1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,880 --> 00:00:10,799 Speaker 2: What is sort of technically your last twenty four hours 3 00:00:10,800 --> 00:00:13,840 Speaker 2: as a FED governor? Your term is up tomorrow, but 4 00:00:14,200 --> 00:00:16,560 Speaker 2: you're staying on. Thanks for having me back. It's good 5 00:00:16,560 --> 00:00:17,160 Speaker 2: to see you again. 6 00:00:17,360 --> 00:00:19,920 Speaker 3: Look, as you say, my term expires over the weekend, 7 00:00:20,400 --> 00:00:22,840 Speaker 3: but for the Federal Reserve Act, I'll be staying in 8 00:00:22,880 --> 00:00:26,000 Speaker 3: my seat until someone is confirmed to replace me, presumably 9 00:00:26,040 --> 00:00:29,600 Speaker 3: Chairman Designate Kevin Walsh. This is common practice and has 10 00:00:29,600 --> 00:00:32,199 Speaker 3: happened many times by other governors who have waited for 11 00:00:32,240 --> 00:00:33,839 Speaker 3: someone else to be confirmed into their seat. 12 00:00:34,080 --> 00:00:36,280 Speaker 4: Now, the question is how long is that going to take? 13 00:00:36,360 --> 00:00:38,600 Speaker 2: Have you had any indication from the White House or 14 00:00:38,840 --> 00:00:41,360 Speaker 2: from anybody on Capitol Hill. We know that Senator Tillis 15 00:00:41,440 --> 00:00:45,080 Speaker 2: is threatening to block denomination, but that could easily be handled. 16 00:00:45,080 --> 00:00:46,400 Speaker 4: That could go away anytime. 17 00:00:46,840 --> 00:00:48,479 Speaker 2: Do you have any idea how long you're going to 18 00:00:48,479 --> 00:00:50,080 Speaker 2: be still at the FED? 19 00:00:50,240 --> 00:00:51,920 Speaker 5: I have no idea. I mean, I wish I knew. 20 00:00:52,560 --> 00:00:55,680 Speaker 3: You know, my confirmation process took what six weeks or 21 00:00:55,720 --> 00:00:57,280 Speaker 3: so a little bit more a little bit more than that, 22 00:00:58,080 --> 00:01:00,440 Speaker 3: So you know, I have no idea how long it 23 00:01:00,440 --> 00:01:03,040 Speaker 3: will take for Chairman designant marsh but you know, I'm 24 00:01:03,040 --> 00:01:06,120 Speaker 3: confident that you know that the process will work and 25 00:01:06,360 --> 00:01:07,760 Speaker 3: the Senate and will come together. 26 00:01:07,920 --> 00:01:09,880 Speaker 2: All right, So you get to March eighteenth, that's the 27 00:01:09,920 --> 00:01:13,680 Speaker 2: next FOMC meeting. You're still going to descend for lower rates. 28 00:01:13,800 --> 00:01:17,080 Speaker 2: And I asked, because this time you only descended for 29 00:01:17,120 --> 00:01:18,840 Speaker 2: twenty five basis points instead of fifty. 30 00:01:19,319 --> 00:01:21,640 Speaker 3: Yeah, so I descended for twenty five instead of fifty 31 00:01:21,640 --> 00:01:24,280 Speaker 3: for a couple of reasons. One of them is that 32 00:01:24,319 --> 00:01:26,680 Speaker 3: we did cut. Since I joined the f and C 33 00:01:26,920 --> 00:01:29,040 Speaker 3: in September, we cut three times. You know, we reduced 34 00:01:29,040 --> 00:01:31,399 Speaker 3: the federal funds rate by seventy five basis points. That 35 00:01:31,440 --> 00:01:33,840 Speaker 3: means we're less far from neutral than we were when 36 00:01:33,840 --> 00:01:36,280 Speaker 3: I arrived in September. Now, I still think rates are 37 00:01:36,319 --> 00:01:38,640 Speaker 3: too restrictive, as I've made very clear. I still think 38 00:01:38,680 --> 00:01:40,800 Speaker 3: we need to cut in straits substantially further from here. 39 00:01:41,040 --> 00:01:43,160 Speaker 5: However, given that we've moved, we've made. 40 00:01:42,920 --> 00:01:45,560 Speaker 3: Some progress reducing rates, we can now sort of I think, 41 00:01:45,680 --> 00:01:47,960 Speaker 3: in my view, proceed at a at a slower pace 42 00:01:48,000 --> 00:01:50,480 Speaker 3: of a quarter point per meeting. It's no longer as 43 00:01:50,480 --> 00:01:52,920 Speaker 3: imperative to move to move in fifty clips as it was. 44 00:01:53,240 --> 00:01:55,080 Speaker 3: The other thing that happened is the labor market data 45 00:01:55,080 --> 00:01:56,840 Speaker 3: did come in a little bit better, and they didn't 46 00:01:56,880 --> 00:01:58,720 Speaker 3: come in to an extent that they alleviated all my 47 00:01:58,760 --> 00:02:01,840 Speaker 3: concerns about the labor market, you know, far from it. Indeed, 48 00:02:01,880 --> 00:02:04,320 Speaker 3: the labor market has been on this gradual cooling trend 49 00:02:04,360 --> 00:02:07,680 Speaker 3: for over two years now, and it should take much 50 00:02:07,680 --> 00:02:09,600 Speaker 3: more than just one data print to make you change 51 00:02:09,600 --> 00:02:12,720 Speaker 3: your mind about the trend of the labor market. But nevertheless, 52 00:02:12,720 --> 00:02:14,520 Speaker 3: we did get a little bit of better data and 53 00:02:14,560 --> 00:02:17,360 Speaker 3: that helped alleviate, you know, some concerns free, but not 54 00:02:17,400 --> 00:02:17,840 Speaker 3: all of them. 55 00:02:18,000 --> 00:02:19,600 Speaker 5: You know, I still have some concerns there. 56 00:02:19,840 --> 00:02:22,400 Speaker 2: Well, we got a four point four percent unemployment rate 57 00:02:22,480 --> 00:02:25,120 Speaker 2: last month, and the next friday we're expecting to get 58 00:02:25,200 --> 00:02:27,320 Speaker 2: the same thing. So that's two months at least of 59 00:02:27,360 --> 00:02:30,560 Speaker 2: evidence that the labor market is somewhat stabilized, which is 60 00:02:30,919 --> 00:02:33,840 Speaker 2: what the Fed was saying in its statement this last time. 61 00:02:34,360 --> 00:02:37,880 Speaker 2: And yet Jay Polish had given the numbers that you've 62 00:02:37,880 --> 00:02:40,200 Speaker 2: got to work with. It looks like PCE inflation on 63 00:02:40,240 --> 00:02:42,120 Speaker 2: the core is going to go to three percent or more. 64 00:02:43,480 --> 00:02:46,600 Speaker 2: The optics don't look good for cutting rates when inflation 65 00:02:46,760 --> 00:02:49,520 Speaker 2: is going up and the labor market is stabilized. 66 00:02:49,840 --> 00:02:51,680 Speaker 5: So I just regar with a couple of things you said. 67 00:02:51,720 --> 00:02:53,920 Speaker 3: First of all, the unemployment rate, even though it's the 68 00:02:53,919 --> 00:02:56,600 Speaker 3: single and most important indicator, is far from the total 69 00:02:56,600 --> 00:02:59,040 Speaker 3: of information that we know about the labor market. There's 70 00:02:59,080 --> 00:03:01,520 Speaker 3: plenty of evidence in the there's plenty of evidence in 71 00:03:01,520 --> 00:03:03,840 Speaker 3: the labor market data that indicates that we can accommodate 72 00:03:03,880 --> 00:03:06,919 Speaker 3: additional demand for labor. There have been signs like it 73 00:03:07,000 --> 00:03:09,680 Speaker 3: taking longer for some folks to find jobs, pockets of 74 00:03:09,720 --> 00:03:12,800 Speaker 3: weakness among you know, younger folks, and folks and folks 75 00:03:12,800 --> 00:03:15,760 Speaker 3: at college degrees. That all indicates that they're you know, 76 00:03:16,400 --> 00:03:19,000 Speaker 3: increased part time work for economic reasons. All this indicates 77 00:03:19,000 --> 00:03:21,800 Speaker 3: that there's additional slack in the labor market beyond what's 78 00:03:21,919 --> 00:03:23,320 Speaker 3: indicated in the. 79 00:03:23,560 --> 00:03:24,680 Speaker 5: Unemployment rate alone. 80 00:03:24,680 --> 00:03:27,320 Speaker 3: If you look at the employment population ratio for younger folks, 81 00:03:27,360 --> 00:03:29,359 Speaker 3: it's been trending downwards for a long period of time, 82 00:03:29,400 --> 00:03:31,320 Speaker 3: and it has shown and it has shown less stabilization 83 00:03:31,360 --> 00:03:33,600 Speaker 3: and the overall unemployment rates. And this is the type 84 00:03:33,600 --> 00:03:35,880 Speaker 3: of thing that is concerning for me. So I disagree 85 00:03:35,880 --> 00:03:37,960 Speaker 3: with the assessment that there's labor market, that there's enough 86 00:03:38,000 --> 00:03:40,560 Speaker 3: labor market stabilization, that we can drop our concerns about 87 00:03:40,560 --> 00:03:41,160 Speaker 3: the labor market. 88 00:03:41,400 --> 00:03:42,720 Speaker 5: I still have some concerns. 89 00:03:42,880 --> 00:03:45,680 Speaker 3: Now I'm not as concerned to some as as some others, 90 00:03:45,720 --> 00:03:48,920 Speaker 3: but those concerns still do exist for me. And on inflation, 91 00:03:49,160 --> 00:03:51,240 Speaker 3: I think you know I've been making this argument that 92 00:03:51,320 --> 00:03:55,360 Speaker 3: almost all of the inflation overage over our target is 93 00:03:55,440 --> 00:03:57,400 Speaker 3: due to quirks of how we measure inflation. 94 00:03:57,480 --> 00:03:58,480 Speaker 5: It's due to two things. 95 00:03:58,600 --> 00:04:01,120 Speaker 3: It's due to the portfolio management services, which pick up 96 00:04:01,160 --> 00:04:04,360 Speaker 3: just the stock market prices. So AI pushes stock prices higher. 97 00:04:04,560 --> 00:04:08,240 Speaker 3: That mechanically feeds through into portfolio management services, which contributed 98 00:04:08,280 --> 00:04:11,160 Speaker 3: thirty six basis points to core year and year. A 99 00:04:11,200 --> 00:04:13,960 Speaker 3: normal year is six basis points, right, So there's over 100 00:04:14,000 --> 00:04:16,200 Speaker 3: a quarter of a point of core inflation access. 101 00:04:16,200 --> 00:04:18,360 Speaker 5: That's basically just the stock market moving higher. 102 00:04:18,480 --> 00:04:20,880 Speaker 3: And all of the professional investors in the audience know 103 00:04:20,960 --> 00:04:25,400 Speaker 3: there's been decades of fee deflation in that industry, not inflation, 104 00:04:25,520 --> 00:04:28,040 Speaker 3: So there's an error in how this thing is measured 105 00:04:28,080 --> 00:04:28,720 Speaker 3: and interpreted. 106 00:04:28,880 --> 00:04:29,919 Speaker 5: The other thing is housing. 107 00:04:30,200 --> 00:04:32,320 Speaker 3: The way the housing inflation is measured, it's picking up 108 00:04:32,360 --> 00:04:34,640 Speaker 3: the housing market rents of twenty twenty two and twenty 109 00:04:34,680 --> 00:04:37,520 Speaker 3: twenty three, not twenty twenty six or twenty twenty seven. 110 00:04:37,839 --> 00:04:40,320 Speaker 3: We shouldn't be making policy based on what happened in 111 00:04:40,320 --> 00:04:42,839 Speaker 3: twenty twenty two. We should be making policy based on 112 00:04:42,880 --> 00:04:45,279 Speaker 3: what's happening in the next twelve months. So, once you 113 00:04:45,360 --> 00:04:48,680 Speaker 3: correct for these two errors, the backward looking nature of 114 00:04:48,720 --> 00:04:52,120 Speaker 3: shelter and the messed up portfolio management fees, you look 115 00:04:52,160 --> 00:04:54,600 Speaker 3: at market based core x housing instead of looking at 116 00:04:54,640 --> 00:04:57,600 Speaker 3: regular core. Inflation is running two point two percent. That's 117 00:04:57,640 --> 00:05:01,120 Speaker 3: within noise of our target. We don't have inflation access 118 00:05:01,680 --> 00:05:04,719 Speaker 3: of any inflation that's relevant for supplyed demand imbalances of 119 00:05:04,720 --> 00:05:07,159 Speaker 3: the type of monetary policy we'll respond to. We should 120 00:05:07,200 --> 00:05:10,080 Speaker 3: not be making monetary policy. We should not be asking 121 00:05:10,120 --> 00:05:13,240 Speaker 3: people to give up their jobs because of quirks of 122 00:05:13,240 --> 00:05:15,479 Speaker 3: how inflation is measured. That just to me, is not 123 00:05:15,520 --> 00:05:17,400 Speaker 3: a good idea for policy. It's a bit it's a 124 00:05:17,400 --> 00:05:19,360 Speaker 3: grotesque interpretation of stable prices. 125 00:05:20,120 --> 00:05:22,120 Speaker 1: I am curious as to you just about how we 126 00:05:22,200 --> 00:05:23,600 Speaker 1: start to measure things going forward. 127 00:05:23,600 --> 00:05:24,919 Speaker 6: And I just want to go back to the labor 128 00:05:24,920 --> 00:05:25,400 Speaker 6: market for. 129 00:05:25,360 --> 00:05:27,440 Speaker 1: A second, because there's been a lot of discussion about 130 00:05:27,440 --> 00:05:30,679 Speaker 1: the stability or maybe the potential instability there I spoke 131 00:05:30,720 --> 00:05:32,640 Speaker 1: this morning with the CEO of American Express, and he 132 00:05:32,680 --> 00:05:35,000 Speaker 1: actually talked a lot about small businesses, the kind of 133 00:05:35,000 --> 00:05:37,120 Speaker 1: middle market businesses, if you will, that at least in 134 00:05:37,120 --> 00:05:40,880 Speaker 1: his view, weren't as healthy as some of the larger businesses. 135 00:05:40,920 --> 00:05:43,560 Speaker 1: And I'm curious that there's been any meaningful discussion at 136 00:05:43,600 --> 00:05:46,160 Speaker 1: the FED about that kind of middle market of our economy. 137 00:05:46,680 --> 00:05:50,839 Speaker 3: You know, excuse me, there is conversations about that. You know, 138 00:05:50,839 --> 00:05:53,200 Speaker 3: people talk a lot about shaped, you know, sort of 139 00:05:53,240 --> 00:05:55,320 Speaker 3: case shaped economies and things like that, and I think 140 00:05:55,360 --> 00:05:57,280 Speaker 3: usually they're talking about households when they talk about that, 141 00:05:57,360 --> 00:05:59,479 Speaker 3: but there certainly is an element of that on the 142 00:05:59,480 --> 00:06:02,120 Speaker 3: firm side as well. You know, from my perspective, some 143 00:06:02,160 --> 00:06:05,320 Speaker 3: of that stuff is helpful for understanding where the economy 144 00:06:05,360 --> 00:06:08,480 Speaker 3: is going. But I don't believe in targeting a specific 145 00:06:08,560 --> 00:06:10,760 Speaker 3: sector of the economy. I believe that, you know, the 146 00:06:11,360 --> 00:06:14,160 Speaker 3: statutes that Congress gave us instructs us to target the 147 00:06:14,480 --> 00:06:17,880 Speaker 3: overall macroeconomy as a whole and then focused on aggregate employments. 148 00:06:17,920 --> 00:06:20,360 Speaker 5: I'm focused on aggregate inflation, and so. 149 00:06:20,400 --> 00:06:22,520 Speaker 3: I do see, you know, there is there are definitely 150 00:06:22,560 --> 00:06:25,080 Speaker 3: are pockets of weakness here and there but I'm focused 151 00:06:25,080 --> 00:06:26,280 Speaker 3: on on the overall levels. 152 00:06:26,400 --> 00:06:28,560 Speaker 1: But there was some discussion a few years back with J. 153 00:06:28,720 --> 00:06:30,960 Speaker 1: Powell when he did start to look at certain segments. 154 00:06:30,960 --> 00:06:32,599 Speaker 1: The idea that when you look at the economy and 155 00:06:32,600 --> 00:06:37,320 Speaker 1: as aggregate, sometimes it obscures you know certain things, whether 156 00:06:37,360 --> 00:06:39,760 Speaker 1: it's to the upside or the downside. Is there not 157 00:06:39,880 --> 00:06:43,160 Speaker 1: any value in maybe trying, I guess, bisect or dissect 158 00:06:43,160 --> 00:06:44,440 Speaker 1: things into different sections. 159 00:06:44,720 --> 00:06:44,880 Speaker 2: Oh? 160 00:06:44,920 --> 00:06:46,760 Speaker 3: No, there absolutely is, because it can help you. It 161 00:06:46,800 --> 00:06:48,880 Speaker 3: can help you predict where the overall is going to go. Right, 162 00:06:49,120 --> 00:06:50,560 Speaker 3: And I did that a moment ago with the with 163 00:06:50,600 --> 00:06:52,600 Speaker 3: the labor market when you as I was saying, if 164 00:06:52,600 --> 00:06:54,320 Speaker 3: you look at if you look at younger folks, if 165 00:06:54,320 --> 00:06:56,080 Speaker 3: you look at folks at college degrees, if you look 166 00:06:56,080 --> 00:06:58,200 Speaker 3: at folks that are marginally attached to the labor market, 167 00:06:58,600 --> 00:07:00,760 Speaker 3: I think that they're often they're leading indicators of where 168 00:07:00,760 --> 00:07:02,800 Speaker 3: the overall labor market is going to go, and they 169 00:07:02,800 --> 00:07:05,520 Speaker 3: portray additional slack beyond what just the unemployment rated stuff 170 00:07:05,520 --> 00:07:05,960 Speaker 3: would give you. 171 00:07:06,160 --> 00:07:07,279 Speaker 5: And I think you know, to the. 172 00:07:07,279 --> 00:07:09,920 Speaker 3: Extent you're seeing weakness in some smaller business some small 173 00:07:09,960 --> 00:07:14,160 Speaker 3: business segments like the annex CEO that you mentioned before 174 00:07:14,480 --> 00:07:16,000 Speaker 3: that is the type of thing that I would be 175 00:07:16,080 --> 00:07:19,000 Speaker 3: interested in knowing more about it in terms what it 176 00:07:19,040 --> 00:07:20,360 Speaker 3: pretends for the overall economy. 177 00:07:20,760 --> 00:07:23,320 Speaker 7: Stephen Myron, I want to talk about Kevin Worsh. Of course, 178 00:07:23,360 --> 00:07:26,320 Speaker 7: that's the big news of this morning, President Trump posting 179 00:07:26,760 --> 00:07:29,680 Speaker 7: on truth Social that he will nominate Kevin Walsh as 180 00:07:29,680 --> 00:07:32,480 Speaker 7: the next FED or as the next Chair of the 181 00:07:32,480 --> 00:07:34,760 Speaker 7: Federal Reserve. This has been the horse race that has 182 00:07:34,840 --> 00:07:37,720 Speaker 7: been captivating Wall Street. I want to bring you this 183 00:07:37,880 --> 00:07:41,640 Speaker 7: note from Neil Dutta over at Renaissance Macro. He writes 184 00:07:41,680 --> 00:07:43,640 Speaker 7: that if you get a few cuts now to appease 185 00:07:43,680 --> 00:07:47,280 Speaker 7: the President, you may well get tougher hikes later. Moreover, 186 00:07:47,360 --> 00:07:50,440 Speaker 7: because Walsh has been a policyhawk his entire life, his 187 00:07:50,560 --> 00:07:53,720 Speaker 7: newfound duvishness looks very suspect. Now that's maybe a little 188 00:07:53,720 --> 00:07:56,560 Speaker 7: bit more blunt than I would have phrased it. But 189 00:07:56,640 --> 00:07:58,560 Speaker 7: there's a lot of people on Wall Street on the 190 00:07:58,600 --> 00:08:01,320 Speaker 7: cell side who share the view. And I'm curious how 191 00:08:01,400 --> 00:08:04,560 Speaker 7: confident you are that you know, as a FED chair, 192 00:08:04,680 --> 00:08:06,920 Speaker 7: Worsh will be the dove that it seems that President 193 00:08:06,920 --> 00:08:07,600 Speaker 7: Trump wants. 194 00:08:08,240 --> 00:08:09,880 Speaker 5: Look, I think Neil is fantastic. 195 00:08:09,920 --> 00:08:12,920 Speaker 3: I'm a huge I'm a huge Neil fan, but I 196 00:08:12,920 --> 00:08:15,760 Speaker 3: think that Chairman design At Warsh has a long and 197 00:08:15,800 --> 00:08:19,560 Speaker 3: illustrious career in history as a very insightful thinker on 198 00:08:19,600 --> 00:08:22,360 Speaker 3: monetary policy. I think he's a fantastic pick for the 199 00:08:22,520 --> 00:08:25,280 Speaker 3: from the President. I think he's got enormous credibility. I 200 00:08:25,320 --> 00:08:26,640 Speaker 3: think he's got enormous gravitas. 201 00:08:26,680 --> 00:08:27,200 Speaker 5: I think he's got. 202 00:08:27,240 --> 00:08:31,239 Speaker 3: Enormous enormous respect from financial markets, from economists, from everyone. 203 00:08:31,400 --> 00:08:34,440 Speaker 3: I think he's going to do just a knockout job. 204 00:08:34,800 --> 00:08:38,240 Speaker 3: What specific policies he supports or he's going to support 205 00:08:38,280 --> 00:08:38,800 Speaker 3: going forward. 206 00:08:39,280 --> 00:08:41,199 Speaker 5: You know, I can't answer that. I'm not him. You 207 00:08:41,240 --> 00:08:42,440 Speaker 5: got to ask him those questions. 208 00:08:42,440 --> 00:08:44,960 Speaker 7: Certain well, I would love to, so fingers crossed there, 209 00:08:45,200 --> 00:08:47,600 Speaker 7: But as a FED governor, I mean, as you know, well, 210 00:08:47,679 --> 00:08:49,880 Speaker 7: the job of the Fed chair is not just their 211 00:08:49,920 --> 00:08:53,240 Speaker 7: opinions on where policies should go, but it's building consensus, 212 00:08:53,280 --> 00:08:55,640 Speaker 7: you know, in the room itself. And so with the 213 00:08:55,640 --> 00:08:59,120 Speaker 7: current makeup of the FLMC, I mean you think about 214 00:08:59,280 --> 00:09:02,000 Speaker 7: some of the views on interest rates on the balance sheet, 215 00:09:02,280 --> 00:09:04,880 Speaker 7: do you think that worsh will be able to basically 216 00:09:04,880 --> 00:09:06,760 Speaker 7: build that consensus with that makeup? 217 00:09:07,240 --> 00:09:10,000 Speaker 3: I do, I do, and The reason is that he's 218 00:09:10,040 --> 00:09:12,520 Speaker 3: been there before. He knows how the place operates, he 219 00:09:12,559 --> 00:09:15,400 Speaker 3: knows a lot of the key figures involved, and he's 220 00:09:15,440 --> 00:09:17,520 Speaker 3: got the respect and the credibility that you need to 221 00:09:17,559 --> 00:09:19,840 Speaker 3: do that. And I think that people want people want 222 00:09:19,920 --> 00:09:22,520 Speaker 3: him to succeed. I think people want the FED to 223 00:09:22,559 --> 00:09:25,880 Speaker 3: sort of have a good role in the economy, a 224 00:09:25,920 --> 00:09:27,840 Speaker 3: good role in the country. And I think that they'll 225 00:09:27,840 --> 00:09:29,360 Speaker 3: want him to succeed. And I think that he will 226 00:09:29,360 --> 00:09:32,160 Speaker 3: be able to marshal the arguments and the evidence. 227 00:09:31,800 --> 00:09:34,480 Speaker 5: That he needs to persuade people of his policy views. 228 00:09:34,480 --> 00:09:36,280 Speaker 4: I want to talk about your experience. 229 00:09:36,320 --> 00:09:39,280 Speaker 2: You came to the FED from the White House, and 230 00:09:39,520 --> 00:09:41,640 Speaker 2: I'm sure you know people said he was just put 231 00:09:41,640 --> 00:09:43,679 Speaker 2: there to do what Donald Trump told him to do. 232 00:09:44,800 --> 00:09:47,240 Speaker 2: Did Donald Trump tell you to do anything in particular? 233 00:09:47,320 --> 00:09:50,400 Speaker 2: And do you think he told Kevin Warsh that even 234 00:09:50,440 --> 00:09:53,280 Speaker 2: if he didn't, how do you how did you and 235 00:09:53,320 --> 00:09:57,239 Speaker 2: how would Kevin fight the perception that he's the President's 236 00:09:57,280 --> 00:09:58,439 Speaker 2: man inside the FED? 237 00:09:58,880 --> 00:10:02,439 Speaker 3: Look, the President has never ever asked me to do 238 00:10:02,520 --> 00:10:05,440 Speaker 3: anything on Montaria policy. He has never asked me to 239 00:10:05,480 --> 00:10:08,200 Speaker 3: do any specific action on Montara policy. He's told me 240 00:10:08,280 --> 00:10:10,760 Speaker 3: his views on Montera policy. But he tells the whole 241 00:10:10,760 --> 00:10:13,000 Speaker 3: world his views on Montera policy. You know them as 242 00:10:13,040 --> 00:10:15,480 Speaker 3: well as I do. Right, that's not a secret. He's 243 00:10:15,559 --> 00:10:17,800 Speaker 3: never asked me to do anything. And I wasn't in 244 00:10:17,840 --> 00:10:20,960 Speaker 3: the room with any of you know, Chairman Designant Warshes 245 00:10:21,000 --> 00:10:23,400 Speaker 3: conversations with the President or anybody else involved in this 246 00:10:23,440 --> 00:10:26,560 Speaker 3: selection process, So I don't know what those conversations were like. 247 00:10:26,600 --> 00:10:28,520 Speaker 3: But if they were anything like the conversations I had 248 00:10:28,559 --> 00:10:31,040 Speaker 3: with the President about Montera policy, then. 249 00:10:30,960 --> 00:10:32,959 Speaker 5: He wouldn't have asked him to take any specific actions. 250 00:10:33,080 --> 00:10:36,640 Speaker 2: Well, how do you get the public to realize that? 251 00:10:38,120 --> 00:10:40,840 Speaker 3: You do that by taking policy actions that are consistent 252 00:10:40,880 --> 00:10:43,360 Speaker 3: with the data. And I think that, you know, I've 253 00:10:43,440 --> 00:10:47,240 Speaker 3: laid out a case where the inflation measures that are 254 00:10:47,240 --> 00:10:50,120 Speaker 3: consistent with supplied demand and balances in the economy, the 255 00:10:50,160 --> 00:10:53,920 Speaker 3: inflation measures that are relevant for Montaria policy are indicating 256 00:10:54,040 --> 00:10:57,199 Speaker 3: that there's no material overheating, that there's no material inflation. 257 00:10:56,840 --> 00:10:58,160 Speaker 5: Issues in this country right now. 258 00:10:58,840 --> 00:11:01,320 Speaker 3: So by taking policy steps that are consistent with the 259 00:11:01,320 --> 00:11:04,439 Speaker 3: economic data that are justified by the state of the economy, 260 00:11:04,600 --> 00:11:06,280 Speaker 3: I think you're delivering the right policy. 261 00:11:06,320 --> 00:11:07,959 Speaker 5: At the end of the day, the. 262 00:11:07,800 --> 00:11:10,839 Speaker 3: Financial markets, the economy respond to whether the policy is 263 00:11:10,840 --> 00:11:12,680 Speaker 3: the appropriate policy or not right. 264 00:11:12,760 --> 00:11:16,480 Speaker 5: They don't respond to why the policy is there. Right. 265 00:11:16,640 --> 00:11:18,800 Speaker 3: The interest rate doesn't really care why, you know, the 266 00:11:19,360 --> 00:11:21,720 Speaker 3: long end of the yield curve ultimately doesn't really care 267 00:11:22,920 --> 00:11:24,800 Speaker 3: why the short rate is where the short rate is. 268 00:11:24,880 --> 00:11:28,000 Speaker 3: It cares whether the short rate is appropriately set and 269 00:11:28,040 --> 00:11:30,400 Speaker 3: what the consequences of the short rate are for the economy. 270 00:11:30,640 --> 00:11:32,880 Speaker 3: The motives of the people who went into started setting 271 00:11:32,880 --> 00:11:35,520 Speaker 3: the short rate, those aren't really important. Is it the 272 00:11:35,559 --> 00:11:37,680 Speaker 3: right policy for the economy or not is what matters. 273 00:11:37,960 --> 00:11:39,920 Speaker 3: And I think that that's what I've that's what I've 274 00:11:40,000 --> 00:11:42,200 Speaker 3: labored to labored to work for is to sort of 275 00:11:42,280 --> 00:11:44,760 Speaker 3: is to do a lot of a lot of analysis 276 00:11:44,760 --> 00:11:46,679 Speaker 3: of the inflation scenario, a lot of analysis of the 277 00:11:46,720 --> 00:11:49,240 Speaker 3: labor market, a lot of analysis of the economy, and 278 00:11:49,320 --> 00:11:50,920 Speaker 3: put that all out there. And I put all of 279 00:11:50,960 --> 00:11:53,040 Speaker 3: my analysis out there all the time. I try and 280 00:11:53,080 --> 00:11:56,240 Speaker 3: be as transparent as possibly can with my calculations. 281 00:11:56,280 --> 00:11:58,320 Speaker 5: Everybody knows exactly why I hold the views I hold. 282 00:11:58,960 --> 00:12:02,720 Speaker 1: See, I am curious, once you move on back to 283 00:12:02,760 --> 00:12:06,760 Speaker 1: your original role over at the National Economic Council, how 284 00:12:06,880 --> 00:12:10,160 Speaker 1: is fiscal policy meaning fiscal policy dictated from the White 285 00:12:10,200 --> 00:12:12,360 Speaker 1: House and obviously through Congress itself. 286 00:12:12,760 --> 00:12:13,720 Speaker 6: Is that going to be in sync? 287 00:12:13,760 --> 00:12:15,560 Speaker 1: Do you think with what at least what you know 288 00:12:15,679 --> 00:12:18,280 Speaker 1: now with regards to the Fed's thinking and Kevin warsh 289 00:12:18,320 --> 00:12:19,559 Speaker 1: is thinking, is that going to be in sync? 290 00:12:20,040 --> 00:12:22,600 Speaker 3: Well, first, let me say that I honestly have no 291 00:12:22,679 --> 00:12:25,080 Speaker 3: idea what I'm going to be doing. Uh, you know, 292 00:12:25,160 --> 00:12:28,720 Speaker 3: after after chairman doesn't at wash is confirmed, I have 293 00:12:28,800 --> 00:12:29,280 Speaker 3: no idea. 294 00:12:29,400 --> 00:12:30,760 Speaker 6: You're not to come back to the White House. 295 00:12:31,360 --> 00:12:34,040 Speaker 5: I have no idea. I have no idea. You know, 296 00:12:34,160 --> 00:12:35,560 Speaker 5: it's it's people want to go back. 297 00:12:35,800 --> 00:12:37,280 Speaker 3: Well, you know, I think I'm going to be doing 298 00:12:37,320 --> 00:12:40,280 Speaker 3: a lot of thinking over overcoming weeks about about you know, 299 00:12:41,080 --> 00:12:42,920 Speaker 3: about what will happen and what things will look like. 300 00:12:42,960 --> 00:12:45,160 Speaker 5: But I don't know. You know, we'll we'll see, we'll see, 301 00:12:45,200 --> 00:12:46,360 Speaker 5: we'll see how things shake out. 302 00:12:47,240 --> 00:12:49,320 Speaker 3: But you know, with respect to fiscal policy, you know, 303 00:12:49,320 --> 00:12:50,840 Speaker 3: as a member of the FED Board, it's it's just 304 00:12:50,920 --> 00:12:52,720 Speaker 3: it's not really appropriate for me to comment on it 305 00:12:52,720 --> 00:12:55,160 Speaker 3: one way or another. And you'd have to talk to folks, 306 00:12:55,520 --> 00:12:57,000 Speaker 3: you know, in the White House and in Treasury, and 307 00:12:57,000 --> 00:13:00,720 Speaker 3: I'm sure they've got plenty of views on appropriate fiscal policy. 308 00:13:00,360 --> 00:13:01,800 Speaker 5: That they'd be very happy to give you if. 309 00:13:01,720 --> 00:13:03,280 Speaker 6: You want to come work here. You make a great 310 00:13:03,280 --> 00:13:05,440 Speaker 6: co host. Well they know, I mean, no offense. Mikey's 311 00:13:05,440 --> 00:13:06,319 Speaker 6: great too, but you. 312 00:13:06,280 --> 00:13:08,520 Speaker 3: Know, I mean there are some pretty great snacks there, 313 00:13:08,640 --> 00:13:10,840 Speaker 3: so you know, it's it's it's it's not unappealing. 314 00:13:11,120 --> 00:13:12,520 Speaker 7: Yeah, we have a lot of good snacks on the 315 00:13:12,559 --> 00:13:15,080 Speaker 7: desk right now. Actually, but we should talk about the 316 00:13:15,120 --> 00:13:18,280 Speaker 7: balance sheet because one of the differentiating factors of Kevin 317 00:13:18,320 --> 00:13:20,880 Speaker 7: worsh is also his views on the balance sheet. We 318 00:13:20,920 --> 00:13:23,560 Speaker 7: know that he's skeptical about expanding it to the extent 319 00:13:23,600 --> 00:13:27,480 Speaker 7: that the Central Bank has very skeptical about QI as well. 320 00:13:27,480 --> 00:13:29,720 Speaker 7: And the point has been made to me today on 321 00:13:29,720 --> 00:13:32,280 Speaker 7: Bloomberg Television. You know, if the Fed is going to 322 00:13:32,280 --> 00:13:35,400 Speaker 7: step away from a stance where it's using the balance 323 00:13:35,400 --> 00:13:38,280 Speaker 7: sheet to influence the shape of the curve, that you 324 00:13:38,320 --> 00:13:41,000 Speaker 7: could see long end rates go high or that obviously 325 00:13:41,240 --> 00:13:43,680 Speaker 7: wouldn't be good news for mortgage rates with China that 326 00:13:43,720 --> 00:13:46,600 Speaker 7: President Trump is very focused on. And I wonder you know, 327 00:13:46,679 --> 00:13:48,720 Speaker 7: whether those views hold any water with you. 328 00:13:50,440 --> 00:13:52,760 Speaker 5: About about whether to do something with the balance sheet. 329 00:13:52,880 --> 00:13:55,320 Speaker 7: Yeah, whether or not you know, stepping away from expanding 330 00:13:55,320 --> 00:13:58,360 Speaker 7: the balance sheet will translate into higher long end rates. 331 00:13:58,720 --> 00:14:02,480 Speaker 3: So you know, my perspective is that it is a 332 00:14:02,480 --> 00:14:03,920 Speaker 3: good idea to shrink the balance sheet. 333 00:14:04,280 --> 00:14:05,680 Speaker 5: I've said this numerous times. 334 00:14:06,240 --> 00:14:07,880 Speaker 3: But I also think that in order to shrink the 335 00:14:07,920 --> 00:14:10,720 Speaker 3: balance sheet, we need to do some regulatory reform because 336 00:14:10,720 --> 00:14:15,520 Speaker 3: there are regulatory requirements that create demand for reserves in 337 00:14:15,559 --> 00:14:18,800 Speaker 3: the banks. We require the banks to hold reserves because 338 00:14:18,800 --> 00:14:21,720 Speaker 3: of the various requirements under the Bossle system. Right, So 339 00:14:21,800 --> 00:14:23,720 Speaker 3: once we do some regulatory reform, then I think we 340 00:14:23,760 --> 00:14:26,760 Speaker 3: can get back to shrinking the balance sheet. It is 341 00:14:26,800 --> 00:14:31,320 Speaker 3: something that I would like to do. Whether that has 342 00:14:31,320 --> 00:14:33,880 Speaker 3: an effect on long rates, I think depends on a 343 00:14:33,920 --> 00:14:36,480 Speaker 3: lot of stuff. It depends on how you're shrinking the 344 00:14:36,480 --> 00:14:39,040 Speaker 3: balance sheet, whether you're doing roll off or or whether 345 00:14:39,080 --> 00:14:40,120 Speaker 3: you're selling securities. 346 00:14:40,200 --> 00:14:41,360 Speaker 5: I think doing roll off is. 347 00:14:41,400 --> 00:14:44,320 Speaker 3: Passive and is less likely to have a substantial effect 348 00:14:44,600 --> 00:14:46,160 Speaker 3: on long rates. But I think at the end of 349 00:14:46,200 --> 00:14:48,240 Speaker 3: the day, you know what really matters is the overall 350 00:14:48,240 --> 00:14:52,440 Speaker 3: stands of policy as combined short rates and balance sheet policy. 351 00:14:52,840 --> 00:14:55,480 Speaker 3: And if you're at the zero lower bound, then the 352 00:14:55,480 --> 00:14:57,880 Speaker 3: short rate can't do anything, and then it's the balance 353 00:14:57,920 --> 00:14:59,440 Speaker 3: sheet policy that's really setting. 354 00:14:59,200 --> 00:15:01,560 Speaker 5: The tone for the bodom market. Right. 355 00:15:02,040 --> 00:15:05,920 Speaker 3: But if you're not the zero lower bound, then in theory, 356 00:15:06,040 --> 00:15:08,280 Speaker 3: you can be moving the short right around to offset 357 00:15:08,280 --> 00:15:11,280 Speaker 3: whatever you're doing on the balance sheet. And so what 358 00:15:11,320 --> 00:15:13,800 Speaker 3: you're doing when you set policies, you're targeting a particular 359 00:15:13,840 --> 00:15:16,240 Speaker 3: level of financial conditions that let you hit your monetary 360 00:15:16,320 --> 00:15:19,920 Speaker 3: policy targets statle prices and maximum employment. And if for 361 00:15:20,000 --> 00:15:22,840 Speaker 3: some reason financial conditions were to deviate from what allowed 362 00:15:22,880 --> 00:15:26,000 Speaker 3: you to hit stalar prices and maximum employment, you can 363 00:15:26,160 --> 00:15:29,720 Speaker 3: change the short rate to offset that and thereby get 364 00:15:29,720 --> 00:15:32,760 Speaker 3: back to stalar prices and maximum employment. So if you 365 00:15:32,800 --> 00:15:34,480 Speaker 3: want to shrink the balance sheet because you have a 366 00:15:34,520 --> 00:15:38,480 Speaker 3: principle that you want the FED to have a minimal 367 00:15:38,480 --> 00:15:42,880 Speaker 3: footprint in the economy, for example, right, then if that 368 00:15:42,920 --> 00:15:45,000 Speaker 3: were to cause an increase in long rates, you can 369 00:15:45,040 --> 00:15:48,240 Speaker 3: offset that tightening of financial conditions by reducing the short rate. 370 00:15:48,440 --> 00:15:50,320 Speaker 3: So as long as you're not the zero lower bounds, 371 00:15:50,400 --> 00:15:54,520 Speaker 3: you have multiple tools to affect this situation. 372 00:15:55,040 --> 00:15:55,840 Speaker 4: One last question. 373 00:15:56,840 --> 00:15:59,120 Speaker 2: We know now who the next chair of the FED 374 00:15:59,240 --> 00:16:01,360 Speaker 2: is likely to be, but we don't know what's going 375 00:16:01,400 --> 00:16:04,480 Speaker 2: to happen to the current chair of the fed. Would 376 00:16:04,480 --> 00:16:07,080 Speaker 2: it be uncomfortable for the committee? Would be difficult to 377 00:16:07,200 --> 00:16:11,720 Speaker 2: have J. Powell stay and be in the room when 378 00:16:11,800 --> 00:16:13,960 Speaker 2: Kevin warsh is trying to lead people perhaps in a 379 00:16:14,000 --> 00:16:14,840 Speaker 2: different direction. 380 00:16:15,960 --> 00:16:18,320 Speaker 3: Look, you know, I think that I think that Chairman Powell, 381 00:16:18,480 --> 00:16:21,080 Speaker 3: uh you know, deserves a thank you from all Americans. 382 00:16:21,120 --> 00:16:23,920 Speaker 3: I think his work during the during the pandemic recession, 383 00:16:24,320 --> 00:16:26,640 Speaker 3: uh you know, was part of a critical effort that 384 00:16:26,720 --> 00:16:29,080 Speaker 3: really helped save the country from a second Great depression. 385 00:16:29,120 --> 00:16:33,280 Speaker 3: And everyone, everyone knows him a thank you for that. However, 386 00:16:33,440 --> 00:16:35,200 Speaker 3: I really can't tell you what he's going to design 387 00:16:35,240 --> 00:16:38,280 Speaker 3: to do, uh you know. And you got to get it, 388 00:16:38,320 --> 00:16:39,600 Speaker 3: you know, you got to get it from the source, 389 00:16:39,960 --> 00:16:40,160 Speaker 3: you know. 390 00:16:40,800 --> 00:16:41,480 Speaker 5: I don't I don't know.