WEBVTT - Atlanta Fed's Raphael Bostic on Monetary Policy During Extreme Uncertainty 0:00:02.480 --> 0:00:16.360 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.000 --> 0:00:20.920 Hello and welcome to another episode of the Odd Lots podcast. 0:00:21.120 --> 0:00:22.480 I'm Tracy Alloway. 0:00:22.200 --> 0:00:23.360 And I'm Joe Wisenthal. 0:00:23.720 --> 0:00:25.000 Joe, we're here in Atlanta. 0:00:25.440 --> 0:00:28.600 I've never I'm embarrassed. I've never really spent any time 0:00:28.680 --> 0:00:32.120 in Atlanta so far, but it seems lovely. We're in midtown. 0:00:32.240 --> 0:00:34.280 I had a southern food. 0:00:34.240 --> 0:00:36.680 I was going to ask, how much fried stuff have 0:00:36.760 --> 0:00:37.200 you eaten? 0:00:38.159 --> 0:00:40.559 I have to be really careful because I will devour 0:00:40.680 --> 0:00:41.960 the food while I'm here. 0:00:42.120 --> 0:00:44.239 So I went out with our producer Carmen last night 0:00:44.240 --> 0:00:48.520 and we had fried chicken, fried okra, fried green tomatoes. 0:00:48.880 --> 0:00:50.519 I think there were a few other fried things. It 0:00:50.600 --> 0:00:53.040 was so good, so good, all right, But we're not 0:00:53.120 --> 0:00:56.080 actually here. We're not here just to talk about southern food. 0:00:56.160 --> 0:01:00.360 We are actually here to interview someone very important of 0:01:00.400 --> 0:01:02.720 the Federal Reserve Bank of Atlanta. And I think it's 0:01:02.760 --> 0:01:05.959 really interesting to be interviewing someone from the FED at 0:01:06.000 --> 0:01:09.640 this particular moment in time, because just last week we 0:01:09.680 --> 0:01:13.640 had an FMC meeting they decided to keep rates unchanged. 0:01:13.720 --> 0:01:16.679 But then just a couple of days after that, over 0:01:16.720 --> 0:01:18.600 the weekend, we had some pretty big news. 0:01:18.800 --> 0:01:22.080 Well, that's right. So obviously it's an extraordinary difficult time 0:01:22.400 --> 0:01:26.120 for literally everyone to understand what's going on with the economy. 0:01:26.400 --> 0:01:29.240 The FED in particular, people have talked about it's in 0:01:29.240 --> 0:01:32.120 a tight spot right because they're perhaps are signs of 0:01:32.319 --> 0:01:37.280 economic deceleration. There's the potential inflationary impulse of the tariffs, 0:01:37.520 --> 0:01:42.240 and the tariffs themselves keep moving. That being said, I 0:01:42.360 --> 0:01:46.399 was sort of knock on wood between the reason they 0:01:46.480 --> 0:01:50.000 tunt so to speak with China. Maybe things are quieting down, 0:01:50.240 --> 0:01:54.520 Maybe we'll at least have some trade policy stability for 0:01:54.600 --> 0:01:58.240 some period of time, which maybe makes things today slightly 0:01:58.320 --> 0:02:00.880 easier to understand or to debate than they might have 0:02:00.960 --> 0:02:02.200 even been a week ago. 0:02:02.680 --> 0:02:04.640 That is the big question. So why don't we get 0:02:04.720 --> 0:02:07.240 right to it. We're speaking with Raphael Bostik. He is, 0:02:07.280 --> 0:02:10.600 of course the president of the Atlanta FED. So Raphael, 0:02:10.680 --> 0:02:12.880 thank you so much for coming on all thoughts. 0:02:12.440 --> 0:02:14.919 Well, thank you for having me, and welcome to Atlanta. 0:02:14.960 --> 0:02:16.160 Thank you thanks for having us. 0:02:16.280 --> 0:02:17.920 So I'm going to start with the I guess the 0:02:18.000 --> 0:02:21.919 obvious question, but you know, last week after the FOMC meeting, 0:02:22.080 --> 0:02:24.959 you put out a statement saying that your baseline outlook 0:02:25.080 --> 0:02:28.200 is for the economy to be less resilient than you 0:02:28.240 --> 0:02:31.160 expected at the beginning of the year. Given the news 0:02:31.360 --> 0:02:34.520 over the weekend a potential truce at least for ninety 0:02:34.560 --> 0:02:37.440 days between China and the US, does that change your 0:02:37.440 --> 0:02:39.359 outlook a little? 0:02:39.840 --> 0:02:45.080 I would say the overarching message that I've gotten from 0:02:45.480 --> 0:02:48.240 the people I talked to and from our survey responses 0:02:48.280 --> 0:02:50.359 and other things, and it's the reason why I was 0:02:50.360 --> 0:02:54.080 comfortable with our policy action last week, is that there's 0:02:54.120 --> 0:02:57.320 just a tremendous amount of uncertainty out there, and because 0:02:57.360 --> 0:03:02.200 of that, businesses and households as well aren't really comfortable 0:03:02.560 --> 0:03:06.959 making big decisions, and as a consequence, the amount of 0:03:07.080 --> 0:03:09.160 energy I would have expected to see in the economy 0:03:09.760 --> 0:03:13.240 is going to be less than that expectation is at 0:03:13.280 --> 0:03:15.520 the beginning of this year. It looks like it's going 0:03:15.600 --> 0:03:18.080 to be less than that for the remainder of this year, 0:03:18.120 --> 0:03:20.160 and then we'll have to see how things play out 0:03:20.160 --> 0:03:23.200 to determine how much less. But that uncertainty definitely is 0:03:23.360 --> 0:03:26.800 weighing on consumers and business leaders alike. 0:03:27.280 --> 0:03:29.320 Joe and I have been joking about trying to get 0:03:29.320 --> 0:03:32.720 through podcast nowadays without saying the word uncertainty. I don't 0:03:32.720 --> 0:03:33.640 think we've succeeded. 0:03:33.760 --> 0:03:36.760 It's literally never going to happen. That word comes up 0:03:36.840 --> 0:03:40.040 in every episode. But actually, going back to Tracy's question, 0:03:40.440 --> 0:03:43.440 what does it mean they become to me less resilient? 0:03:43.800 --> 0:03:45.240 What did you mean by that term? 0:03:45.680 --> 0:03:49.760 So, what we've seen through the last several years is 0:03:50.000 --> 0:03:54.880 an economy where all the analysts had expected things to 0:03:55.000 --> 0:03:58.880 start slowing down. Yeah, you know, inflation went very high. 0:03:59.240 --> 0:04:03.760 We had challenges in terms of supply chains, which led 0:04:03.800 --> 0:04:07.000 people to worry maybe labor Marcus would loosen people who 0:04:07.040 --> 0:04:12.600 lose their jobs. Sentiment expressed a lot of concern. Consumers 0:04:12.920 --> 0:04:17.000 and households were all expressing their frustration with things. All 0:04:17.040 --> 0:04:19.200 those things would have suggested that you would see less 0:04:19.240 --> 0:04:20.760 economic activity. 0:04:20.320 --> 0:04:23.000 In the fastest phase of rate hikes in decades. 0:04:22.640 --> 0:04:26.400 Correct, And that just didn't happen. Like last year, GDP 0:04:26.720 --> 0:04:30.880 was over two percent, which is faster than potential in 0:04:30.920 --> 0:04:33.120 the face. Look, I go around and talk to a 0:04:33.120 --> 0:04:36.599 lot of folks for much of the pandemic. The second 0:04:36.680 --> 0:04:38.440 question I would get, after what are you going to 0:04:38.480 --> 0:04:43.080 do with raids is when is their a session happening? Right? 0:04:43.240 --> 0:04:46.400 That was the overarching sentiment. I used to would always say, 0:04:46.720 --> 0:04:50.000 that's not my outlook. So people should expect that the 0:04:50.040 --> 0:04:53.880 momentum will continue. That momentum did in fact continue, and 0:04:54.800 --> 0:04:58.920 I call that resilience right, that strength and that continued 0:04:59.080 --> 0:05:03.320 energy in the economy that allows firms to produce, people 0:05:03.360 --> 0:05:07.479 to consume at robust levels. Then we come to today 0:05:08.360 --> 0:05:10.880 where there's a lot of uncertainty, and the uncertainty hits 0:05:10.880 --> 0:05:13.400 on many levels. And I'm sorry I'm saying this word. 0:05:13.240 --> 0:05:16.400 That it's just a joke. 0:05:16.520 --> 0:05:18.760 You're allowed to use the word uncertainly, right. 0:05:18.560 --> 0:05:22.799 Well, thank you. Folks are not sure about the cost 0:05:22.800 --> 0:05:27.479 of goods again, people are not sure whether that will 0:05:27.480 --> 0:05:29.679 trigger recession. I will say, in the last six months, 0:05:30.080 --> 0:05:33.599 acting the last three months, analysts have used the word 0:05:33.680 --> 0:05:38.240 recession in their narrative about possibilities far more than they 0:05:38.279 --> 0:05:42.560 have for quite some time. And all of that people notice, 0:05:42.920 --> 0:05:45.560 and if folks think that there's going to be a 0:05:45.600 --> 0:05:47.960 possibility that they're going to lose their job or those 0:05:47.960 --> 0:05:52.040 sorts of things, they're going to engage differently. There are 0:05:52.400 --> 0:05:55.680 perceptions of what a safety netlet needs to be for them. 0:05:55.680 --> 0:05:58.400 That rainy day fund is going to change and they're 0:05:58.440 --> 0:06:01.240 willing to spend out of savings, is going to change, 0:06:01.560 --> 0:06:04.599 or even spend out of regular income. All of that 0:06:04.640 --> 0:06:09.839 would suggests less energy. That's less resilience. And you know, 0:06:09.880 --> 0:06:13.000 the less resilience does not necessarily mean recession. I would say, 0:06:13.160 --> 0:06:16.839 even today, recession is not in my outlook, but it's 0:06:16.960 --> 0:06:19.840 less right, So rather than the two percent or two 0:06:19.880 --> 0:06:22.760 and a half percent, it may be one percent, maybe 0:06:22.800 --> 0:06:25.880 a half percent. That's the thing that I'm looking to 0:06:25.920 --> 0:06:29.800 really understand is as I try to keep my finger 0:06:29.839 --> 0:06:31.280 on the pulse of the US economy. 0:06:32.000 --> 0:06:34.000 I think one of the reasons a lot of people 0:06:34.360 --> 0:06:38.600 expected recession going back to twenty twenty three twenty twenty 0:06:38.680 --> 0:06:44.640 two was the soft data measures. The surveys looked absolutely terrible, 0:06:44.800 --> 0:06:47.239 and you know, if you looked at something like consumer sentiment, 0:06:47.560 --> 0:06:50.120 people seem to think it was basically the end of 0:06:50.120 --> 0:06:53.240 the world. Fast forward to twenty twenty five, and we 0:06:53.320 --> 0:06:56.200 do have a similar dynamic happening now where the soft 0:06:56.279 --> 0:07:00.240 data is deteriorating but the hard data remains relatively wrong. 0:07:00.960 --> 0:07:03.960 Is there a risk that this time is different and 0:07:04.000 --> 0:07:07.600 maybe we're a little overconfident in the economy given what 0:07:07.800 --> 0:07:10.200 happened with the soft data a couple of years ago. 0:07:10.880 --> 0:07:12.280 So you know, it's funny that you say this time 0:07:12.400 --> 0:07:12.840 is different. 0:07:13.120 --> 0:07:15.240 I always hesitate to say on a podcast, but I 0:07:15.240 --> 0:07:15.600 still do it. 0:07:15.720 --> 0:07:16.680 Sometimes it can be done. 0:07:16.720 --> 0:07:19.800 Yeah, well a lot of times it can be different, 0:07:19.840 --> 0:07:23.080 but just often as not right. And so part of 0:07:23.440 --> 0:07:26.560 what I try to do in my approach is never assume, 0:07:27.200 --> 0:07:29.680 never have a preconceived notion or an expectation about what's 0:07:29.720 --> 0:07:33.440 going to happen, but rather just pay attention and what 0:07:33.440 --> 0:07:35.160 I would say on the sentiment, which is quite interesting. 0:07:35.160 --> 0:07:37.280 You know I was a psych major undergrad. Oh I 0:07:37.280 --> 0:07:40.480 didn't know that, and so psychoicon. Yeah, And so for me, 0:07:40.920 --> 0:07:44.240 I know psychology is important, and I know psychology can 0:07:44.360 --> 0:07:48.480 shift people's decision making even when the information set doesn't change, 0:07:48.840 --> 0:07:52.720 and so understanding that psychology and how it translates into 0:07:53.200 --> 0:07:57.440 decision making is a critical thing. The very interesting thing 0:07:57.480 --> 0:08:01.080 with the sentiment today is that we have had two 0:08:01.120 --> 0:08:05.320 realities with sentiment. Right. The conventional wisdom is that when 0:08:05.320 --> 0:08:09.040 people are feeling bad, they do less. When sentiment turns negative, 0:08:09.080 --> 0:08:11.400 things slow down. I think there's been a history to 0:08:11.400 --> 0:08:15.200 show that that has been an experience. More often than not, 0:08:15.680 --> 0:08:18.520 the anomaly or the odd one was this most recent 0:08:18.520 --> 0:08:22.720 one where a sentiment was really down in the dumps, 0:08:22.760 --> 0:08:25.360 you know, the vibe session and all those sorts of things. 0:08:25.880 --> 0:08:29.320 But when push came to shove, consumers continued to go out, 0:08:29.400 --> 0:08:33.920 people kept going to restaurants, going on trips, renovating their homes, 0:08:33.960 --> 0:08:37.240 all those things, and the economy remained robust. So the 0:08:37.320 --> 0:08:41.160 question we have today is which of those realities is 0:08:41.200 --> 0:08:43.920 going to play out. And the one thing I would 0:08:43.920 --> 0:08:47.760 say that's different today than in the pandemic environment is 0:08:47.800 --> 0:08:51.719 that going into the pandemic, we hadn't had a high 0:08:51.760 --> 0:08:57.280 recessionary period, and we also didn't have a situation where 0:08:57.440 --> 0:08:59.760 the government was going to provide support for the economy 0:09:00.160 --> 0:09:03.480 to robust away. So you might imagine that even in 0:09:03.520 --> 0:09:06.800 the face of more negative sentiment. Look, the pandemic was 0:09:06.840 --> 0:09:11.360 super stressful on many dimensions, and so it didn't surprise me. 0:09:11.440 --> 0:09:15.719 People were a little kind of upset and rattled, if 0:09:15.720 --> 0:09:19.160 you will, but they got a lot of support. People 0:09:19.280 --> 0:09:22.880 kept their jobs. It's very interesting when I think about 0:09:22.920 --> 0:09:25.840 the pandemic. A lot of it is people kept getting paid. 0:09:26.600 --> 0:09:30.800 The employment rate rebounded incredibly fast, but they didn't have 0:09:30.840 --> 0:09:32.880 things to spend on. They couldn't go to restaurants, they 0:09:33.280 --> 0:09:36.199 couldn't go on vacation. So the household balance sheet was 0:09:36.240 --> 0:09:39.040 actually quite stronger than you would expect to see in 0:09:39.200 --> 0:09:44.840 sentiment turning south. Today, that balance sheet is quite a 0:09:44.840 --> 0:09:47.320 different place. I talked to a lot of folks and 0:09:47.480 --> 0:09:51.840 asked bankers, for example, compared to pre pandemic, where your 0:09:51.880 --> 0:09:55.520 customer's balance is during the pandemic, everyone's like a lot higher, 0:09:55.559 --> 0:09:58.400 thirty forty percent higher today, That's not what I'm hearing. 0:09:58.400 --> 0:10:01.560 And many of them are back to pandemic levels, which 0:10:01.640 --> 0:10:05.400 might mean that families response function maybe back to a 0:10:05.480 --> 0:10:08.559 pre pandemic setting, and we'll just have to see how 0:10:08.600 --> 0:10:09.199 that plays out. 0:10:25.000 --> 0:10:28.520 Eventually, I want to get to the contemporary situation and 0:10:28.840 --> 0:10:31.600 thinking about the tariffs, etc. But before we do, you know, 0:10:31.640 --> 0:10:37.080 thinking back one of the residual lessons of the pandemic period, 0:10:37.520 --> 0:10:39.240 and there are two big ones, and they've come up 0:10:39.240 --> 0:10:43.280 a lot many lessons. But from the corporate perspective, one 0:10:43.320 --> 0:10:46.439 is companies, maybe for the first time in a long time, 0:10:46.920 --> 0:10:50.760 realize that they can raise prices without losing market share, 0:10:50.840 --> 0:10:53.880 and so suddenly price increases become maybe back on the 0:10:53.920 --> 0:10:56.880 strategy book. And then the other thing is the sort 0:10:56.880 --> 0:11:01.800 of residual fear of being caught short labor, right, And 0:11:01.920 --> 0:11:04.160 so for years there was this expectation you put a 0:11:04.200 --> 0:11:06.320 help want it sign in the window, and you get 0:11:06.400 --> 0:11:09.000 a line out the door, and labor is easy to 0:11:09.080 --> 0:11:12.080 come by. And maybe one of the reasons that's been 0:11:12.120 --> 0:11:14.880 theorized for the lack of layoffs and say twenty twenty two, 0:11:15.000 --> 0:11:17.720 twenty twenty three, is just this fear that if you 0:11:17.760 --> 0:11:19.640 cut jobs, you're not gonna be able to get them 0:11:19.679 --> 0:11:22.080 back in the door when you need them. Do you 0:11:22.120 --> 0:11:24.520 think those lessons still linger with us today when you 0:11:24.559 --> 0:11:29.080 talk to business leaders today, do they still have sort 0:11:29.120 --> 0:11:32.360 of these searing memories of not having been able to 0:11:32.440 --> 0:11:37.360 staff their staff their facilities once demand starts picking up. 0:11:37.400 --> 0:11:39.640 But do you think that still affects the sort of 0:11:39.920 --> 0:11:44.080 marginal impulse to layoff workers. 0:11:44.360 --> 0:11:47.600 So I wouldn't put it exactly like that. I think 0:11:47.640 --> 0:11:50.080 that there is a reluctance among firms, and this is 0:11:50.080 --> 0:11:52.560 what I've heard from most firms. Yeah, that you know 0:11:52.640 --> 0:11:55.920 they're going to hold tight today and see how things evolve. 0:11:56.160 --> 0:12:00.839 And because there's two sided risk, because the economy might 0:12:00.840 --> 0:12:03.040 be stronger than people are projecting today, or it might 0:12:03.080 --> 0:12:07.040 be weaker. You don't want to take actions that might 0:12:07.200 --> 0:12:10.240 cause you to have to do extra things to get 0:12:10.280 --> 0:12:11.800 back to where you are, So I think there's a 0:12:11.840 --> 0:12:15.960 precautionary posture that's happening today which is actually quite different 0:12:16.000 --> 0:12:19.360 than what happened during the pandemic. We ask our firms 0:12:19.679 --> 0:12:22.960 through our surveys, is a labor market easier for you today? 0:12:23.200 --> 0:12:25.480 Or is it worse than it was a year ago 0:12:25.600 --> 0:12:28.360 and two years ago, And uniform of the answer is easier. 0:12:28.800 --> 0:12:32.640 We're hear easier to hire. The number of people who 0:12:32.679 --> 0:12:36.959 apply for a vacant position is up in some instances considerably, 0:12:37.520 --> 0:12:41.360 and the quality of the applicants is also a relative 0:12:41.400 --> 0:12:44.600 to where they were in the pandemic. Back then, they 0:12:44.720 --> 0:12:48.880 put a shingle out and if they got someone, it 0:12:48.920 --> 0:12:50.920 was someone that they probably didn't want to hire, and 0:12:50.920 --> 0:12:53.680 they were hiring them anyway because they didn't have options. 0:12:53.880 --> 0:12:56.720 That's not the environment that we have today, and that's 0:12:56.760 --> 0:13:02.319 important in terms of the the impulse of firms to 0:13:02.360 --> 0:13:06.320 increase prices. I do think that's still real today. And 0:13:06.679 --> 0:13:09.400 you know, one lesson that I think people did learn 0:13:09.720 --> 0:13:12.959 through the pandemic was if you tell people conser up, 0:13:13.480 --> 0:13:16.800 and it's obvious that if that wasn't in the debates, 0:13:17.200 --> 0:13:20.040 then people understand that the price might have to go up. 0:13:20.640 --> 0:13:24.439 And what businesses learned is that most consumers, most of 0:13:24.480 --> 0:13:28.679 their customers, were okay with that. The question is are 0:13:28.679 --> 0:13:32.120 they still okay with that? And to me, I would say, 0:13:32.400 --> 0:13:36.280 there are two really interesting dynamics that I think are 0:13:36.679 --> 0:13:40.960 potentially emerging. One is I think firms are going to 0:13:40.960 --> 0:13:45.440 try to apply the lesson learned from the pandemic. They 0:13:45.480 --> 0:13:49.040 have an assumption or an expectation that the consumer response 0:13:49.120 --> 0:13:50.920 is going to be exactly the way it was before. 0:13:51.720 --> 0:13:54.840 We will see if it actually is. And I think 0:13:55.600 --> 0:13:59.840 the concern about the level of prices that we heard 0:13:59.840 --> 0:14:02.760 a lot about in the last six months suggests that 0:14:02.880 --> 0:14:07.280 maybe they won't, but maybe they will, And in fact, 0:14:07.320 --> 0:14:12.160 it might actually be more complicated in that for some 0:14:12.280 --> 0:14:14.920 households it may be the size of the change, So 0:14:14.960 --> 0:14:17.760 if it's it's a smaller incremental it may not register. 0:14:18.200 --> 0:14:21.920 For others it could be one penny and that's too much. 0:14:22.560 --> 0:14:26.280 And then the third piece to this is sector bisector. 0:14:26.440 --> 0:14:29.760 Do you wind up seeing different responses And then if 0:14:29.760 --> 0:14:31.120 you wind up with something like that, and I think 0:14:31.160 --> 0:14:33.920 that's probably where we're going to wind up, then forecasting 0:14:33.960 --> 0:14:37.280 it at the aggregate level becomes incredibly challenging. I mean, 0:14:37.360 --> 0:14:39.800 you have to wind up doing a lot more. Your 0:14:39.800 --> 0:14:44.440 spreadsheets get larger, the math gets more complicated, and so 0:14:44.840 --> 0:14:47.800 you know, I think our job will get a bit 0:14:47.840 --> 0:14:48.480 more challenging. 0:14:49.240 --> 0:14:52.800 So, just on this point, at the press conference last week, 0:14:53.080 --> 0:14:57.680 Howe seemed to suggest this idea of tariff impacts maybe 0:14:57.720 --> 0:15:02.400 operating at different speeds. The impact on inflation could potentially 0:15:02.480 --> 0:15:04.840 come quicker, especially if you had a bunch of companies 0:15:04.920 --> 0:15:09.400 immediately raising prices to offset the cost, But the impact 0:15:09.480 --> 0:15:12.080 on something like the labor market could take a lot 0:15:12.160 --> 0:15:16.480 longer to actually feed through, maybe even because some businesses 0:15:16.520 --> 0:15:20.080 still have residual scars from the pandemic or whatever. How 0:15:20.120 --> 0:15:23.680 do you deal with those two different factors operating at 0:15:23.720 --> 0:15:25.800 different speeds. It seems very difficult. 0:15:26.240 --> 0:15:30.320 Well, we have a very dynamic economy, and that's just 0:15:30.320 --> 0:15:34.600 an overarching feature of the environment that we work in. 0:15:35.040 --> 0:15:38.000 I think part of what we try to do in 0:15:38.040 --> 0:15:43.480 Atlanta is try to get hints about the longer run 0:15:43.560 --> 0:15:48.120 things in real time as much as possible, because for 0:15:48.240 --> 0:15:49.640 many of these things, if you wait for them to 0:15:49.640 --> 0:15:53.160 show up in the national data, you're two months behind, 0:15:53.360 --> 0:15:56.840 a quarter behind, sometimes a couple weeks behind, and then 0:15:56.920 --> 0:16:00.600 there's more of a scramble. We learned and the Great 0:16:00.760 --> 0:16:05.760 Financial Crisis that we needed to be asking much more front, 0:16:05.760 --> 0:16:09.320 forward and prospective questions about what businesses are seeing, what 0:16:09.360 --> 0:16:11.960 they're feeling, and how they're going to respond, so that 0:16:12.800 --> 0:16:17.080 even if the revelation happens at different speeds, the impulses 0:16:17.120 --> 0:16:21.040 and the drivers will be more contemporaneous, and if you 0:16:21.080 --> 0:16:23.640 can discern those, then you might be able to get 0:16:23.680 --> 0:16:26.600 ahead start on where things are going. What I would 0:16:26.600 --> 0:16:29.920 say today is and it gets back to what we 0:16:29.960 --> 0:16:33.000 were just talking about. I think many firms will probably 0:16:33.040 --> 0:16:35.840 try to pass through costs to the extent they see them. 0:16:36.240 --> 0:16:41.000 They will learn pretty quickly whether those cost increases are 0:16:41.040 --> 0:16:44.600 being taken on by customers or being rejected by them, 0:16:44.960 --> 0:16:47.440 and then they'll have to make a decision about what 0:16:47.520 --> 0:16:50.320 is their protection production function going to look like. And 0:16:50.360 --> 0:16:52.480 once they make that decision, then they'll decide what kind 0:16:52.480 --> 0:16:56.520 of workforce they need. I'm expecting that those lessons will 0:16:56.520 --> 0:16:59.320 be learned quickly and what I've As I go around, 0:16:59.360 --> 0:17:03.160 I talk to Chamber of Commerce, I do open discussions 0:17:03.200 --> 0:17:06.639 and cities all across the sixth district. I say, if 0:17:06.680 --> 0:17:08.919 you see someone doing something that's really different than what 0:17:08.960 --> 0:17:10.440 they were doing two weeks ago, you need to call 0:17:10.520 --> 0:17:12.919 us and let us know, because we need to be 0:17:12.960 --> 0:17:17.000 collecting that information to try to understand whether a single 0:17:17.000 --> 0:17:19.919 impulse is actually a trend and whether there are some 0:17:20.000 --> 0:17:23.880 lessons that can be learned from the collection of the masses. 0:17:24.240 --> 0:17:25.639 We need a fed tip line. 0:17:26.960 --> 0:17:29.119 Wait, how many calls have you been getting? Have you 0:17:29.160 --> 0:17:29.879 been getting calls? 0:17:29.960 --> 0:17:34.359 So no, nobody calls me, but we have a team 0:17:34.400 --> 0:17:36.160 that's out in the field and they are getting calls 0:17:36.200 --> 0:17:38.280 on a regular basis. You know, when I got here, 0:17:38.320 --> 0:17:40.600 I was really I didn't really know any of this. 0:17:40.800 --> 0:17:43.320 But we have a network of staffers whose job it 0:17:43.359 --> 0:17:46.040 is is just to have relationships with business leaders and 0:17:46.080 --> 0:17:50.119 with community folks all over the Southeast and come and 0:17:50.160 --> 0:17:53.800 see them and talk to them in really conversational, unstructured 0:17:53.840 --> 0:17:57.919 ways for ninety minutes two hours, just to get a 0:17:57.960 --> 0:18:00.119 sense of where are they, how are they feeling, and 0:18:00.240 --> 0:18:02.280 what are they worrying about, what are they excited about? 0:18:02.680 --> 0:18:08.600 What's changed, and because the relationships are personal on some level, 0:18:08.720 --> 0:18:11.520 people do feel more comfortable picking up the phone and 0:18:11.560 --> 0:18:14.840 telling us things. And it's been something that's really helped us. 0:18:14.880 --> 0:18:19.199 So we knew fairly early on that people's horizon in 0:18:19.240 --> 0:18:23.439 the pandemic was expanding. So the right we did a survey. 0:18:23.880 --> 0:18:25.399 We do a number of surveys. We have a survey 0:18:25.400 --> 0:18:28.280 shop here, and we did survey of businesses and asked them, Okay, 0:18:28.520 --> 0:18:30.679 in April of twenty twenty, when do you think this 0:18:30.720 --> 0:18:35.719 will be done? They said September of twenty twenty. In 0:18:35.840 --> 0:18:38.480 January of twenty twenty, when don't we asked them. They 0:18:38.520 --> 0:18:42.040 said probably another eighteen months, right, And it was this 0:18:42.200 --> 0:18:46.919 learned experience, and we got to see their understanding of 0:18:46.960 --> 0:18:50.399 the environment evolve in real time in ways that really 0:18:50.600 --> 0:18:53.080 I think helped us understand what questions we needed to 0:18:53.160 --> 0:18:56.719 ask and what kind of decisions and policy changes that 0:18:56.760 --> 0:18:59.280 we should be looking for. It's been quite interesting, and 0:18:59.320 --> 0:19:01.120 I think there's going to be some of that. There's 0:19:01.160 --> 0:19:02.480 going to be a lot of that that happens in 0:19:02.520 --> 0:19:05.480 the next several months. Look, we've just gone through a 0:19:05.520 --> 0:19:09.960 period where people were expecting tariffs. I think many people 0:19:10.000 --> 0:19:12.320 didn't expect the tariffs to roll out at the scale 0:19:12.440 --> 0:19:17.320 that we saw, and it's causing everyone to think about, Okay, now, 0:19:17.320 --> 0:19:20.200 if this is our new reality, how do I think 0:19:20.240 --> 0:19:23.040 about this? What am I going to do? And just 0:19:23.560 --> 0:19:26.119 as it was at the early stages of the pandemic, 0:19:26.680 --> 0:19:29.840 people are kind of doing it on the fly. And 0:19:30.160 --> 0:19:32.440 the only way to really understand how things are going 0:19:32.440 --> 0:19:33.840 when people are doing on the fly is to be 0:19:33.880 --> 0:19:36.600 there with them and to be continually asking them and 0:19:36.680 --> 0:19:40.879 seeing how their decision making and their changes are evolving 0:19:41.240 --> 0:19:44.840 as they get more insights. So as the tariff environment shifts, 0:19:45.200 --> 0:19:49.720 as the numbers move around, there's learning when you see, oh, 0:19:49.800 --> 0:19:52.719 their strategy was a and now their strategy is M 0:19:52.760 --> 0:19:55.879 like that's saying something about their thought process and what 0:19:55.920 --> 0:19:58.080 they're likely to do and moving forward. 0:19:57.760 --> 0:20:15.880 To So, let's talk a little bit more about the 0:20:15.920 --> 0:20:20.200 intersection of tariffs and monetary policy. And something that's been 0:20:20.320 --> 0:20:24.760 on my mind in particular is tariffs are a supply 0:20:24.960 --> 0:20:28.640 shock in some way, and what I've been wondering about 0:20:28.720 --> 0:20:33.240 is does that therefore increase the terminal rate in terms 0:20:33.240 --> 0:20:36.119 of how low the FED can ultimately go in a 0:20:36.400 --> 0:20:41.160 cutting cycle Okay, your supply constrained on some level. Perhaps 0:20:41.280 --> 0:20:45.080 also in theory, there's going to be some force development 0:20:45.240 --> 0:20:49.239 in the United States of some industrial capacity, and so 0:20:49.320 --> 0:20:53.119 that's a positive activity impulse. Does that mean when you 0:20:53.160 --> 0:20:55.879 think about like weakness and when you think about possible 0:20:56.080 --> 0:20:59.919 rate cuts, which is what everyone is expecting at some point, 0:21:00.160 --> 0:21:02.159 does that increase the floor of how. 0:21:02.040 --> 0:21:05.680 Low you can go? I don't think of it like that, okay, 0:21:05.760 --> 0:21:08.600 But first of all, I think being able to say 0:21:08.600 --> 0:21:11.119 a blanket statement on anything like this is going to 0:21:11.119 --> 0:21:14.240 be quite challenging. It would be challenging if you just 0:21:14.280 --> 0:21:17.280 picked one tariff rate for the whole world. Yeah, in 0:21:17.320 --> 0:21:22.479 an environment now where there's so much variation and descript 0:21:22.520 --> 0:21:26.720 price discrimination country to country and sector to sector, it's 0:21:26.800 --> 0:21:30.480 really difficult to know how to add it all up. 0:21:30.520 --> 0:21:34.160 And then you overlay that the numbers can change, we're expecting. 0:21:35.040 --> 0:21:36.439 One of the things I do when I talk to 0:21:36.440 --> 0:21:39.560 folks in public settings, show a hands how many people 0:21:39.640 --> 0:21:42.080 think that the tariff numbers that we see today are 0:21:42.080 --> 0:21:43.720 going to be the tariff numbers that we see a 0:21:43.800 --> 0:21:47.200 month from now, and anon raises, nobody's hands goes up. 0:21:47.560 --> 0:21:50.399 And in part that's by design right, So we know 0:21:50.440 --> 0:21:53.160 their negotiations going on. We know it's a ninety day 0:21:53.240 --> 0:21:56.560 moratorium in some of these instances, So that change that's 0:21:56.600 --> 0:21:59.800 out there means that it's going to be very challenging. 0:22:00.840 --> 0:22:03.000 I try to go back to just our basic mandate. 0:22:03.680 --> 0:22:07.840 We got price stability and we have maximum employment. Maximum 0:22:07.880 --> 0:22:10.040 sustainable employment is how I like to think about it. 0:22:10.400 --> 0:22:13.560 And so what I try to do is figure out, Okay, 0:22:13.640 --> 0:22:16.080 given all the things that are going on, what's that 0:22:16.200 --> 0:22:19.600 likely to do for us getting closer to our two 0:22:19.680 --> 0:22:23.119 percent target and inflation? And what's that likely to do 0:22:23.160 --> 0:22:26.320 in terms of the movement of labor markets relative to 0:22:26.680 --> 0:22:31.000 some broad notion of full employment today. What I would 0:22:31.000 --> 0:22:33.680 say is what I hear from analysts when I talk 0:22:33.720 --> 0:22:37.720 to my economists in the building, like, relative to the 0:22:37.760 --> 0:22:43.720 pre tariff environment, tariffs have a put upward force on inflation, 0:22:44.320 --> 0:22:47.280 and so that means that our policy is going to 0:22:47.320 --> 0:22:52.200 have to anticipate and to some extent potentially push against 0:22:52.440 --> 0:22:55.000 those inflationary forces to the extent that we see them. 0:22:55.320 --> 0:22:58.399 So that will put a limit on where our current 0:22:58.480 --> 0:23:02.120