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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 2: Joe, we're here in Atlanta.

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Speaker 3: I've never I'm embarrassed. I've never really spent any time

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Speaker 3: in Atlanta so far, but it seems lovely. We're in midtown.

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Speaker 3: I had a southern food.

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Speaker 2: I was going to ask, how much fried stuff have

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Speaker 2: you eaten?

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Speaker 3: I have to be really careful because I will devour

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Speaker 3: the food while I'm here.

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Speaker 2: So I went out with our producer Carmen last night

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Speaker 2: and we had fried chicken, fried okra, fried green tomatoes.

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Speaker 2: I think there were a few other fried things. It

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Speaker 2: was so good, so good, all right, But we're not

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Speaker 2: actually here. We're not here just to talk about southern food.

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Speaker 2: We are actually here to interview someone very important of

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Speaker 2: the Federal Reserve Bank of Atlanta. And I think it's

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Speaker 2: really interesting to be interviewing someone from the FED at

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Speaker 2: this particular moment in time, because just last week we

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Speaker 2: had an FMC meeting they decided to keep rates unchanged.

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Speaker 2: But then just a couple of days after that, over

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Speaker 2: the weekend, we had some pretty big news.

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Speaker 3: Well, that's right. So obviously it's an extraordinary difficult time

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Speaker 3: for literally everyone to understand what's going on with the economy.

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Speaker 3: The FED in particular, people have talked about it's in

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Speaker 3: a tight spot right because they're perhaps are signs of

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Speaker 3: economic deceleration. There's the potential inflationary impulse of the tariffs,

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Speaker 3: and the tariffs themselves keep moving. That being said, I

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Speaker 3: was sort of knock on wood between the reason they

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Speaker 3: tunt so to speak with China. Maybe things are quieting down,

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Speaker 3: Maybe we'll at least have some trade policy stability for

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Speaker 3: some period of time, which maybe makes things today slightly

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Speaker 3: easier to understand or to debate than they might have

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Speaker 3: even been a week ago.

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Speaker 2: That is the big question. So why don't we get

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Speaker 2: right to it. We're speaking with Raphael Bostik. He is,

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Speaker 2: of course the president of the Atlanta FED. So Raphael,

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Speaker 2: thank you so much for coming on all thoughts.

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Speaker 4: Well, thank you for having me, and welcome to Atlanta.

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Speaker 3: Thank you thanks for having us.

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Speaker 2: So I'm going to start with the I guess the

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Speaker 2: obvious question, but you know, last week after the FOMC meeting,

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Speaker 2: you put out a statement saying that your baseline outlook

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Speaker 2: is for the economy to be less resilient than you

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Speaker 2: expected at the beginning of the year. Given the news

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Speaker 2: over the weekend a potential truce at least for ninety

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Speaker 2: days between China and the US, does that change your

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Speaker 2: outlook a little?

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Speaker 4: I would say the overarching message that I've gotten from

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Speaker 4: the people I talked to and from our survey responses

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Speaker 4: and other things, and it's the reason why I was

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Speaker 4: comfortable with our policy action last week, is that there's

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Speaker 4: just a tremendous amount of uncertainty out there, and because

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Speaker 4: of that, businesses and households as well aren't really comfortable

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Speaker 4: making big decisions, and as a consequence, the amount of

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Speaker 4: energy I would have expected to see in the economy

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Speaker 4: is going to be less than that expectation is at

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Speaker 4: the beginning of this year. It looks like it's going

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Speaker 4: to be less than that for the remainder of this year,

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Speaker 4: and then we'll have to see how things play out

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Speaker 4: to determine how much less. But that uncertainty definitely is

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Speaker 4: weighing on consumers and business leaders alike.

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Speaker 2: Joe and I have been joking about trying to get

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Speaker 2: through podcast nowadays without saying the word uncertainty. I don't

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Speaker 2: think we've succeeded.

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Speaker 3: It's literally never going to happen. That word comes up

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Speaker 3: in every episode. But actually, going back to Tracy's question,

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Speaker 3: what does it mean they become to me less resilient?

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Speaker 3: What did you mean by that term?

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Speaker 4: So, what we've seen through the last several years is

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Speaker 4: an economy where all the analysts had expected things to

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Speaker 4: start slowing down. Yeah, you know, inflation went very high.

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Speaker 4: We had challenges in terms of supply chains, which led

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Speaker 4: people to worry maybe labor Marcus would loosen people who

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Speaker 4: lose their jobs. Sentiment expressed a lot of concern. Consumers

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Speaker 4: and households were all expressing their frustration with things. All

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Speaker 4: those things would have suggested that you would see less

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Speaker 4: economic activity.

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Speaker 3: In the fastest phase of rate hikes in decades.

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Speaker 4: Correct, And that just didn't happen. Like last year, GDP

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Speaker 4: was over two percent, which is faster than potential in

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Speaker 4: the face. Look, I go around and talk to a

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Speaker 4: lot of folks for much of the pandemic. The second

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Speaker 4: question I would get, after what are you going to

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Speaker 4: do with raids is when is their a session happening? Right?

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Speaker 4: That was the overarching sentiment. I used to would always say,

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Speaker 4: that's not my outlook. So people should expect that the

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Speaker 4: momentum will continue. That momentum did in fact continue, and

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Speaker 4: I call that resilience right, that strength and that continued

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Speaker 4: energy in the economy that allows firms to produce, people

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Speaker 4: to consume at robust levels. Then we come to today

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Speaker 4: where there's a lot of uncertainty, and the uncertainty hits

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Speaker 4: on many levels. And I'm sorry I'm saying this word.

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Speaker 5: That it's just a joke.

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Speaker 2: You're allowed to use the word uncertainly, right.

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Speaker 4: Well, thank you. Folks are not sure about the cost

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Speaker 4: of goods again, people are not sure whether that will

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Speaker 4: trigger recession. I will say, in the last six months,

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Speaker 4: acting the last three months, analysts have used the word

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Speaker 4: recession in their narrative about possibilities far more than they

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Speaker 4: have for quite some time. And all of that people notice,

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Speaker 4: and if folks think that there's going to be a

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Speaker 4: possibility that they're going to lose their job or those

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Speaker 4: sorts of things, they're going to engage differently. There are

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Speaker 4: perceptions of what a safety netlet needs to be for them.

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Speaker 4: That rainy day fund is going to change and they're

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Speaker 4: willing to spend out of savings, is going to change,

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Speaker 4: or even spend out of regular income. All of that

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Speaker 4: would suggests less energy. That's less resilience. And you know,

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Speaker 4: the less resilience does not necessarily mean recession. I would say,

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Speaker 4: even today, recession is not in my outlook, but it's

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Speaker 4: less right, So rather than the two percent or two

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Speaker 4: and a half percent, it may be one percent, maybe

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Speaker 4: a half percent. That's the thing that I'm looking to

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Speaker 4: really understand is as I try to keep my finger

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Speaker 4: on the pulse of the US economy.

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Speaker 2: I think one of the reasons a lot of people

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Speaker 2: expected recession going back to twenty twenty three twenty twenty

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Speaker 2: two was the soft data measures. The surveys looked absolutely terrible,

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Speaker 2: and you know, if you looked at something like consumer sentiment,

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Speaker 2: people seem to think it was basically the end of

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Speaker 2: the world. Fast forward to twenty twenty five, and we

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Speaker 2: do have a similar dynamic happening now where the soft

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Speaker 2: data is deteriorating but the hard data remains relatively wrong.

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Speaker 2: Is there a risk that this time is different and

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Speaker 2: maybe we're a little overconfident in the economy given what

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Speaker 2: happened with the soft data a couple of years ago.

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Speaker 4: So you know, it's funny that you say this time

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Speaker 4: is different.

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Speaker 2: I always hesitate to say on a podcast, but I

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Speaker 2: still do it.

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Speaker 3: Sometimes it can be done.

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Speaker 4: Yeah, well a lot of times it can be different,

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Speaker 4: but just often as not right. And so part of

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Speaker 4: what I try to do in my approach is never assume,

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Speaker 4: never have a preconceived notion or an expectation about what's

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Speaker 4: going to happen, but rather just pay attention and what

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Speaker 4: I would say on the sentiment, which is quite interesting.

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Speaker 4: You know I was a psych major undergrad. Oh I

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Speaker 4: didn't know that, and so psychoicon. Yeah, And so for me,

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Speaker 4: I know psychology is important, and I know psychology can

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Speaker 4: shift people's decision making even when the information set doesn't change,

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Speaker 4: and so understanding that psychology and how it translates into

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Speaker 4: decision making is a critical thing. The very interesting thing

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Speaker 4: with the sentiment today is that we have had two

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Speaker 4: realities with sentiment. Right. The conventional wisdom is that when

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Speaker 4: people are feeling bad, they do less. When sentiment turns negative,

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Speaker 4: things slow down. I think there's been a history to

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Speaker 4: show that that has been an experience. More often than not,

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Speaker 4: the anomaly or the odd one was this most recent

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Speaker 4: one where a sentiment was really down in the dumps,

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Speaker 4: you know, the vibe session and all those sorts of things.

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Speaker 4: But when push came to shove, consumers continued to go out,

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Speaker 4: people kept going to restaurants, going on trips, renovating their homes,

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Speaker 4: all those things, and the economy remained robust. So the

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Speaker 4: question we have today is which of those realities is

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Speaker 4: going to play out. And the one thing I would

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Speaker 4: say that's different today than in the pandemic environment is

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Speaker 4: that going into the pandemic, we hadn't had a high

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Speaker 4: recessionary period, and we also didn't have a situation where

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Speaker 4: the government was going to provide support for the economy

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Speaker 4: to robust away. So you might imagine that even in

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Speaker 4: the face of more negative sentiment. Look, the pandemic was

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Speaker 4: super stressful on many dimensions, and so it didn't surprise me.

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Speaker 4: People were a little kind of upset and rattled, if

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Speaker 4: you will, but they got a lot of support. People

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Speaker 4: kept their jobs. It's very interesting when I think about

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Speaker 4: the pandemic. A lot of it is people kept getting paid.

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Speaker 4: The employment rate rebounded incredibly fast, but they didn't have

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Speaker 4: things to spend on. They couldn't go to restaurants, they

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Speaker 4: couldn't go on vacation. So the household balance sheet was

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Speaker 4: actually quite stronger than you would expect to see in

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Speaker 4: sentiment turning south. Today, that balance sheet is quite a

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Speaker 4: different place. I talked to a lot of folks and

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Speaker 4: asked bankers, for example, compared to pre pandemic, where your

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Speaker 4: customer's balance is during the pandemic, everyone's like a lot higher,

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Speaker 4: thirty forty percent higher today, That's not what I'm hearing.

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Speaker 4: And many of them are back to pandemic levels, which

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Speaker 4: might mean that families response function maybe back to a

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Speaker 4: pre pandemic setting, and we'll just have to see how

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Speaker 4: that plays out.

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Speaker 3: Eventually, I want to get to the contemporary situation and

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Speaker 3: thinking about the tariffs, etc. But before we do, you know,

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Speaker 3: thinking back one of the residual lessons of the pandemic period,

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Speaker 3: and there are two big ones, and they've come up

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Speaker 3: a lot many lessons. But from the corporate perspective, one

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Speaker 3: is companies, maybe for the first time in a long time,

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Speaker 3: realize that they can raise prices without losing market share,

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Speaker 3: and so suddenly price increases become maybe back on the

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Speaker 3: strategy book. And then the other thing is the sort

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Speaker 3: of residual fear of being caught short labor, right, And

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Speaker 3: so for years there was this expectation you put a

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Speaker 3: help want it sign in the window, and you get

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Speaker 3: a line out the door, and labor is easy to

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Speaker 3: come by. And maybe one of the reasons that's been

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Speaker 3: theorized for the lack of layoffs and say twenty twenty two,

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Speaker 3: twenty twenty three, is just this fear that if you

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Speaker 3: cut jobs, you're not gonna be able to get them

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Speaker 3: back in the door when you need them. Do you

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Speaker 3: think those lessons still linger with us today when you

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Speaker 3: talk to business leaders today, do they still have sort

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Speaker 3: of these searing memories of not having been able to

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Speaker 3: staff their staff their facilities once demand starts picking up.

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Speaker 3: But do you think that still affects the sort of

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Speaker 3: marginal impulse to layoff workers.

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Speaker 4: So I wouldn't put it exactly like that. I think

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Speaker 4: that there is a reluctance among firms, and this is

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Speaker 4: what I've heard from most firms. Yeah, that you know

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Speaker 4: they're going to hold tight today and see how things evolve.

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Speaker 4: And because there's two sided risk, because the economy might

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Speaker 4: be stronger than people are projecting today, or it might

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Speaker 4: be weaker. You don't want to take actions that might

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Speaker 4: cause you to have to do extra things to get

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Speaker 4: back to where you are, So I think there's a

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Speaker 4: precautionary posture that's happening today which is actually quite different

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Speaker 4: than what happened during the pandemic. We ask our firms

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Speaker 4: through our surveys, is a labor market easier for you today?

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Speaker 4: Or is it worse than it was a year ago

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Speaker 4: and two years ago, And uniform of the answer is easier.

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Speaker 4: We're hear easier to hire. The number of people who

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Speaker 4: apply for a vacant position is up in some instances considerably,

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Speaker 4: and the quality of the applicants is also a relative

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Speaker 4: to where they were in the pandemic. Back then, they

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Speaker 4: put a shingle out and if they got someone, it

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Speaker 4: was someone that they probably didn't want to hire, and

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Speaker 4: they were hiring them anyway because they didn't have options.

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Speaker 4: That's not the environment that we have today, and that's

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Speaker 4: important in terms of the the impulse of firms to

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Speaker 4: increase prices. I do think that's still real today. And

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Speaker 4: you know, one lesson that I think people did learn

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Speaker 4: through the pandemic was if you tell people conser up,

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Speaker 4: and it's obvious that if that wasn't in the debates,

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Speaker 4: then people understand that the price might have to go up.

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Speaker 4: And what businesses learned is that most consumers, most of

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Speaker 4: their customers, were okay with that. The question is are

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Speaker 4: they still okay with that? And to me, I would say,

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Speaker 4: there are two really interesting dynamics that I think are

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Speaker 4: potentially emerging. One is I think firms are going to

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Speaker 4: try to apply the lesson learned from the pandemic. They

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Speaker 4: have an assumption or an expectation that the consumer response

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Speaker 4: is going to be exactly the way it was before.

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Speaker 4: We will see if it actually is. And I think

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Speaker 4: the concern about the level of prices that we heard

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Speaker 4: a lot about in the last six months suggests that

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Speaker 4: maybe they won't, but maybe they will, And in fact,

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Speaker 4: it might actually be more complicated in that for some

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Speaker 4: households it may be the size of the change, So

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Speaker 4: if it's it's a smaller incremental it may not register.

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Speaker 4: For others it could be one penny and that's too much.

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Speaker 4: And then the third piece to this is sector bisector.

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Speaker 4: Do you wind up seeing different responses And then if

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Speaker 4: you wind up with something like that, and I think

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Speaker 4: that's probably where we're going to wind up, then forecasting

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Speaker 4: it at the aggregate level becomes incredibly challenging. I mean,

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Speaker 4: you have to wind up doing a lot more. Your

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Speaker 4: spreadsheets get larger, the math gets more complicated, and so

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Speaker 4: you know, I think our job will get a bit

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Speaker 4: more challenging.

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Speaker 2: So, just on this point, at the press conference last week,

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Speaker 2: Howe seemed to suggest this idea of tariff impacts maybe

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Speaker 2: operating at different speeds. The impact on inflation could potentially

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Speaker 2: come quicker, especially if you had a bunch of companies

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Speaker 2: immediately raising prices to offset the cost, But the impact

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Speaker 2: on something like the labor market could take a lot

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Speaker 2: longer to actually feed through, maybe even because some businesses

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Speaker 2: still have residual scars from the pandemic or whatever. How

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Speaker 2: do you deal with those two different factors operating at

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Speaker 2: different speeds. It seems very difficult.

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Speaker 4: Well, we have a very dynamic economy, and that's just

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Speaker 4: an overarching feature of the environment that we work in.

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Speaker 4: I think part of what we try to do in

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Speaker 4: Atlanta is try to get hints about the longer run

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Speaker 4: things in real time as much as possible, because for

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Speaker 4: many of these things, if you wait for them to

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Speaker 4: show up in the national data, you're two months behind,

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Speaker 4: a quarter behind, sometimes a couple weeks behind, and then

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Speaker 4: there's more of a scramble. We learned and the Great

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Speaker 4: Financial Crisis that we needed to be asking much more front,

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Speaker 4: forward and prospective questions about what businesses are seeing, what

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Speaker 4: they're feeling, and how they're going to respond, so that

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Speaker 4: even if the revelation happens at different speeds, the impulses

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Speaker 4: and the drivers will be more contemporaneous, and if you

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Speaker 4: can discern those, then you might be able to get

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Speaker 4: ahead start on where things are going. What I would

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Speaker 4: say today is and it gets back to what we

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Speaker 4: were just talking about. I think many firms will probably

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Speaker 4: try to pass through costs to the extent they see them.

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Speaker 4: They will learn pretty quickly whether those cost increases are

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Speaker 4: being taken on by customers or being rejected by them,

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Speaker 4: and then they'll have to make a decision about what

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Speaker 4: is their protection production function going to look like. And

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Speaker 4: once they make that decision, then they'll decide what kind

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Speaker 4: of workforce they need. I'm expecting that those lessons will

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Speaker 4: be learned quickly and what I've As I go around,

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Speaker 4: I talk to Chamber of Commerce, I do open discussions

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Speaker 4: and cities all across the sixth district. I say, if

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Speaker 4: you see someone doing something that's really different than what

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Speaker 4: they were doing two weeks ago, you need to call

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Speaker 4: us and let us know, because we need to be

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Speaker 4: collecting that information to try to understand whether a single

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Speaker 4: impulse is actually a trend and whether there are some

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Speaker 4: lessons that can be learned from the collection of the masses.

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Speaker 3: We need a fed tip line.

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Speaker 2: Wait, how many calls have you been getting? Have you

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Speaker 2: been getting calls?

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Speaker 4: So no, nobody calls me, but we have a team

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Speaker 4: that's out in the field and they are getting calls

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Speaker 4: on a regular basis. You know, when I got here,

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Speaker 4: I was really I didn't really know any of this.

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Speaker 4: But we have a network of staffers whose job it

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Speaker 4: is is just to have relationships with business leaders and

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Speaker 4: with community folks all over the Southeast and come and

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Speaker 4: see them and talk to them in really conversational, unstructured

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Speaker 4: ways for ninety minutes two hours, just to get a

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Speaker 4: sense of where are they, how are they feeling, and

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Speaker 4: what are they worrying about, what are they excited about?

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Speaker 4: What's changed, and because the relationships are personal on some level,

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Speaker 4: people do feel more comfortable picking up the phone and

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Speaker 4: telling us things. And it's been something that's really helped us.

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Speaker 4: So we knew fairly early on that people's horizon in

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Speaker 4: the pandemic was expanding. So the right we did a survey.

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Speaker 4: We do a number of surveys. We have a survey

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Speaker 4: shop here, and we did survey of businesses and asked them, Okay,

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Speaker 4: in April of twenty twenty, when do you think this

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Speaker 4: will be done? They said September of twenty twenty. In

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Speaker 4: January of twenty twenty, when don't we asked them. They

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Speaker 4: said probably another eighteen months, right, And it was this

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Speaker 4: learned experience, and we got to see their understanding of

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Speaker 4: the environment evolve in real time in ways that really

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Speaker 4: I think helped us understand what questions we needed to

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Speaker 4: ask and what kind of decisions and policy changes that

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Speaker 4: we should be looking for. It's been quite interesting, and

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Speaker 4: I think there's going to be some of that. There's

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Speaker 4: going to be a lot of that that happens in

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Speaker 4: the next several months. Look, we've just gone through a

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Speaker 4: period where people were expecting tariffs. I think many people

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Speaker 4: didn't expect the tariffs to roll out at the scale

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Speaker 4: that we saw, and it's causing everyone to think about, Okay, now,

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Speaker 4: if this is our new reality, how do I think

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Speaker 4: about this? What am I going to do? And just

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Speaker 4: as it was at the early stages of the pandemic,

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Speaker 4: people are kind of doing it on the fly. And

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Speaker 4: the only way to really understand how things are going

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Speaker 4: when people are doing on the fly is to be

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Speaker 4: there with them and to be continually asking them and

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Speaker 4: seeing how their decision making and their changes are evolving

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Speaker 4: as they get more insights. So as the tariff environment shifts,

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Speaker 4: as the numbers move around, there's learning when you see, oh,

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Speaker 4: their strategy was a and now their strategy is M

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Speaker 4: like that's saying something about their thought process and what

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Speaker 4: they're likely to do and moving forward.

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Speaker 3: To So, let's talk a little bit more about the

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Speaker 3: intersection of tariffs and monetary policy. And something that's been

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Speaker 3: on my mind in particular is tariffs are a supply

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Speaker 3: shock in some way, and what I've been wondering about

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Speaker 3: is does that therefore increase the terminal rate in terms

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Speaker 3: of how low the FED can ultimately go in a

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Speaker 3: cutting cycle Okay, your supply constrained on some level. Perhaps

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Speaker 3: also in theory, there's going to be some force development

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Speaker 3: in the United States of some industrial capacity, and so

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Speaker 3: that's a positive activity impulse. Does that mean when you

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Speaker 3: think about like weakness and when you think about possible

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Speaker 3: rate cuts, which is what everyone is expecting at some point,

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Speaker 3: does that increase the floor of how.

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Speaker 4: Low you can go? I don't think of it like that, okay,

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Speaker 4: But first of all, I think being able to say

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Speaker 4: a blanket statement on anything like this is going to

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Speaker 4: be quite challenging. It would be challenging if you just

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Speaker 4: picked one tariff rate for the whole world. Yeah, in

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Speaker 4: an environment now where there's so much variation and descript

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Speaker 4: price discrimination country to country and sector to sector, it's

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Speaker 4: really difficult to know how to add it all up.

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Speaker 4: And then you overlay that the numbers can change, we're expecting.

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Speaker 4: One of the things I do when I talk to

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Speaker 4: folks in public settings, show a hands how many people

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Speaker 4: think that the tariff numbers that we see today are

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Speaker 4: going to be the tariff numbers that we see a

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Speaker 4: month from now, and anon raises, nobody's hands goes up.

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Speaker 4: And in part that's by design right, So we know

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Speaker 4: their negotiations going on. We know it's a ninety day

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Speaker 4: moratorium in some of these instances, So that change that's

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Speaker 4: out there means that it's going to be very challenging.

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Speaker 4: I try to go back to just our basic mandate.

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Speaker 4: We got price stability and we have maximum employment. Maximum

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Speaker 4: sustainable employment is how I like to think about it.

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Speaker 4: And so what I try to do is figure out, Okay,

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Speaker 4: given all the things that are going on, what's that

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Speaker 4: likely to do for us getting closer to our two

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Speaker 4: percent target and inflation? And what's that likely to do

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Speaker 4: in terms of the movement of labor markets relative to

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Speaker 4: some broad notion of full employment today. What I would

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Speaker 4: say is what I hear from analysts when I talk

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Speaker 4: to my economists in the building, like, relative to the

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Speaker 4: pre tariff environment, tariffs have a put upward force on inflation,

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Speaker 4: and so that means that our policy is going to

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Speaker 4: have to anticipate and to some extent potentially push against

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Speaker 4: those inflationary forces to the extent that we see them.

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Speaker 4: So that will put a limit on where our current

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Speaker 4: policy stands is Now, you ask something about a broader

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Speaker 4: economy wide new fundamental as to like an R star

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Speaker 4: type of thing. I think there's a lot of debate.

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Speaker 4: There's a lot of debate on sort of our star

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Speaker 4: in nonturbulent times, for sure, and so today I think

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Speaker 4: you would see the same thing. Look, I think pre

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Speaker 4: pandemic coming out of the Great Financial Crisis, and actually

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Speaker 4: even before that, we knew there was a long secular

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Speaker 4: decline in our star demographics and a whole host of

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Speaker 4: other things were believed to be behind it. And the

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Speaker 4: notion that you could see inflation move the way it

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Speaker 4: has kind of caused people just have to step back

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Speaker 4: and say, well, wait a minute, maybe our notion of

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Speaker 4: the immutable is not so immutable. And I think that

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Speaker 4: debate is being taken on board right now. And so

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Speaker 4: the other thing to think about is look to the

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Speaker 4: extent that this that we are in a period where

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Speaker 4: firms are redoing their supply chains and perhaps not looking

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Speaker 4: for lowest cost location. That has implications for just it

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Speaker 4: could potentially have implications for what a baseline new level

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Speaker 4: of inflation is likely to be writ large. And if

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Speaker 4: that is what happens, then sure all the fundamental dynamics

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Speaker 4: and measures are going to change as well. But we

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Speaker 4: haven't seen that, and you know it's been as I've

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Speaker 4: talked to a number of producers and they have production

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Speaker 4: in multiple countries, and they say, you can put the

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Speaker 4: same plant in three different countries and they will have

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Speaker 4: different levels of productivity, and that is interesting, but it

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Speaker 4: also means that the specifics of where they put things down,

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Speaker 4: how much production happens in those places, and then where

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Speaker 4: assembly and it all comes together is incredibly material and

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Speaker 4: folks don't have the answers to those things now. So

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Speaker 4: I actually try to shy away from thinking about those

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Speaker 4: bigger issues right now and just say, look, we're in

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Speaker 4: a period of tremendous transition where we had a received

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Speaker 4: wisdom cost minimization and production free and open trade, and

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Speaker 4: that equilibrium is being broken. And when you're in dis

438
00:25:18,600 --> 00:25:23,479
Speaker 4: equilibrium in ECON, you know, there's the I forget but

439
00:25:23,520 --> 00:25:26,280
Speaker 4: they say it, but there are an infinite number of

440
00:25:26,320 --> 00:25:29,719
Speaker 4: possible new equilibriums that you could achieve. And so what

441
00:25:29,760 --> 00:25:33,080
Speaker 4: we're trying to do now is kind of figure out

442
00:25:33,080 --> 00:25:35,560
Speaker 4: are there ways to narrow and get a sense of

443
00:25:35,760 --> 00:25:39,720
Speaker 4: what are the ranges of possibilities given where things are going,

444
00:25:40,160 --> 00:25:43,080
Speaker 4: So then we can start to think about those parameters

445
00:25:43,440 --> 00:25:46,400
Speaker 4: make judgments about what best long run policy might look

446
00:25:46,480 --> 00:25:47,520
Speaker 4: like on.

447
00:25:47,400 --> 00:25:49,560
Speaker 2: The neutral rate our star. I was going to ask

448
00:25:49,640 --> 00:25:53,240
Speaker 2: if it's even a useful concept given the current levels

449
00:25:53,400 --> 00:25:57,159
Speaker 2: of uncertainty, if it's actually even possible to try to

450
00:25:57,560 --> 00:25:59,960
Speaker 2: attempt to navigate by the stars.

451
00:26:00,720 --> 00:26:03,199
Speaker 4: Well, you know, the chair famously had a speech on

452
00:26:03,280 --> 00:26:06,560
Speaker 4: the stars and express some skepticism that the scars are

453
00:26:06,600 --> 00:26:11,399
Speaker 4: always going to be reliable guides. I think there are

454
00:26:11,400 --> 00:26:13,720
Speaker 4: really two things, and you know, I was psych major

455
00:26:14,000 --> 00:26:16,720
Speaker 4: undergrad in addition to econ One of the things I

456
00:26:16,760 --> 00:26:20,280
Speaker 4: take took or have taken from being in both those

457
00:26:20,680 --> 00:26:25,960
Speaker 4: professions is that economic models are models. There are stylized

458
00:26:26,040 --> 00:26:30,120
Speaker 4: characterizations of how the world actually works. We should all

459
00:26:30,400 --> 00:26:33,479
Speaker 4: understand and appreciate that there is a confidence interval around

460
00:26:33,560 --> 00:26:36,920
Speaker 4: any number that comes out from these models, even though

461
00:26:37,080 --> 00:26:40,399
Speaker 4: some econas may declare them as truth, and you should

462
00:26:40,400 --> 00:26:42,679
Speaker 4: never deviate from those sorts of things. It's one of

463
00:26:42,680 --> 00:26:44,720
Speaker 4: the reasons why, you know, a lot of the rules

464
00:26:44,760 --> 00:26:47,000
Speaker 4: are useful, but the actual numbers that come out never

465
00:26:47,080 --> 00:26:50,119
Speaker 4: hit right where the rule is, and so there are

466
00:26:50,160 --> 00:26:52,680
Speaker 4: other things that are going to influence what makes sense

467
00:26:52,680 --> 00:26:55,600
Speaker 4: from a policy perspective, and those are the things that

468
00:26:56,200 --> 00:27:02,160
Speaker 4: we have to actually acknowledge. People are not ruthless utility maximizers.

469
00:27:02,160 --> 00:27:05,199
Speaker 4: Firms aren't either. And in fact, what's been interesting for

470
00:27:05,240 --> 00:27:09,000
Speaker 4: me in this pandemic period is the old model I'm

471
00:27:09,000 --> 00:27:13,119
Speaker 4: calling this more like a high level was cost minimization,

472
00:27:13,640 --> 00:27:15,160
Speaker 4: and that means find the place where you can produce

473
00:27:15,200 --> 00:27:17,080
Speaker 4: everything at the lowest cost, do all your stuff there,

474
00:27:17,240 --> 00:27:21,600
Speaker 4: because that makes you the most efficient. What that doesn't do, though,

475
00:27:21,720 --> 00:27:26,560
Speaker 4: is acknowledge that if you're locally reliant or dependent, if

476
00:27:26,560 --> 00:27:29,639
Speaker 4: anything happens in that locality, your ability to produce basically

477
00:27:29,680 --> 00:27:34,480
Speaker 4: goes to zero. So there's a higher variance potential in

478
00:27:34,640 --> 00:27:38,399
Speaker 4: your output. And we were not putting any cost value

479
00:27:38,400 --> 00:27:41,359
Speaker 4: on that, and we learned that there is a cost

480
00:27:41,400 --> 00:27:45,399
Speaker 4: value on that. And so the change of philosophy that

481
00:27:45,480 --> 00:27:47,080
Speaker 4: might be going on right now, and we'll get to

482
00:27:47,080 --> 00:27:49,239
Speaker 4: see how many people really start to set up these

483
00:27:49,280 --> 00:27:53,280
Speaker 4: supply chains with the eye toward diversifying locations just for

484
00:27:53,720 --> 00:27:57,240
Speaker 4: reducing variants. That's a new thing and that could be

485
00:27:57,320 --> 00:27:59,520
Speaker 4: quite interesting to look out moving forward.

486
00:28:00,040 --> 00:28:03,440
Speaker 2: So I want a T shirt that says ruthless utility maximizer.

487
00:28:03,960 --> 00:28:05,479
Speaker 5: I think could rock.

488
00:28:05,520 --> 00:28:08,520
Speaker 3: The most people aren't, but Tracy is actually the one person.

489
00:28:09,880 --> 00:28:10,920
Speaker 5: But I do want the T shirt.

490
00:28:11,440 --> 00:28:13,880
Speaker 4: Economic We'll see, we'll see what we can do. I'll

491
00:28:13,920 --> 00:28:17,359
Speaker 4: look around and see if there's some economic education club

492
00:28:17,400 --> 00:28:17,840
Speaker 4: that does that.

493
00:28:18,520 --> 00:28:21,360
Speaker 3: Prior to the Turriff's actually thinking back to like January,

494
00:28:21,480 --> 00:28:24,120
Speaker 3: et cetera, we didn't know anything about what the terff

495
00:28:24,119 --> 00:28:28,399
Speaker 3: for a lot. Was the US economy decelerating, like was

496
00:28:28,440 --> 00:28:33,359
Speaker 3: it an economy that was sort of due for several

497
00:28:33,400 --> 00:28:34,240
Speaker 3: more rate cuts?

498
00:28:34,880 --> 00:28:38,040
Speaker 4: So my outlook at the beginning of the year was

499
00:28:38,120 --> 00:28:42,280
Speaker 4: that the economy would continue to grow in a solid

500
00:28:42,320 --> 00:28:46,040
Speaker 4: way and the place would return to two percent over time.

501
00:28:46,480 --> 00:28:49,959
Speaker 4: And my expectation was somewhere toward the end of this

502
00:28:50,080 --> 00:28:52,800
Speaker 4: year we would be at that point where it would

503
00:28:52,800 --> 00:28:55,760
Speaker 4: be appropriate for US to have a neutral stance for policy.

504
00:28:56,120 --> 00:28:59,400
Speaker 4: So I had maybe three or four rate cuts for

505
00:28:59,480 --> 00:29:02,239
Speaker 4: the year with the idea that there was a lot

506
00:29:02,280 --> 00:29:06,239
Speaker 4: of momentum. We're still over two percent GDP, hiring us

507
00:29:06,240 --> 00:29:09,680
Speaker 4: happening at a robust clip, and we could avoid having

508
00:29:09,920 --> 00:29:12,720
Speaker 4: sort of a recessionary negative outcome. I felt like the

509
00:29:12,760 --> 00:29:17,080
Speaker 4: bones of the economy were pretty solid and strong, and

510
00:29:17,200 --> 00:29:18,800
Speaker 4: you know that's why I talk about the resilience and

511
00:29:18,800 --> 00:29:21,640
Speaker 4: all those sorts of things. So even with a slow down,

512
00:29:22,640 --> 00:29:25,120
Speaker 4: I thought that we would still see pretty robust growth.

513
00:29:25,320 --> 00:29:27,520
Speaker 4: People would still have jobs. One of the things that

514
00:29:27,640 --> 00:29:31,680
Speaker 4: was quite useful for us to see was that wage

515
00:29:31,680 --> 00:29:34,800
Speaker 4: growth was returning to a pre pandemic levels, So we

516
00:29:34,800 --> 00:29:38,640
Speaker 4: were evolving to an environment that was fairly sustainable and

517
00:29:38,680 --> 00:29:42,160
Speaker 4: which going to be Yeah. I never used those words, right,

518
00:29:42,200 --> 00:29:44,840
Speaker 4: So I try to stay away from that stuff because

519
00:29:45,280 --> 00:29:47,239
Speaker 4: it means different things to different people. But if that's

520
00:29:47,280 --> 00:29:48,880
Speaker 4: what you want to call it, I'm happy for that,

521
00:29:49,960 --> 00:29:52,040
Speaker 4: you know. To me, I think one of the questions

522
00:29:52,080 --> 00:29:57,000
Speaker 4: that I ask is to what extent once we get

523
00:29:57,000 --> 00:30:00,200
Speaker 4: through and get to some degree of steady state, we

524
00:30:00,240 --> 00:30:04,080
Speaker 4: will still have those aspects of the US economy still

525
00:30:04,120 --> 00:30:06,880
Speaker 4: in place at the same level as the strength, and

526
00:30:07,000 --> 00:30:09,360
Speaker 4: you know, something we're going to continue to look at

527
00:30:09,400 --> 00:30:11,520
Speaker 4: and look for as we go through the rest of

528
00:30:11,560 --> 00:30:13,360
Speaker 4: twenty twenty five and into twenty twenty six.

529
00:30:13,880 --> 00:30:16,240
Speaker 2: So you mentioned wage growth just then, and one of

530
00:30:16,240 --> 00:30:18,440
Speaker 2: the things I've been thinking about when it comes to

531
00:30:19,000 --> 00:30:22,960
Speaker 2: inflation under the tariff regime is wage growth. Do you

532
00:30:22,960 --> 00:30:26,200
Speaker 2: think it's fair to say that the chances of having

533
00:30:26,200 --> 00:30:30,320
Speaker 2: a lot of wage growth alongside higher goods prices is

534
00:30:30,440 --> 00:30:34,080
Speaker 2: lower than it was post pandemic. And if that's the case,

535
00:30:34,200 --> 00:30:36,680
Speaker 2: does it perhaps give the FED more room to look

536
00:30:36,720 --> 00:30:40,240
Speaker 2: through higher goods prices if you're not worried about you know,

537
00:30:40,320 --> 00:30:43,760
Speaker 2: a big self reinforcing inflationary spiral.

538
00:30:44,200 --> 00:30:47,280
Speaker 4: Yeah, so that's a very interesting question. I would say

539
00:30:48,640 --> 00:30:52,160
Speaker 4: it's possible. One of the things that's been quite interesting

540
00:30:52,560 --> 00:30:55,880
Speaker 4: is I think in this environment, wage growth has been

541
00:30:55,880 --> 00:30:59,120
Speaker 4: a trailing indicator as opposed to a leading indicator. And

542
00:30:59,280 --> 00:31:04,000
Speaker 4: so what we will see if that continues is that

543
00:31:04,080 --> 00:31:07,560
Speaker 4: a lot will depend on the extent to which consumers

544
00:31:07,600 --> 00:31:10,880
Speaker 4: are willing to take on price. If they're unwilling to

545
00:31:10,880 --> 00:31:13,240
Speaker 4: take on price, then the dynamic that we have is

546
00:31:13,360 --> 00:31:17,400
Speaker 4: pretty set. And then we'll I think we'll see different

547
00:31:17,400 --> 00:31:20,800
Speaker 4: strategies taken by firms as to how to manage their

548
00:31:20,880 --> 00:31:24,120
Speaker 4: increased cost basis, and to the extent that is necessary,

549
00:31:24,160 --> 00:31:28,760
Speaker 4: you might see some reductions in the staffing level. I

550
00:31:28,800 --> 00:31:32,200
Speaker 4: don't think you'd see reductions in wages. But again, a

551
00:31:32,200 --> 00:31:35,280
Speaker 4: lot of this depends. You know, there's a big difference

552
00:31:35,600 --> 00:31:40,080
Speaker 4: between a ten percent tariff rate a forty percent tariff

553
00:31:40,160 --> 00:31:42,640
Speaker 4: rate and at one hundred and twenty five percent tariffyrate.

554
00:31:43,080 --> 00:31:45,240
Speaker 4: As to what the cost implications are going to be

555
00:31:45,240 --> 00:31:48,520
Speaker 4: and the ability of firms to absorb them in their margins,

556
00:31:48,520 --> 00:31:51,040
Speaker 4: it's supposed to having to pass those on, and so

557
00:31:51,760 --> 00:31:53,720
Speaker 4: again this is another one where I think the details

558
00:31:53,720 --> 00:31:56,920
Speaker 4: will matter in a pretty significant way, and you know,

559
00:31:57,000 --> 00:31:58,080
Speaker 4: we'll have to see where it goes.

560
00:31:58,640 --> 00:32:02,520
Speaker 3: You know, in the wake of the original big inflation

561
00:32:02,720 --> 00:32:05,720
Speaker 3: in the late seventies and early eighties, and it took

562
00:32:05,720 --> 00:32:07,600
Speaker 3: a while for that to come down, but I get

563
00:32:07,600 --> 00:32:11,440
Speaker 3: the strong oppression over the years that for the FED

564
00:32:12,120 --> 00:32:15,360
Speaker 3: this was like a crowning achievement of sorts, having defeated

565
00:32:15,480 --> 00:32:20,040
Speaker 3: that inflation and had several years of price stability. And

566
00:32:20,120 --> 00:32:22,440
Speaker 3: I also think that you know, fast forward in the

567
00:32:22,440 --> 00:32:25,320
Speaker 3: wake of the Great financial Crisis, particularly in the latter

568
00:32:25,360 --> 00:32:29,120
Speaker 3: half of the twenty tens, that something resembling what people

569
00:32:29,120 --> 00:32:32,680
Speaker 3: would call full employment has been another achievement. And I

570
00:32:32,720 --> 00:32:34,640
Speaker 3: think that you know, if you go back to Powell's

571
00:32:34,640 --> 00:32:37,360
Speaker 3: speech in August to Jackson Hall last year, as part

572
00:32:37,360 --> 00:32:39,760
Speaker 3: of what he said, like this has been an achievement

573
00:32:39,920 --> 00:32:42,320
Speaker 3: to get low unemployment and we don't want to lose

574
00:32:42,320 --> 00:32:44,760
Speaker 3: that we don't want to let it slip again in

575
00:32:44,840 --> 00:32:48,760
Speaker 3: your view, like, how important is that for you know,

576
00:32:48,800 --> 00:32:52,520
Speaker 3: when you think about the potential tension of the dual mandate,

577
00:32:52,960 --> 00:32:55,600
Speaker 3: how do you think about sort of like preserving that

578
00:32:55,720 --> 00:33:00,440
Speaker 3: achievement of maintaining a low level of unemployment even in

579
00:33:00,440 --> 00:33:04,040
Speaker 3: the phase of all this uncertainty and potentially you know,

580
00:33:04,400 --> 00:33:06,800
Speaker 3: inflationary shocks from the form of tariffs.

581
00:33:06,920 --> 00:33:09,720
Speaker 4: So let me say two things on this. First, I'm

582
00:33:09,960 --> 00:33:13,760
Speaker 4: very pleased that during my tenure here the two mandates

583
00:33:13,800 --> 00:33:16,400
Speaker 4: have not been in conflict. They've not been intentions, so

584
00:33:16,440 --> 00:33:18,960
Speaker 4: I've not really had to face that challenge. We've either

585
00:33:19,000 --> 00:33:23,720
Speaker 4: had low inflation so we could worry more about the employment,

586
00:33:23,800 --> 00:33:26,040
Speaker 4: or we've had really rock solid employment so we could

587
00:33:26,040 --> 00:33:30,200
Speaker 4: worry about inflation. I think one of the things that

588
00:33:31,040 --> 00:33:33,160
Speaker 4: was quite interesting to where the end of the twenty

589
00:33:33,200 --> 00:33:36,680
Speaker 4: tens was the effort by the FED, and it started

590
00:33:36,680 --> 00:33:42,400
Speaker 4: before I got here to be less preemptive around anticipate

591
00:33:42,520 --> 00:33:48,520
Speaker 4: anticipated in inflation must happen, because we've never seen an

592
00:33:48,640 --> 00:33:54,120
Speaker 4: environment where inflation didn't arise, and so and so there

593
00:33:54,240 --> 00:33:58,440
Speaker 4: was a philosophy that was embraced to say, Okay, we

594
00:33:58,520 --> 00:34:03,600
Speaker 4: should actually see signs of inflation before we get too

595
00:34:03,640 --> 00:34:08,719
Speaker 4: crazy ones. And what we wound up seeing was unemployment

596
00:34:08,800 --> 00:34:13,399
Speaker 4: levels fall to numbers that were inconceivable. Right, So at

597
00:34:13,400 --> 00:34:15,480
Speaker 4: one point unemployment was a three and a half percent

598
00:34:15,520 --> 00:34:19,839
Speaker 4: somewhere like that. When I first started my career as

599
00:34:19,840 --> 00:34:23,600
Speaker 4: an economist, the unemployment rate that was viewed to be

600
00:34:23,719 --> 00:34:26,640
Speaker 4: the natural rate of unemployment was I think it was

601
00:34:26,640 --> 00:34:29,200
Speaker 4: like six percent. And so the idea that you could

602
00:34:29,239 --> 00:34:33,040
Speaker 4: get to three and a half without seeing inflation was

603
00:34:33,360 --> 00:34:37,480
Speaker 4: just just it was like crazy to talk, right, And

604
00:34:37,640 --> 00:34:41,359
Speaker 4: so for us to then just well, let's let it go,

605
00:34:42,040 --> 00:34:45,000
Speaker 4: and then it kept going and kept going and kept going.

606
00:34:45,320 --> 00:34:48,719
Speaker 4: I think that was a tremendous you could call it

607
00:34:48,719 --> 00:34:52,479
Speaker 4: an achievement, but it was a discovery that a lot

608
00:34:52,680 --> 00:34:56,680
Speaker 4: of our perceip or perceptions are understanding of what the

609
00:34:56,760 --> 00:35:03,600
Speaker 4: possible could be might be constrained by our own preconceived

610
00:35:03,640 --> 00:35:07,120
Speaker 4: notions of where the world is. And in this instance,

611
00:35:07,160 --> 00:35:10,200
Speaker 4: you know, I think about all the advances that have

612
00:35:10,200 --> 00:35:13,120
Speaker 4: been made in technology in job searches, so a lot

613
00:35:13,160 --> 00:35:16,080
Speaker 4: of natural unemployment is about you know, it takes time

614
00:35:16,120 --> 00:35:19,080
Speaker 4: for the match to happen between an employer and an employee.

615
00:35:19,280 --> 00:35:22,520
Speaker 4: Now you can sit over lunch on your phone and

616
00:35:22,560 --> 00:35:26,320
Speaker 4: submit like one hundred applications to things. Businesses are using

617
00:35:26,840 --> 00:35:31,799
Speaker 4: AI type tools to review resumes to really be able

618
00:35:31,840 --> 00:35:34,439
Speaker 4: to pick out the people and that match happens faster.

619
00:35:34,480 --> 00:35:38,480
Speaker 4: If that's the case, then the natural rate should be lower.

620
00:35:38,960 --> 00:35:41,600
Speaker 4: And now the question is how much lower? And you

621
00:35:41,600 --> 00:35:43,239
Speaker 4: know this is something we argue about. I actually think

622
00:35:43,280 --> 00:35:45,759
Speaker 4: it's as much lower than others in my building do.

623
00:35:46,080 --> 00:35:49,760
Speaker 4: But I think the experience would show that change did happen,

624
00:35:50,160 --> 00:35:52,040
Speaker 4: and it happened in ways that we could get more

625
00:35:52,040 --> 00:35:56,760
Speaker 4: people employed and in a sustainable way without being a problem,

626
00:35:56,800 --> 00:35:58,440
Speaker 4: without that being a problem for inflation.

627
00:35:59,120 --> 00:36:01,759
Speaker 2: I wanted to go back to something Joe brought up,

628
00:36:01,800 --> 00:36:03,920
Speaker 2: which is the sort of I guess cross current of

629
00:36:04,160 --> 00:36:07,920
Speaker 2: monetary versus fiscal policy. And I get that, you know,

630
00:36:08,080 --> 00:36:12,680
Speaker 2: monetary is always existing alongside fiscal policy, which may change

631
00:36:12,719 --> 00:36:16,040
Speaker 2: in various directions, but it does feel like the tariffs

632
00:36:16,080 --> 00:36:19,279
Speaker 2: are sort of an extreme example of that in the

633
00:36:19,320 --> 00:36:21,560
Speaker 2: sense that they have a big impact on the market,

634
00:36:21,680 --> 00:36:25,319
Speaker 2: so they have a big impact on financial conditions, and

635
00:36:25,400 --> 00:36:28,799
Speaker 2: they seem to be changing constantly. As we've been discussing,

636
00:36:29,600 --> 00:36:32,720
Speaker 2: how is the fed just generally thinking about I guess,

637
00:36:32,760 --> 00:36:38,160
Speaker 2: the tension between your own monetary policy versus the changes

638
00:36:38,280 --> 00:36:42,120
Speaker 2: in financial conditions being wrought by the Trump administration and

639
00:36:42,520 --> 00:36:45,200
Speaker 2: its impact on financial conditions.

640
00:36:45,760 --> 00:36:50,839
Speaker 4: So I don't think it's different in character, but it

641
00:36:50,920 --> 00:36:56,120
Speaker 4: is different in magnitude. And so look, we take all

642
00:36:56,160 --> 00:36:59,360
Speaker 4: non monetary policy as given right, and then you know,

643
00:36:59,440 --> 00:37:02,400
Speaker 4: I just respond and thinking about where we need to

644
00:37:02,440 --> 00:37:07,080
Speaker 4: go based on where that part of policy is and

645
00:37:07,120 --> 00:37:09,919
Speaker 4: where businesses are and all those sorts of things. These

646
00:37:10,040 --> 00:37:13,000
Speaker 4: changes here that are being made are very much like that.

647
00:37:13,520 --> 00:37:16,440
Speaker 4: Like trade policy is not something that the FIT manages,

648
00:37:16,680 --> 00:37:18,080
Speaker 4: and there are lots of different ways so you can

649
00:37:18,120 --> 00:37:21,719
Speaker 4: influence it, and so that's what we're seeing here. I

650
00:37:21,760 --> 00:37:24,600
Speaker 4: think for me, one of the things that's been quite

651
00:37:24,800 --> 00:37:29,640
Speaker 4: interesting to reflect on is that if your standard econ,

652
00:37:30,200 --> 00:37:32,960
Speaker 4: if you do your models, it's all marginal this and

653
00:37:33,000 --> 00:37:36,320
Speaker 4: marginal that, and the margins is calculus. So these are small,

654
00:37:36,360 --> 00:37:39,759
Speaker 4: small changes on the status quo, and what we see

655
00:37:39,800 --> 00:37:44,399
Speaker 4: today are decidedly not small changes relatives to the status quo.

656
00:37:44,640 --> 00:37:48,520
Speaker 4: And so the question is does that require a different

657
00:37:48,600 --> 00:37:52,480
Speaker 4: kind of conceptual model about what response functions will be

658
00:37:52,840 --> 00:37:57,000
Speaker 4: for businesses and for families and households. That's the bigger

659
00:37:57,120 --> 00:38:00,560
Speaker 4: question that we're having to wrestled with, which is different

660
00:38:00,800 --> 00:38:03,279
Speaker 4: than what we usually do, but it is it is

661
00:38:03,320 --> 00:38:06,279
Speaker 4: not so much about the idea that you know, there's

662
00:38:06,280 --> 00:38:09,520
Speaker 4: a policy and it changed how financial markets are thinking

663
00:38:09,560 --> 00:38:11,759
Speaker 4: about risk, right. There are lots of other things that

664
00:38:11,800 --> 00:38:14,279
Speaker 4: do that as well, and you know that's just part

665
00:38:14,320 --> 00:38:15,279
Speaker 4: of the landscape.

666
00:38:15,960 --> 00:38:19,480
Speaker 3: With any luck, we might have some policy stability for

667
00:38:19,520 --> 00:38:22,279
Speaker 3: a while, lots of ninety day pauses, et cetera, and

668
00:38:22,320 --> 00:38:25,080
Speaker 3: I have you know, my personal guess is that ninety

669
00:38:25,120 --> 00:38:27,799
Speaker 3: day pauses could turn into more ninety day pauses at

670
00:38:27,800 --> 00:38:30,960
Speaker 3: some point in the future. You mentioned at the beginning

671
00:38:31,000 --> 00:38:33,560
Speaker 3: of the year, you know, maybe this was an economy

672
00:38:34,120 --> 00:38:37,280
Speaker 3: that would you know, require or be three to four

673
00:38:37,719 --> 00:38:44,080
Speaker 3: cuts today May fourteen, assuming some policy stability. I'm mindful

674
00:38:44,120 --> 00:38:46,440
Speaker 3: of the fact that our Bloomberg colleagues would love a

675
00:38:46,520 --> 00:38:51,120
Speaker 3: nice clean headline. But what U So I've tried to

676
00:38:51,160 --> 00:38:54,440
Speaker 3: do them a favor here. What does the rest of

677
00:38:54,480 --> 00:38:57,640
Speaker 3: the year look like for you from a policy perspective?

678
00:38:57,640 --> 00:38:58,640
Speaker 3: How many cuts are we getting?

679
00:38:59,280 --> 00:39:02,760
Speaker 4: All Right? So, okay, I will say, so I'm required

680
00:39:02,800 --> 00:39:05,879
Speaker 4: to do this, right, so so you know, and then

681
00:39:06,400 --> 00:39:10,239
Speaker 4: the plot some avic and our perspectives. I have one

682
00:39:10,280 --> 00:39:14,560
Speaker 4: cut for the year, and in part it's because I

683
00:39:14,600 --> 00:39:21,240
Speaker 4: think the uncertainty is unlikely to resolve itself quickly right days.

684
00:39:21,480 --> 00:39:25,000
Speaker 4: So we have ninety days in two settings, right So

685
00:39:25,040 --> 00:39:28,000
Speaker 4: you have the reciprocal tariff ninety day window, you have

686
00:39:28,120 --> 00:39:31,200
Speaker 4: the China tariff ninety day window, which is at a

687
00:39:31,239 --> 00:39:35,120
Speaker 4: different periodicity than that. And we have all these negotiations

688
00:39:35,120 --> 00:39:37,080
Speaker 4: and we don't know how any of them. We know

689
00:39:37,239 --> 00:39:40,719
Speaker 4: the UK, but other than that, you know, it's all I.

690
00:39:41,040 --> 00:39:43,440
Speaker 3: Think that's formally signed anyway.

691
00:39:43,320 --> 00:39:45,600
Speaker 4: Well you would, yeah, I just I just read the

692
00:39:45,640 --> 00:39:48,200
Speaker 4: Bloomberg headline on it and it seemed like it was done.

693
00:39:48,440 --> 00:39:52,680
Speaker 4: And so so until there's uncertainty, you know what, We've

694
00:39:52,719 --> 00:39:55,480
Speaker 4: asked our businesses like what kind of plans are you

695
00:39:55,560 --> 00:39:58,800
Speaker 4: making for this year? And many of them are like, well,

696
00:39:59,640 --> 00:40:02,960
Speaker 4: I don't, I really know. We're going to keep changed

697
00:40:03,000 --> 00:40:06,759
Speaker 4: to a minimum until we get that resolution. And so

698
00:40:06,800 --> 00:40:10,359
Speaker 4: if that uncertainty continues, then I expect we're not going

699
00:40:10,360 --> 00:40:12,600
Speaker 4: to see the same level of big investments or those

700
00:40:12,600 --> 00:40:15,040
Speaker 4: sorts of things, and that will then push out the

701
00:40:15,160 --> 00:40:18,040
Speaker 4: time before we'll be able to get to that a delibrium.

702
00:40:18,120 --> 00:40:20,000
Speaker 3: I think we both have two more short questions and

703
00:40:20,080 --> 00:40:23,000
Speaker 3: just real quickly on those business conversations. And this is

704
00:40:23,040 --> 00:40:25,160
Speaker 3: something that's been coming up in episodes. Do you see

705
00:40:25,160 --> 00:40:29,520
Speaker 3: a divergence between small and large businesses? Large businesses who

706
00:40:29,560 --> 00:40:32,000
Speaker 3: have the balance sheet can lose money for a couple

707
00:40:32,000 --> 00:40:34,360
Speaker 3: of quarters. For a small business, they make a mistake,

708
00:40:34,400 --> 00:40:36,640
Speaker 3: they make an order. There's a huge tariff bill at

709
00:40:36,640 --> 00:40:39,759
Speaker 3: the poor it might be existential. Have you noticed a

710
00:40:40,000 --> 00:40:43,360
Speaker 3: sort of a distributional effect in terms of planning and.

711
00:40:43,320 --> 00:40:48,480
Speaker 4: How and the effect absolutely, And I think forecasts for sales,

712
00:40:48,960 --> 00:40:51,920
Speaker 4: forecasts for costs are much higher for small buinesses. We

713
00:40:52,000 --> 00:40:53,640
Speaker 4: talk to small bus leaders. You could see this in

714
00:40:53,680 --> 00:40:57,680
Speaker 4: our survey responses. They're the ones who are feeling most

715
00:40:57,760 --> 00:41:00,800
Speaker 4: at risk, and we'll just have to I mean, I

716
00:41:00,840 --> 00:41:03,560
Speaker 4: think they're hoping that this is a short episode and

717
00:41:03,600 --> 00:41:05,520
Speaker 4: we can get to a new steady state so they

718
00:41:05,560 --> 00:41:07,200
Speaker 4: can understand how to run their businesses.

719
00:41:07,880 --> 00:41:10,040
Speaker 2: I have just one more question, and it's a very

720
00:41:10,080 --> 00:41:13,279
Speaker 2: important one. We heard that you like birding. Do you

721
00:41:13,360 --> 00:41:15,200
Speaker 2: prefer seeing hawks or doves?

722
00:41:16,200 --> 00:41:17,680
Speaker 5: This is a very serious question.

723
00:41:18,200 --> 00:41:20,080
Speaker 4: You know, that's very good. You know when I first started,

724
00:41:20,239 --> 00:41:21,879
Speaker 4: I got asked in my hawker dev and I said

725
00:41:21,880 --> 00:41:25,040
Speaker 4: I was an owl, and I have doves in my

726
00:41:25,080 --> 00:41:27,440
Speaker 4: backyard pretty regularly. Mourning doves.

727
00:41:27,560 --> 00:41:29,800
Speaker 2: They're the stupidest birds.

728
00:41:30,239 --> 00:41:33,480
Speaker 4: But it's always super exciting when a red shoulder a

729
00:41:33,480 --> 00:41:36,680
Speaker 4: redtail hawk comes swooping in or Cooper's So just like

730
00:41:37,040 --> 00:41:40,000
Speaker 4: when they ask parents their their favorite child and they say,

731
00:41:40,040 --> 00:41:42,240
Speaker 4: we love them all. I love all my birds.

732
00:41:42,520 --> 00:41:46,239
Speaker 2: I don't love mourning doves. They're idiotic. They're like they

733
00:41:46,239 --> 00:41:48,640
Speaker 2: have a death wish and always are getting killed and

734
00:41:48,680 --> 00:41:51,360
Speaker 2: building their nests in stupid places, and then it becomes

735
00:41:51,440 --> 00:41:55,680
Speaker 2: my problem. Okay, enough about mourning doves. Raphael Bostic, thank

736
00:41:55,719 --> 00:41:59,319
Speaker 2: you so much. Really appreciate the invite to Atlanta and

737
00:41:59,480 --> 00:42:00,000
Speaker 2: this converse.

738
00:42:00,360 --> 00:42:02,440
Speaker 4: Thank you, thanks for coming down to Atlanta. I look

739
00:42:02,480 --> 00:42:04,960
Speaker 4: forward to talking again sometime in the future anytime.

740
00:42:05,000 --> 00:42:18,680
Speaker 5: That was a flash the time, Joe.

741
00:42:18,960 --> 00:42:22,680
Speaker 2: That was fantastic getting to talk to I guess Bostic

742
00:42:22,800 --> 00:42:25,759
Speaker 2: is non voting at the moment, but getting to talk

743
00:42:25,800 --> 00:42:30,160
Speaker 2: to a FED person at this really interesting juncture in

744
00:42:30,280 --> 00:42:32,799
Speaker 2: economic and I guess central bank history.

745
00:42:32,760 --> 00:42:36,719
Speaker 3: It's such an interesting time for all kinds of reasons.

746
00:42:37,080 --> 00:42:40,840
Speaker 3: I mean, you know the fact that the COVID shock

747
00:42:41,000 --> 00:42:45,120
Speaker 3: still looms with us in various ways, clearly in particularly

748
00:42:45,880 --> 00:42:48,960
Speaker 3: just the fact that you know, up until very recently,

749
00:42:49,440 --> 00:42:53,040
Speaker 3: arguably depending on how you measure it, inflation still running

750
00:42:53,080 --> 00:42:57,000
Speaker 3: above target. But this is sort of uncharted territory to

751
00:42:57,040 --> 00:43:01,080
Speaker 3: some extent because of the speed of Paul changes in

752
00:43:01,080 --> 00:43:04,440
Speaker 3: both directions in DC. You know, I wrote in a

753
00:43:04,560 --> 00:43:06,880
Speaker 3: newsletter I think it was last week after the Polle's

754
00:43:06,920 --> 00:43:12,200
Speaker 3: press conference. You know, I've never heard more different ways

755
00:43:12,280 --> 00:43:15,319
Speaker 3: to express the concept of we don't know anything that's

756
00:43:15,360 --> 00:43:18,880
Speaker 3: about to happen. That's right, an extreme level of humility

757
00:43:18,960 --> 00:43:20,160
Speaker 3: is required in this moment.

758
00:43:20,280 --> 00:43:24,160
Speaker 2: Well, he certainly mentioned the word uncertainty a number of times. Yeah,

759
00:43:24,200 --> 00:43:26,680
Speaker 2: it really is. Well, the other thing I was thinking is,

760
00:43:26,920 --> 00:43:30,680
Speaker 2: I guess the complexity of trying to do economic analysis

761
00:43:30,719 --> 00:43:33,640
Speaker 2: in the current period is really really coming through. And

762
00:43:33,719 --> 00:43:37,920
Speaker 2: I thought the point that Bostik was making about productivity

763
00:43:38,320 --> 00:43:43,480
Speaker 2: depending on where people actually move manufacturing or move operations too,

764
00:43:43,880 --> 00:43:48,600
Speaker 2: like that level of detail seems almost impossible to predict.

765
00:43:48,719 --> 00:43:52,239
Speaker 2: And yet productivity is obviously something that matters enormously for

766
00:43:52,320 --> 00:43:52,920
Speaker 2: the economy.

767
00:43:53,239 --> 00:43:53,759
Speaker 5: What is it?

768
00:43:53,800 --> 00:43:56,240
Speaker 3: Who are we talking to and they're quoting Paul Krugman

769
00:43:56,600 --> 00:43:59,920
Speaker 3: someone recently, and they're like, productivity isn't everything, but it's

770
00:43:59,920 --> 00:44:03,120
Speaker 3: almost everything. I guess pretty much all there is. You know,

771
00:44:03,520 --> 00:44:06,680
Speaker 3: you think from the perspective of any sort of international

772
00:44:06,960 --> 00:44:11,160
Speaker 3: any company that has international ties, and now we've had

773
00:44:11,200 --> 00:44:14,600
Speaker 3: like two supply shocks in a way in a very

774
00:44:14,600 --> 00:44:17,960
Speaker 3: short period of time, you could almost be forgiven for

775
00:44:18,440 --> 00:44:20,919
Speaker 3: post COVID say, oh, you know, this is a once

776
00:44:20,960 --> 00:44:23,400
Speaker 3: in a century type of thing. So I don't know

777
00:44:23,440 --> 00:44:26,000
Speaker 3: how much we're going to change our businesses, but a

778
00:44:26,280 --> 00:44:28,960
Speaker 3: now we've had this other one, and so at some

779
00:44:29,239 --> 00:44:32,640
Speaker 3: point this idea of moving supply chains, which has already

780
00:44:32,719 --> 00:44:35,759
Speaker 3: like been happening to various degrees, has to be top

781
00:44:35,840 --> 00:44:38,040
Speaker 3: of mind. And how these things get organized, and what

782
00:44:38,080 --> 00:44:40,560
Speaker 3: do you reshore, and what do you friendshore and what

783
00:44:40,600 --> 00:44:43,319
Speaker 3: do you put in Vietnam that has links to both

784
00:44:43,440 --> 00:44:47,440
Speaker 3: US and China. They're policymaking in a state of flux,

785
00:44:47,480 --> 00:44:47,839
Speaker 3: for sure.

786
00:44:47,920 --> 00:44:50,440
Speaker 2: Yeah, and it also gets harder for companies, right like

787
00:44:50,480 --> 00:44:52,440
Speaker 2: the longer this kind of goes on, because you had

788
00:44:52,480 --> 00:44:57,680
Speaker 2: the first wave of reshoring after the twenty sixteen Trump administration,

789
00:44:58,160 --> 00:45:01,480
Speaker 2: and now what's left to move places, especially if you

790
00:45:01,520 --> 00:45:04,080
Speaker 2: have tariffs on both Vietnam and China.

791
00:45:04,160 --> 00:45:06,239
Speaker 3: You know, what I've been thinking about. I would never

792
00:45:06,239 --> 00:45:09,120
Speaker 3: give financial advice on a podcast because it would be terrible,

793
00:45:09,440 --> 00:45:11,680
Speaker 3: But something I've been thinking about a little bit lately

794
00:45:12,440 --> 00:45:15,960
Speaker 3: is that you actually might have this situation. This doesn't

795
00:45:15,960 --> 00:45:18,040
Speaker 3: even really have to do with our conversation, but straight

796
00:45:18,080 --> 00:45:21,080
Speaker 3: thought in my head. You actually have the situation now,

797
00:45:21,160 --> 00:45:23,680
Speaker 3: which I think is kind of interesting, in which if

798
00:45:23,719 --> 00:45:27,279
Speaker 3: you're an American importer, you're obviously thinking at least to

799
00:45:27,320 --> 00:45:31,120
Speaker 3: some extent, about diversifying the base of where you source from.

800
00:45:31,600 --> 00:45:34,040
Speaker 3: So do you like go more to Latin America, do

801
00:45:34,080 --> 00:45:36,880
Speaker 3: you go to other non China parts of Asia and

802
00:45:36,880 --> 00:45:40,480
Speaker 3: so forth. If you're a Chinese exporter, you might be

803
00:45:40,600 --> 00:45:43,680
Speaker 3: thinking about the same thing. There's already been this pressure

804
00:45:43,760 --> 00:45:47,239
Speaker 3: from Chinese exports, just a business pressure to move some

805
00:45:47,280 --> 00:45:50,759
Speaker 3: of their lower end manufacturing outside of China. Now there's

806
00:45:50,840 --> 00:45:54,120
Speaker 3: the fact that there's this big terarifa disparity, assuming that

807
00:45:54,280 --> 00:45:59,040
Speaker 3: current levels stay roughly stable, so it'll be interesting to

808
00:45:59,200 --> 00:46:02,800
Speaker 3: see if there is some sort of, you know, positive

809
00:46:02,880 --> 00:46:07,080
Speaker 3: impulse to non China em generally, because it strikes me

810
00:46:07,120 --> 00:46:10,919
Speaker 3: that a lot of different entities really do have an

811
00:46:11,000 --> 00:46:16,000
Speaker 3: economic reason to truly diversify in a way that maybe

812
00:46:16,080 --> 00:46:17,400
Speaker 3: hadn't been the case several years ago.

813
00:46:17,440 --> 00:46:17,919
Speaker 5: Oh for sure.

814
00:46:17,960 --> 00:46:19,840
Speaker 2: And we saw that in the episode we did with

815
00:46:19,920 --> 00:46:24,239
Speaker 2: Sarah Lafleur when one of her Chinese manufacturers was talking about, well,

816
00:46:24,360 --> 00:46:27,200
Speaker 2: if we can't export a bunch of stuff to America,

817
00:46:27,320 --> 00:46:31,400
Speaker 2: maybe we start selling m. M. Lafleur clothes into China

818
00:46:31,640 --> 00:46:33,680
Speaker 2: that as well. Right, it's like on both sides of

819
00:46:33,680 --> 00:46:35,879
Speaker 2: the equation, so many moving parts. You know what, I'm

820
00:46:35,880 --> 00:46:40,360
Speaker 2: thinking about eating more fried things before I leave Atlanta.

821
00:46:40,440 --> 00:46:41,440
Speaker 3: Okay, so I got to wrap it up.

822
00:46:41,680 --> 00:46:42,520
Speaker 2: Yeah, shall we leave it there?

823
00:46:42,600 --> 00:46:43,319
Speaker 3: Let's leave it there.

824
00:46:43,680 --> 00:46:46,040
Speaker 2: This has been another episode of the ad Thoughts podcast.

825
00:46:46,160 --> 00:46:48,960
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

826
00:46:49,160 --> 00:46:52,240
Speaker 3: And I'm joe Isnenthal. You can follow me at the Stalwart.

827
00:46:52,360 --> 00:46:55,120
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828
00:46:55,160 --> 00:46:58,279
Speaker 3: some of his posts there. Follow our producers Kerman Rodriguez

829
00:46:58,320 --> 00:47:03,160
Speaker 3: at Kerman Armadesh O, Bennette Dashbug, and Kilbrooks at Kalebrooks.

830
00:47:03,480 --> 00:47:06,839
Speaker 3: More oddlotscontent go to bloomberg dot com slash odlots, where

831
00:47:06,840 --> 00:47:09,640
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832
00:47:09,960 --> 00:47:12,440
Speaker 3: and you can chat about all of these topics twenty

833
00:47:12,520 --> 00:47:16,239
Speaker 3: four to seven, including monetary policy with fellow listeners in

834
00:47:16,360 --> 00:47:20,040
Speaker 3: our discord discord dot gg, slash od loots.

835
00:47:20,040 --> 00:47:22,600
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836
00:47:22,600 --> 00:47:26,120
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837
00:47:26,160 --> 00:47:29,320
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838
00:47:29,560 --> 00:47:32,440
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839
00:47:32,440 --> 00:47:35,719
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840
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841
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