WEBVTT - Federal Reserve Governor Stephen Miran Talks Kevin Warsh, Fed Rates, Jerome Powell 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.880 --> 0:00:10.799 What is sort of technically your last twenty four hours 0:00:10.800 --> 0:00:13.840 as a FED governor? Your term is up tomorrow, but 0:00:14.200 --> 0:00:16.560 you're staying on. Thanks for having me back. It's good 0:00:16.560 --> 0:00:17.160 to see you again. 0:00:17.360 --> 0:00:19.920 Look, as you say, my term expires over the weekend, 0:00:20.400 --> 0:00:22.840 but for the Federal Reserve Act, I'll be staying in 0:00:22.880 --> 0:00:26.000 my seat until someone is confirmed to replace me, presumably 0:00:26.040 --> 0:00:29.600 Chairman Designate Kevin Walsh. This is common practice and has 0:00:29.600 --> 0:00:32.199 happened many times by other governors who have waited for 0:00:32.240 --> 0:00:33.839 someone else to be confirmed into their seat. 0:00:34.080 --> 0:00:36.280 Now, the question is how long is that going to take? 0:00:36.360 --> 0:00:38.600 Have you had any indication from the White House or 0:00:38.840 --> 0:00:41.360 from anybody on Capitol Hill. We know that Senator Tillis 0:00:41.440 --> 0:00:45.080 is threatening to block denomination, but that could easily be handled. 0:00:45.080 --> 0:00:46.400 That could go away anytime. 0:00:46.840 --> 0:00:48.479 Do you have any idea how long you're going to 0:00:48.479 --> 0:00:50.080 be still at the FED? 0:00:50.240 --> 0:00:51.920 I have no idea. I mean, I wish I knew. 0:00:52.560 --> 0:00:55.680 You know, my confirmation process took what six weeks or 0:00:55.720 --> 0:00:57.280 so a little bit more a little bit more than that, 0:00:58.080 --> 0:01:00.440 So you know, I have no idea how long it 0:01:00.440 --> 0:01:03.040 will take for Chairman designant marsh but you know, I'm 0:01:03.040 --> 0:01:06.120 confident that you know that the process will work and 0:01:06.360 --> 0:01:07.760 the Senate and will come together. 0:01:07.920 --> 0:01:09.880 All right, So you get to March eighteenth, that's the 0:01:09.920 --> 0:01:13.680 next FOMC meeting. You're still going to descend for lower rates. 0:01:13.800 --> 0:01:17.080 And I asked, because this time you only descended for 0:01:17.120 --> 0:01:18.840 twenty five basis points instead of fifty. 0:01:19.319 --> 0:01:21.640 Yeah, so I descended for twenty five instead of fifty 0:01:21.640 --> 0:01:24.280 for a couple of reasons. One of them is that 0:01:24.319 --> 0:01:26.680 we did cut. Since I joined the f and C 0:01:26.920 --> 0:01:29.040 in September, we cut three times. You know, we reduced 0:01:29.040 --> 0:01:31.399 the federal funds rate by seventy five basis points. That 0:01:31.440 --> 0:01:33.840 means we're less far from neutral than we were when 0:01:33.840 --> 0:01:36.280 I arrived in September. Now, I still think rates are 0:01:36.319 --> 0:01:38.640 too restrictive, as I've made very clear. I still think 0:01:38.680 --> 0:01:40.800 we need to cut in straits substantially further from here. 0:01:41.040 --> 0:01:43.160 However, given that we've moved, we've made. 0:01:42.920 --> 0:01:45.560 Some progress reducing rates, we can now sort of I think, 0:01:45.680 --> 0:01:47.960 in my view, proceed at a at a slower pace 0:01:48.000 --> 0:01:50.480 of a quarter point per meeting. It's no longer as 0:01:50.480 --> 0:01:52.920 imperative to move to move in fifty clips as it was. 0:01:53.240 --> 0:01:55.080 The other thing that happened is the labor market data 0:01:55.080 --> 0:01:56.840 did come in a little bit better, and they didn't 0:01:56.880 --> 0:01:58.720 come in to an extent that they alleviated all my 0:01:58.760 --> 0:02:01.840 concerns about the labor market, you know, far from it. Indeed, 0:02:01.880 --> 0:02:04.320 the labor market has been on this gradual cooling trend 0:02:04.360 --> 0:02:07.680 for over two years now, and it should take much 0:02:07.680 --> 0:02:09.600 more than just one data print to make you change 0:02:09.600 --> 0:02:12.720 your mind about the trend of the labor market. But nevertheless, 0:02:12.720 --> 0:02:14.520 we did get a little bit of better data and 0:02:14.560 --> 0:02:17.360 that helped alleviate, you know, some concerns free, but not 0:02:17.400 --> 0:02:17.840 all of them. 0:02:18.000 --> 0:02:19.600 You know, I still have some concerns there. 0:02:19.840 --> 0:02:22.400 Well, we got a four point four percent unemployment rate 0:02:22.480 --> 0:02:25.120 last month, and the next friday we're expecting to get 0:02:25.200 --> 0:02:27.320 the same thing. So that's two months at least of 0:02:27.360 --> 0:02:30.560 evidence that the labor market is somewhat stabilized, which is 0:02:30.919 --> 0:02:33.840 what the Fed was saying in its statement this last time. 0:02:34.360 --> 0:02:37.880 And yet Jay Polish had given the numbers that you've 0:02:37.880 --> 0:02:40.200 got to work with. It looks like PCE inflation on 0:02:40.240 --> 0:02:42.120 the core is going to go to three percent or more. 0:02:43.480 --> 0:02:46.600 The optics don't look good for cutting rates when inflation 0:02:46.760 --> 0:02:49.520 is going up and the labor market is stabilized. 0:02:49.840 --> 0:02:51.680 So I just regar with a couple of things you said. 0:02:51.720 --> 0:02:53.920 First of all, the unemployment rate, even though it's the 0:02:53.919 --> 0:02:56.600 single and most important indicator, is far from the total 0:02:56.600 --> 0:02:59.040 of information that we know about the labor market. There's 0:02:59.080 --> 0:03:01.520 plenty of evidence in the there's plenty of evidence in 0:03:01.520 --> 0:03:03.840 the labor market data that indicates that we can accommodate 0:03:03.880 --> 0:03:06.919 additional demand for labor. There have been signs like it 0:03:07.000 --> 0:03:09.680 taking longer for some folks to find jobs, pockets of 0:03:09.720 --> 0:03:12.800 weakness among you know, younger folks, and folks and folks 0:03:12.800 --> 0:03:15.760 at college degrees. That all indicates that they're you know, 0:03:16.400 --> 0:03:19.000 increased part time work for economic reasons. All this indicates 0:03:19.000 --> 0:03:21.800 that there's additional slack in the labor market beyond what's 0:03:21.919 --> 0:03:23.320 indicated in the. 0:03:23.560 --> 0:03:24.680 Unemployment rate alone. 0:03:24.680 --> 0:03:27.320 If you look at the employment population ratio for younger folks, 0:03:27.360 --> 0:03:29.359 it's been trending downwards for a long period of time, 0:03:29.400 --> 0:03:31.320 and it has shown and it has shown less stabilization 0:03:31.360 --> 0:03:33.600 and the overall unemployment rates. And this is the type 0:03:33.600 --> 0:03:35.880 of thing that is concerning for me. So I disagree 0:03:35.880 --> 0:03:37.960 with the assessment that there's labor market, that there's enough 0:03:38.000 --> 0:03:40.560 labor market stabilization, that we can drop our concerns about 0:03:40.560 --> 0:03:41.160 the labor market. 0:03:41.400 --> 0:03:42.720 I still have some concerns. 0:03:42.880 --> 0:03:45.680 Now I'm not as concerned to some as as some others, 0:03:45.720 --> 0:03:48.920 but those concerns still do exist for me. And on inflation, 0:03:49.160 --> 0:03:51.240 I think you know I've been making this argument that 0:03:51.320 --> 0:03:55.360 almost all of the inflation overage over our target is 0:03:55.440 --> 0:03:57.400 due to quirks of how we measure inflation. 0:03:57.480 --> 0:03:58.480 It's due to two things. 0:03:58.600 --> 0:04:01.120 It's due to the portfolio management services, which pick up 0:04:01.160 --> 0:04:04.360 just the stock market prices. So AI pushes stock prices higher. 0:04:04.560 --> 0:04:08.240 That mechanically feeds through into portfolio management services, which contributed 0:04:08.280 --> 0:04:11.160 thirty six basis points to core year and year. A 0:04:11.200 --> 0:04:13.960 normal year is six basis points, right, So there's over 0:04:14.000 --> 0:04:16.200 a quarter of a point of core inflation access. 0:04:16.200 --> 0:04:18.360 That's basically just the stock market moving higher. 0:04:18.480 --> 0:04:20.880 And all of the professional investors in the audience know 0:04:20.960 --> 0:04:25.400 there's been decades of fee deflation in that industry, not inflation, 0:04:25.520 --> 0:04:28.040 So there's an error in how this thing is measured 0:04:28.080 --> 0:04:28.720 and interpreted. 0:04:28.880 --> 0:04:29.919 The other thing is housing. 0:04:30.200 --> 0:04:32.320 The way the housing inflation is measured, it's picking up 0:04:32.360 --> 0:04:34.640 the housing market rents of twenty twenty two and twenty 0:04:34.680 --> 0:04:37.520 twenty three, not twenty twenty six or twenty twenty seven. 0:04:37.839 --> 0:04:40.320 We shouldn't be making policy based on what happened in 0:04:40.320 --> 0:04:42.839 twenty twenty two. We should be making policy based on 0:04:42.880 --> 0:04:45.279 what's happening in the next twelve months. So, once you 0:04:45.360 --> 0:04:48.680 correct for these two errors, the backward looking nature of 0:04:48.720 --> 0:04:52.120 shelter and the messed up portfolio management fees, you look 0:04:52.160 --> 0:04:54.600 at market based core x housing instead of looking at 0:04:54.640 --> 0:04:57.600 regular core. Inflation is running two point two percent. That's 0:04:57.640 --> 0:05:01.120 within noise of our target. We don't have inflation access 0:05:01.680 --> 0:05:04.719 of any inflation that's relevant for supplyed demand imbalances of 0:05:04.720 --> 0:05:07.159 the type of monetary policy we'll respond to. We should 0:05:07.200 --> 0:05:10.080 not be making monetary policy. We should not be asking 0:05:10.120 --> 0:05:13.240 people to give up their jobs because of quirks of 0:05:13.240 --> 0:05:15.479 how inflation is measured. That just to me, is not 0:05:15.520 --> 0:05:17.400 a good idea for policy. It's a bit it's a 0:05:17.400 --> 0:05:19.360 grotesque interpretation of stable prices. 0:05:20.120 --> 0:05:22.120 I am curious as to you just about how we 0:05:22.200 --> 0:05:23.600 start to measure things going forward. 0:05:23.600 --> 0:05:24.919 And I just want to go back to the labor 0:05:24.920 --> 0:05:25.400 market for. 0:05:25.360 --> 0:05:27.440 A second, because there's been a lot of discussion about 0:05:27.440 --> 0:05:30.679 the stability or maybe the potential instability there I spoke 0:05:30.720 --> 0:05:32.640 this morning with the CEO of American Express, and he 0:05:32.680 --> 0:05:35.000 actually talked a lot about small businesses, the kind of 0:05:35.000 --> 0:05:37.120 middle market businesses, if you will, that at least in 0:05:37.120 --> 0:05:40.880 his view, weren't as healthy as some of the larger businesses. 0:05:40.920 --> 0:05:43.560 And I'm curious that there's been any meaningful discussion at 0:05:43.600 --> 0:05:46.160 the FED about that kind of middle market of our economy. 0:05:46.680 --> 0:05:50.839 You know, excuse me, there is conversations about that. You know, 0:05:50.839 --> 0:05:53.200 people talk a lot about shaped, you know, sort of 0:05:53.240 --> 0:05:55.320 case shaped economies and things like that, and I think 0:05:55.360 --> 0:05:57.280 usually they're talking about households when they talk about that, 0:05:57.360 --> 0:05:59.479 but there certainly is an element of that on the 0:05:59.480 --> 0:06:02.120 firm side as well. You know, from my perspective, some 0:06:02.160 --> 0:06:05.320 of that stuff is helpful for understanding where the economy 0:06:05.360 --> 0:06:08.480 is going. But I don't believe in targeting a specific 0:06:08.560 --> 0:06:10.760 sector of the economy. I believe that, you know, the 0:06:11.360 --> 0:06:14.160 statutes that Congress gave us instructs us to target the 0:06:14.480 --> 0:06:17.880 overall macroeconomy as a whole and then focused on aggregate employments. 0:06:17.920 --> 0:06:20.360 I'm focused on aggregate inflation, and so. 0:06:20.400 --> 0:06:22.520 I do see, you know, there is there are definitely 0:06:22.560 --> 0:06:25.080 are pockets of weakness here and there but I'm focused 0:06:25.080 --> 0:06:26.280 on on the overall levels. 0:06:26.400 --> 0:06:28.560 But there was some discussion a few years back with J. 0:06:28.720 --> 0:06:30.960 Powell when he did start to look at certain segments. 0:06:30.960 --> 0:06:32.599 The idea that when you look at the economy and 0:06:32.600 --> 0:06:37.320 as aggregate, sometimes it obscures you know certain things, whether 0:06:37.360 --> 0:06:39.760 it's to the upside or the downside. Is there not 0:06:39.880 --> 0:06:43.160 any value in maybe trying, I guess, bisect or dissect 0:06:43.160 --> 0:06:44.440 things into different sections. 0:06:44.720 --> 0:06:44.880 Oh? 0:06:44.920 --> 0:06:46.760 No, there absolutely is, because it can help you. It 0:06:46.800 --> 0:06:48.880 can help you predict where the overall is going to go. Right, 0:06:49.120 --> 0:06:50.560 And I did that a moment ago with the with 0:06:50.600 --> 0:06:52.600 the labor market when you as I was saying, if 0:06:52.600 --> 0:06:54.320 you look at if you look at younger folks, if 0:06:54.320 --> 0:06:56.080 you look at folks at college degrees, if you look 0:06:56.080 --> 0:06:58.200 at folks that are marginally attached to the labor market, 0:06:58.600 --> 0:07:00.760 I think that they're often they're leading indicators of where 0:07:00.760 --> 0:07:02.800 the overall labor market is going to go, and they 0:07:02.800 --> 0:07:05.520 portray additional slack beyond what just the unemployment rated stuff 0:07:05.520 --> 0:07:05.960 would give you. 0:07:06.160 --> 0:07:07.279 And I think you know, to the. 0:07:07.279 --> 0:07:09.920 Extent you're seeing weakness in some smaller business some small 0:07:09.960 --> 0:07:14.160 business segments like the annex CEO that you mentioned before 0:07:14.480 --> 0:07:16.000 that is the type of thing that I would be 0:07:16.080 --> 0:07:19.000 interested in knowing more about it in terms what it 0:07:19.040 --> 0:07:20.360 pretends for the overall economy. 0:07:20.760 --> 0:07:23.320 Stephen Myron, I want to talk about Kevin Worsh. Of course, 0:07:23.360 --> 0:07:26.320 that's the big news of this morning, President Trump posting 0:07:26.760 --> 0:07:29.680 on truth Social that he will nominate Kevin Walsh as 0:07:29.680 --> 0:07:32.480 the next FED or as the next Chair of the 0:07:32.480 --> 0:07:34.760 Federal Reserve. This has been the horse race that has 0:07:34.840 --> 0:07:37.720 been captivating Wall Street. I want to bring you this 0:07:37.880 --> 0:07:41.640 note from Neil Dutta over at Renaissance Macro. He writes 0:07:41.680 --> 0:07:43.640 that if you get a few cuts now to appease 0:07:43.680 --> 0:07:47.280 the President, you may well get tougher hikes later. Moreover, 0:07:47.360 --> 0:07:50.440 because Walsh has been a policyhawk his entire life, his 0:07:50.560 --> 0:07:53.720 newfound duvishness looks very suspect. Now that's maybe a little 0:07:53.720 --> 0:07:56.560 bit more blunt than I would have phrased it. But 0:07:56.640 --> 0:07:58.560 there's a lot of people on Wall Street on the 0:07:58.600 --> 0:08:01.320 cell side who share the view. And I'm curious how 0:08:01.400 --> 0:08:04.560 confident you are that you know, as a FED chair, 0:08:04.680 --> 0:08:06.920 Worsh will be the dove that it seems that President 0:08:06.920 --> 0:08:07.600 Trump wants. 0:08:08.240 --> 0:08:09.880 Look, I think Neil is fantastic. 0:08:09.920 --> 0:08:12.920 I'm a huge I'm a huge Neil fan, but I 0:08:12.920 --> 0:08:15.760 think that Chairman design At Warsh has a long and 0:08:15.800 --> 0:08:19.560 illustrious career in history as a very insightful thinker on 0:08:19.600 --> 0:08:22.360 monetary policy. I think he's a fantastic pick for the 0:08:22.520 --> 0:08:25.280 from the President. I think he's got enormous credibility. I 0:08:25.320 --> 0:08:26.640 think he's got enormous gravitas. 0:08:26.680 --> 0:08:27.200 I think he's got. 0:08:27.240 --> 0:08:31.239 Enormous enormous respect from financial markets, from economists, from everyone. 0:08:31.400 --> 0:08:34.440 I think he's going to do just a knockout job. 0:08:34.800 --> 0:08:38.240 What specific policies he supports or he's going to support 0:08:38.280 --> 0:08:38.800 going forward. 0:08:39.280 --> 0:08:41.199 You know, I can't answer that. I'm not him. You 0:08:41.240 --> 0:08:42.440 got to ask him those questions. 0:08:42.440 --> 0:08:44.960 Certain well, I would love to, so fingers crossed there, 0:08:45.200 --> 0:08:47.600 But as a FED governor, I mean, as you know, well, 0:08:47.679 --> 0:08:49.880 the job of the Fed chair is not just their 0:08:49.920 --> 0:08:53.240 opinions on where policies should go, but it's building consensus, 0:08:53.280 --> 0:08:55.640 you know, in the room itself. And so with the 0:08:55.640 --> 0:08:59.120 current makeup of the FLMC, I mean you think about 0:08:59.280 --> 0:09:02.000 some of the views on interest rates on the balance sheet, 0:09:02.280 --> 0:09:04.880 do you think that worsh will be able to basically 0:09:04.880 --> 0:09:06.760 build that consensus with that makeup? 0:09:07.240 --> 0:09:10.000 I do, I do, and The reason is that he's 0:09:10.040 --> 0:09:12.520 been there before. He knows how the place operates, he 0:09:12.559 --> 0:09:15.400 knows a lot of the key figures involved, and he's 0:09:15.440 --> 0:09:17.520 got the respect and the credibility that you need to 0:09:17.559 --> 0:09:19.840 do that. And I think that people want people want 0:09:19.920 --> 0:09:22.520 him to succeed. I think people want the FED to 0:09:22.559 --> 0:09:25.880 sort of have a good role in the economy, a 0:09:25.920 --> 0:09:27.840 good role in the country. And I think that they'll 0:09:27.840 --> 0:09:29.360 want him to succeed. And I think that he will 0:09:29.360 --> 0:09:32.160 be able to marshal the arguments and the evidence. 0:09:31.800 --> 0:09:34.480 That he needs to persuade people of his policy views. 0:09:34.480 --> 0:09:36.280 I want to talk about your experience. 0:09:36.320 --> 0:09:39.280 You came to the FED from the White House, and 0:09:39.520 --> 0:09:41.640 I'm sure you know people said he was just put 0:09:41.640 --> 0:09:43.679 there to do what Donald Trump told him to do. 0:09:44.800 --> 0:09:47.240 Did Donald Trump tell you to do anything in particular? 0:09:47.320 --> 0:09:50.400 And do you think he told Kevin Warsh that even 0:09:50.440 --> 0:09:53.280 if he didn't, how do you how did you and 0:09:53.320 --> 0:09:57.239 how would Kevin fight the perception that he's the President's 0:09:57.280 --> 0:09:58.439 man inside the FED? 0:09:58.880 --> 0:10:02.439 Look, the President has never ever asked me to do 0:10:02.520 --> 0:10:05.440 anything on Montaria policy. He has never asked me to 0:10:05.480 --> 0:10:08.200 do any specific action on Montara policy. He's told me 0:10:08.280 --> 0:10:10.760 his views on Montera policy. But he tells the whole 0:10:10.760 --> 0:10:13.000 world his views on Montera policy. You know them as 0:10:13.040 --> 0:10:15.480 well as I do. Right, that's not a secret. He's 0:10:15.559 --> 0:10:17.800 never asked me to do anything. And I wasn't in 0:10:17.840 --> 0:10:20.960 the room with any of you know, Chairman Designant Warshes 0:10:21.000 --> 0:10:23.400 conversations with the President or anybody else involved in this 0:10:23.440 --> 0:10:26.560 selection process, So I don't know what those conversations were like. 0:10:26.600 --> 0:10:28.520 But if they were anything like the conversations I had 0:10:28.559 --> 0:10:31.040 with the President about Montera policy, then. 0:10:30.960 --> 0:10:32.959 He wouldn't have asked him to take any specific actions. 0:10:33.080 --> 0:10:36.640 Well, how do you get the public to realize that? 0:10:38.120 --> 0:10:40.840 You do that by taking policy actions that are consistent 0:10:40.880 --> 0:10:43.360 with the data. And I think that, you know, I've 0:10:43.440 --> 0:10:47.240 laid out a case where the inflation measures that are 0:10:47.240 --> 0:10:50.120 consistent with supplied demand and balances in the economy, the 0:10:50.160 --> 0:10:53.920 inflation measures that are relevant for Montaria policy are indicating 0:10:54.040 --> 0:10:57.199 that there's no material overheating, that there's no material inflation. 0:10:56.840 --> 0:10:58.160 Issues in this country right now. 0:10:58.840 --> 0:11:01.320 So by taking policy steps that are consistent with the 0:11:01.320 --> 0:11:04.439 economic data that are justified by the state of the economy, 0:11:04.600 --> 0:11:06.280 I think you're delivering the right policy. 0:11:06.320 --> 0:11:07.959 At the end of the day, the. 0:11:07.800 --> 0:11:10.839 Financial markets, the economy respond to whether the policy is 0:11:10.840 --> 0:11:12.680 the appropriate policy or not right. 0:11:12.760 --> 0:11:16.480 They don't respond to why the policy is there. Right. 0:11:16.640 --> 0:11:18.800 The interest rate doesn't really care why, you know, the 0:11:19.360 --> 0:11:21.720 long end of the yield curve ultimately doesn't really care 0:11:22.920 --> 0:11:24.800 why the short rate is where the short rate is. 0:11:24.880 --> 0:11:28.000 It cares whether the short rate is appropriately set and 0:11:28.040 --> 0:11:30.400 what the consequences of the short rate are for the economy. 0:11:30.640 --> 0:11:32.880 The motives of the people who went into started setting 0:11:32.880 --> 0:11:35.520 the short rate, those aren't really important. Is it the 0:11:35.559 --> 0:11:37.680 right policy for the economy or not is what matters. 0:11:37.960 --> 0:11:39.920 And I think that that's what I've that's what I've 0:11:40.000 --> 0:11:42.200 labored to labored to work for is to sort of 0:11:42.280 --> 0:11:44.760 is to do a lot of a lot of analysis 0:11:44.760 --> 0:11:46.679 of the inflation scenario, a lot of analysis of the 0:11:46.720 --> 0:11:49.240 labor market, a lot of analysis of the economy, and 0:11:49.320 --> 0:11:50.920 put that all out there. And I put all of 0:11:50.960 --> 0:11:53.040 my analysis out there all the time. I try and 0:11:53.080 --> 0:11:56.240 be as transparent as possibly can with my calculations. 0:11:56.280 --> 0:11:58.320 Everybody knows exactly why I hold the views I hold. 0:11:58.960 --> 0:12:02.720 See, I am curious, once you move on back to 0:12:02.760 --> 0:12:06.760 your original role over at the National Economic Council, how 0:12:06.880 --> 0:12:10.160 is fiscal policy meaning fiscal policy dictated from the White 0:12:10.200 --> 0:12:12.360 House and obviously through Congress itself. 0:12:12.760 --> 0:12:13.720 Is that going to be in sync? 0:12:13.760 --> 0:12:15.560 Do you think with what at least what you know 0:12:15.679 --> 0:12:18.280 now with regards to the Fed's thinking and Kevin warsh 0:12:18.320 --> 0:12:19.559 is thinking, is that going to be in sync? 0:12:20.040 --> 0:12:22.600 Well, first, let me say that I honestly have no 0:12:22.679 --> 0:12:25.080 idea what I'm going to be doing. Uh, you know, 0:12:25.160 --> 0:12:28.720 after after chairman doesn't at wash is confirmed, I have 0:12:28.800 --> 0:12:29.280 no idea. 0:12:29.400 --> 0:12:30.760 You're not to come back to the White House. 0:12:31.360 --> 0:12:34.040 I have no idea. I have no idea. You know, 0:12:34.160 --> 0:12:35.560 it's it's people want to go back. 0:12:35.800 --> 0:12:37.280 Well, you know, I think I'm going to be doing 0:12:37.320 --> 0:12:40.280 a lot of thinking over overcoming weeks about about you know, 0:12:41.080 --> 0:12:42.920 about what will happen and what things will look like. 0:12:42.960 --> 0:12:45.160 But I don't know. You know, we'll we'll see, we'll see, 0:12:45.200 --> 0:12:46.360 we'll see how things shake out. 0:12:47.240 --> 0:12:49.320 But you know, with respect to fiscal policy, you know, 0:12:49.320 --> 0:12:50.840 as a member of the FED Board, it's it's just 0:12:50.920 --> 0:12:52.720 it's not really appropriate for me to comment on it 0:12:52.720 --> 0:12:55.160 one way or another. And you'd have to talk to folks, 0:12:55.520 --> 0:12:57.000 you know, in the White House and in Treasury, and 0:12:57.000 --> 0:13:00.720 I'm sure they've got plenty of views on appropriate fiscal policy. 0:13:00.360 --> 0:13:01.800 That they'd be very happy to give you if. 0:13:01.720 --> 0:13:03.280 You want to come work here. You make a great 0:13:03.280 --> 0:13:05.440 co host. Well they know, I mean, no offense. Mikey's 0:13:05.440 --> 0:13:06.319 great too, but you. 0:13:06.280 --> 0:13:08.520 Know, I mean there are some pretty great snacks there, 0:13:08.640 --> 0:13:10.840 so you know, it's it's it's it's not unappealing. 0:13:11.120 --> 0:13:12.520 Yeah, we have a lot of good snacks on the 0:13:12.559 --> 0:13:15.080 desk right now. Actually, but we should talk about the 0:13:15.120 --> 0:13:18.280 balance sheet because one of the differentiating factors of Kevin 0:13:18.320 --> 0:13:20.880 worsh is also his views on the balance sheet. We 0:13:20.920 --> 0:13:23.560 know that he's skeptical about expanding it to the extent 0:13:23.600 --> 0:13:27.480 that the Central Bank has very skeptical about QI as well. 0:13:27.480 --> 0:13:29.720 And the point has been made to me today on 0:13:29.720 --> 0:13:32.280 Bloomberg Television. You know, if the Fed is going to 0:13:32.280 --> 0:13:35.400 step away from a stance where it's using the balance 0:13:35.400 --> 0:13:38.280 sheet to influence the shape of the curve, that you 0:13:38.320 --> 0:13:41.000 could see long end rates go high or that obviously 0:13:41.240 --> 0:13:43.680 wouldn't be good news for mortgage rates with China that 0:13:43.720 --> 0:13:46.600 President Trump is very focused on. And I wonder you know, 0:13:46.679 --> 0:13:48.720 whether those views hold any water with you. 0:13:50.440 --> 0:13:52.760 About about whether to do something with the balance sheet. 0:13:52.880 --> 0:13:55.320 Yeah, whether or not you know, stepping away from expanding 0:13:55.320 --> 0:13:58.360 the balance sheet will translate into higher long end rates. 0:13:58.720 --> 0:14:02.480 So you know, my perspective is that it is a 0:14:02.480 --> 0:14:03.920 good idea to shrink the balance sheet. 0:14:04.280 --> 0:14:05.680 I've said this numerous times. 0:14:06.240 --> 0:14:07.880 But I also think that in order to shrink the 0:14:07.920 --> 0:14:10.720 balance sheet, we need to do some regulatory reform because 0:14:10.720 --> 0:14:15.520 there are regulatory requirements that create demand for reserves in 0:14:15.559 --> 0:14:18.800 the banks. We require the banks to hold reserves because 0:14:18.800 --> 0:14:21.720 of the various requirements under the Bossle system. Right, So 0:14:21.800 --> 0:14:23.720 once we do some regulatory reform, then I think we 0:14:23.760 --> 0:14:26.760 can get back to shrinking the balance sheet. It is 0:14:26.800 --> 0:14:31.320 something that I would like to do. Whether that has 0:14:31.320 --> 0:14:33.880 an effect on long rates, I think depends on a 0:14:33.920 --> 0:14:36.480 lot of stuff. It depends on how you're shrinking the 0:14:36.480 --> 0:14:39.040 balance sheet, whether you're doing roll off or or whether 0:14:39.080 --> 0:14:40.120 you're selling securities. 0:14:40.200 --> 0:14:41.360 I think doing roll off is. 0:14:41.400 --> 0:14:44.320 Passive and is less likely to have a substantial effect 0:14:44.600 --> 0:14:46.160 on long rates. But I think at the end of 0:14:46.200 --> 0:14:48.240 the day, you know what really matters is the overall 0:14:48.240 --> 0:14:52.440 stands of policy as combined short rates and balance sheet policy. 0:14:52.840 --> 0:14:55.480 And if you're at the zero lower bound, then the 0:14:55.480 --> 0:14:57.880 short rate can't do anything, and then it's the balance 0:14:57.920 --> 0:14:59.440 sheet policy that's really setting. 0:14:59.200 --> 0:15:01.560 The tone for the bodom market. Right. 0:15:02.040 --> 0:15:05.920 But if you're not the zero lower bound, then in theory, 0:15:06.040 --> 0:15:08.280 you can be moving the short right around to offset 0:15:08.280 --> 0:15:11.280 whatever you're doing on the balance sheet. And so what 0:15:11.320 --> 0:15:13.800 you're doing when you set policies, you're targeting a particular 0:15:13.840 --> 0:15:16.240 level of financial conditions that let you hit your monetary 0:15:16.320 --> 0:15:19.920 policy targets statle prices and maximum employment. And if for 0:15:20.000 --> 0:15:22.840 some reason financial conditions were to deviate from what allowed 0:15:22.880 --> 0:15:26.000 you to hit stalar prices and maximum employment, you can 0:15:26.160 --> 0:15:29.720 change the short rate to offset that and thereby get 0:15:29.720 --> 0:15:32.760 back to stalar prices and maximum employment. So if you 0:15:32.800 --> 0:15:34.480 want to shrink the balance sheet because you have a 0:15:34.520 --> 0:15:38.480 principle that you want the FED to have a minimal 0:15:38.480 --> 0:15:42.880 footprint in the economy, for example, right, then if that 0:15:42.920 --> 0:15:45.000 were to cause an increase in long rates, you can 0:15:45.040 --> 0:15:48.240 offset that tightening of financial conditions by reducing the short rate. 0:15:48.440 --> 0:15:50.320 So as long as you're not the zero lower bounds, 0:15:50.400 --> 0:15:54.520 you have multiple tools to affect this situation. 0:15:55.040 --> 0:15:55.840 One last question. 0:15:56.840 --> 0:15:59.120 We know now who the next chair of the FED 0:15:59.240 --> 0:16:01.360 is likely to be, but we don't know what's going 0:16:01.400 --> 0:16:04.480 to happen to the current chair of the fed. Would 0:16:04.480 --> 0:16:07.080 it be uncomfortable for the committee? Would be difficult to 0:16:07.200 --> 0:16:11.720 have J. Powell stay and be in the room when 0:16:11.800 --> 0:16:13.960 Kevin warsh is trying to lead people perhaps in a 0:16:14.000 --> 0:16:14.840 different direction. 0:16:15.960 --> 0:16:18.320 Look, you know, I think that I think that Chairman Powell, 0:16:18.480 --> 0:16:21.080 uh you know, deserves a thank you from all Americans. 0:16:21.120 --> 0:16:23.920 I think his work during the during the pandemic recession, 0:16:24.320 --> 0:16:26.640 uh you know, was part of a critical effort that 0:16:26.720 --> 0:16:29.080 really helped save the country from a second Great depression. 0:16:29.120 --> 0:16:33.280 And everyone, everyone knows him a thank you for that. However, 0:16:33.440 --> 0:16:35.200 I really can't tell you what he's going to design 0:16:35.240 --> 0:16:38.280 to do, uh you know. And you got to get it, 0:16:38.320 --> 0:16:39.600 you know, you got to get it from the source, 0:16:39.960 --> 0:16:40.160 you know. 0:16:40.800 --> 0:16:41.480 I don't I don't know.