatically over st because

447
00:30:01,440 --> 00:30:03,840
Speaker 3: you know, it's typically the wealthy that owns most of

448
00:30:03,880 --> 00:30:06,920
Speaker 3: the stocks, and the real economy is the real economy.

449
00:30:06,920 --> 00:30:09,040
Speaker 3: But I'm curious as to your perspective.

450
00:30:09,880 --> 00:30:13,280
Speaker 1: Yeah, look, I would expand it a little more than

451
00:30:13,400 --> 00:30:14,440
Speaker 1: just the wealth effect.

452
00:30:14,960 --> 00:30:16,800
Speaker 4: My view is the.

453
00:30:16,800 --> 00:30:20,160
Speaker 1: Federal Reserve Act tells us we should be looking at

454
00:30:20,200 --> 00:30:25,880
Speaker 1: the real economy, maximizing employment and stabilizing prices. The stock

455
00:30:26,040 --> 00:30:33,280
Speaker 1: market other financial markets can influence those two things, partly

456
00:30:33,360 --> 00:30:37,280
Speaker 1: through the wealth effect. But by the very first speech

457
00:30:37,320 --> 00:30:40,240
Speaker 1: I gave when I got to the FED, I went

458
00:30:40,240 --> 00:30:44,560
Speaker 1: out to Indiana and a factory where they where they

459
00:30:44,600 --> 00:30:48,200
Speaker 1: make our vs. A community college where they train people

460
00:30:48,200 --> 00:30:51,600
Speaker 1: for advanced manufacturing, and I said this, look, the FED,

461
00:30:51,920 --> 00:30:54,560
Speaker 1: by law, is supposed to be looking at the real

462
00:30:54,600 --> 00:30:58,760
Speaker 1: economy and financial markets to the extent they're affecting the

463
00:30:58,800 --> 00:31:02,880
Speaker 1: real economy. We should pay attention to them. But that's it, Like,

464
00:31:03,000 --> 00:31:08,200
Speaker 1: let's remember the priorities. I quantitatively agree with you. I

465
00:31:08,240 --> 00:31:11,360
Speaker 1: think there are a number of people who overweight the

466
00:31:11,960 --> 00:31:16,520
Speaker 1: wealth effect and its impact on consumer spending. And I

467
00:31:16,680 --> 00:31:20,400
Speaker 1: don't want us to get into a mindset that the

468
00:31:20,440 --> 00:31:23,720
Speaker 1: FED has an accomplishment. If it does something and it

469
00:31:23,840 --> 00:31:28,120
Speaker 1: changes the financial markets, that's an indirect in my worldview.

470
00:31:28,240 --> 00:31:31,760
Speaker 1: If you get the real economy right, the financial markets

471
00:31:31,880 --> 00:31:37,400
Speaker 1: will benefit. But doing something to try to create higher

472
00:31:37,480 --> 00:31:41,360
Speaker 1: equity prices or benefit the financial market, that should not

473
00:31:41,480 --> 00:31:42,800
Speaker 1: be the fed's goal.

474
00:31:42,920 --> 00:31:44,480
Speaker 4: The Fed's goal should be.

475
00:31:44,920 --> 00:31:48,640
Speaker 1: Stabilized prices, maximize employment, and focus on the realese.

476
00:31:48,640 --> 00:31:51,560
Speaker 3: And if you do both of those, stock market tends

477
00:31:51,600 --> 00:31:52,480
Speaker 3: to do well under those.

478
00:31:54,400 --> 00:31:56,320
Speaker 4: That's how it should be. That's how it should be.

479
00:31:56,760 --> 00:32:01,320
Speaker 3: So you've mentioned that conditions have not materially changed despite

480
00:32:01,440 --> 00:32:06,000
Speaker 3: recent economic data. Do you still expect to see interest

481
00:32:06,080 --> 00:32:08,920
Speaker 3: rates a fair bit lower over the next twelve to

482
00:32:08,960 --> 00:32:10,120
Speaker 3: eighteen months.

483
00:32:10,360 --> 00:32:11,200
Speaker 4: I still do.

484
00:32:12,360 --> 00:32:15,640
Speaker 1: If we can get out of this dusty environment, look

485
00:32:15,760 --> 00:32:18,400
Speaker 1: at the horizon and look at the through line. And

486
00:32:18,880 --> 00:32:23,880
Speaker 1: when we're having a bunch of uncertainties that are about

487
00:32:24,000 --> 00:32:25,920
Speaker 1: things that will increase prices.

488
00:32:26,280 --> 00:32:27,520
Speaker 4: It's just throwing.

489
00:32:27,200 --> 00:32:29,120
Speaker 1: Lots and lots of dust in the air and it's

490
00:32:29,160 --> 00:32:32,440
Speaker 1: hard to see the through line. I still think that

491
00:32:32,600 --> 00:32:39,800
Speaker 1: underneath there is a robust, healthy economy with employment pretty

492
00:32:39,840 --> 00:32:44,760
Speaker 1: much stable at full employment, inflation headed back to two percent,

493
00:32:45,640 --> 00:32:49,960
Speaker 1: GDP growth solid and strong, and we can get back

494
00:32:50,000 --> 00:32:55,600
Speaker 1: to the resting point of normal in that kind of environment.

495
00:32:56,200 --> 00:33:01,800
Speaker 1: If we're going to have an escalating trade war that

496
00:33:02,000 --> 00:33:07,200
Speaker 1: leads to higher prices and a stagflationary kind of environment

497
00:33:07,280 --> 00:33:12,240
Speaker 1: where GDP growth is falling, I could revise my economic outlook,

498
00:33:12,240 --> 00:33:15,320
Speaker 1: but I still think if we can get past this

499
00:33:15,480 --> 00:33:20,800
Speaker 1: dusty part over twelve to eighteen months, the SEP dot

500
00:33:20,800 --> 00:33:24,760
Speaker 1: plot tells you that the vast majority of members of

501
00:33:24,800 --> 00:33:29,200
Speaker 1: the committee believe that the ultimate settling point for rates

502
00:33:29,400 --> 00:33:32,719
Speaker 1: is well below where we are today, and so I

503
00:33:32,760 --> 00:33:34,720
Speaker 1: still think that we can get there.

504
00:33:35,280 --> 00:33:39,840
Speaker 3: And our final question, I love your self description. You

505
00:33:39,920 --> 00:33:43,960
Speaker 3: have said, I'm neither a hawk nor a dove. I'm

506
00:33:44,000 --> 00:33:48,640
Speaker 3: a data dog. So now we have to add right, hawks, dogs, birds, hawks,

507
00:33:48,720 --> 00:33:54,160
Speaker 3: doves and dogs. So explain how you, as a data dog,

508
00:33:54,240 --> 00:33:58,400
Speaker 3: how does that affect your approach to monetary policy, especially

509
00:33:58,800 --> 00:34:01,440
Speaker 3: in twenty twenty five you're a voting member.

510
00:34:03,600 --> 00:34:05,640
Speaker 4: I try to get out there either.

511
00:34:05,960 --> 00:34:09,200
Speaker 1: The first rule of the data dog kennel is that

512
00:34:09,280 --> 00:34:12,440
Speaker 1: there's a time for walking, and there's a time for sniffin,

513
00:34:12,960 --> 00:34:16,319
Speaker 1: and know the difference, and the time for sniffin is

514
00:34:16,520 --> 00:34:20,560
Speaker 1: exactly when there is not clarity, okay, And that is

515
00:34:20,680 --> 00:34:26,000
Speaker 1: go get every data series you can, every frequency, don't

516
00:34:26,040 --> 00:34:31,200
Speaker 1: throw anything away. If you can get private sector price information.

517
00:34:31,000 --> 00:34:31,359
Speaker 4: Get it.

518
00:34:31,719 --> 00:34:34,960
Speaker 1: If you are looking at the job market, don't just

519
00:34:35,040 --> 00:34:39,040
Speaker 1: look at payroll employment when there's a bunch of stuff

520
00:34:39,080 --> 00:34:42,319
Speaker 1: with population growth and immigration that make it noisier. Don't

521
00:34:42,400 --> 00:34:45,399
Speaker 1: just look at the unemployment rate when labor force participation

522
00:34:45,600 --> 00:34:50,839
Speaker 1: changes can can affect it. Take ratios of unemployment, of vacancies,

523
00:34:51,400 --> 00:34:51,920
Speaker 1: look at.

524
00:34:51,760 --> 00:34:53,439
Speaker 4: The hiring weight and the quit rate.

525
00:34:53,880 --> 00:34:58,759
Speaker 1: Get out and talk to the business people in our regions.

526
00:34:59,120 --> 00:35:01,640
Speaker 1: And the kind of inform that goes into the base book.

527
00:35:02,280 --> 00:35:05,600
Speaker 1: All of those things are more real time than just

528
00:35:05,760 --> 00:35:06,720
Speaker 1: the data series.

529
00:35:07,040 --> 00:35:09,480
Speaker 4: But that mentality that.

530
00:35:10,360 --> 00:35:13,320
Speaker 1: If you have a question, get out there and sniff.

531
00:35:13,719 --> 00:35:17,160
Speaker 1: That's the essence of the data dog credo. If you

532
00:35:17,200 --> 00:35:21,239
Speaker 1: want to and look. It comes with some downsides. If

533
00:35:21,320 --> 00:35:25,600
Speaker 1: you are more theoretical, ideological, there are times when you

534
00:35:25,680 --> 00:35:28,600
Speaker 1: might be right and you can get to the answer quicker.

535
00:35:29,000 --> 00:35:35,880
Speaker 1: But this seems like a very uncertain environment, unusual, unprecedented

536
00:35:36,360 --> 00:35:41,760
Speaker 1: business cycles, nothing like things we've seen before. So just personally,

537
00:35:41,840 --> 00:35:44,200
Speaker 1: I'm more comfortable with that kind of approach.

538
00:35:44,640 --> 00:35:48,400
Speaker 3: So to wrap up, if you're an investor interested in

539
00:35:48,440 --> 00:35:52,160
Speaker 3: what's going on in the economy, looking at inflation, looking

540
00:35:52,160 --> 00:35:56,320
Speaker 3: at monetary policy, it's simply not as black and white

541
00:35:56,440 --> 00:36:00,520
Speaker 3: as you often hear about. Many of the vote members

542
00:36:00,520 --> 00:36:04,200
Speaker 3: of the FOMC look at the data that's out there

543
00:36:04,360 --> 00:36:08,919
Speaker 3: as complex and not binary. Don't think that what you're

544
00:36:09,040 --> 00:36:14,000
Speaker 3: hearing in these headline reports are remotely giving you the

545
00:36:14,040 --> 00:36:17,919
Speaker 3: full color of what's happening. There are obviously a whole

546
00:36:17,920 --> 00:36:21,759
Speaker 3: lot of moving parts here, a lot of complexity, and

547
00:36:22,719 --> 00:36:27,520
Speaker 3: it's reassuring when you hear from people like Chicago Federal

548
00:36:27,560 --> 00:36:32,759
Speaker 3: Reserve President and FMC voting member Austin Goolsby, who are

549
00:36:33,440 --> 00:36:38,200
Speaker 3: data driven, who do focus on filtering out the noise

550
00:36:38,400 --> 00:36:43,320
Speaker 3: but paying attention to the most recent trends, but following

551
00:36:43,360 --> 00:36:48,040
Speaker 3: the through line. It's not simple, it's complicated. We really

552
00:36:48,080 --> 00:36:53,160
Speaker 3: need to bring a more intelligent approach than we often

553
00:36:53,239 --> 00:36:57,840
Speaker 3: see as investors. We think about what the Federal Reserve

554
00:36:57,920 --> 00:37:00,000
Speaker 3: is going to do in response to what in flat

555
00:37:00,440 --> 00:37:04,480
Speaker 3: is doing. Perhaps if we had a little more sophisticated

556
00:37:04,520 --> 00:37:08,360
Speaker 3: approach and a little less binary, we wouldn't see people

557
00:37:08,520 --> 00:37:11,879
Speaker 3: being so wrong about when the Fed's gonna cut, when

558
00:37:11,920 --> 00:37:15,080
Speaker 3: a recession is going to happen, what's going on overall

559
00:37:15,160 --> 00:37:18,359
Speaker 3: with the robustness of the economy. Hey, it turns out

560
00:37:18,400 --> 00:37:22,319
Speaker 3: that economics is hard. It's complicated. There are lots of

561
00:37:22,360 --> 00:37:28,399
Speaker 3: moving parts. We oversimplify this at our own risk. I'm

562
00:37:28,440 --> 00:37:53,760
Speaker 3: Barry Redolts. You've been listening to Bloomberg's At the Money