1 00:00:10,680 --> 00:00:14,720 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,760 --> 00:00:19,079 Speaker 1: I'm Joe wisn't All and I'm Tracy all Away. So Tracy, 3 00:00:19,200 --> 00:00:21,640 Speaker 1: this is a this is a fun time for us. 4 00:00:21,680 --> 00:00:24,000 Speaker 1: This is a real treat. Last week, of course, we 5 00:00:24,079 --> 00:00:27,960 Speaker 1: got to speak to UM Dallas FED President Rob Kaplan, 6 00:00:28,640 --> 00:00:31,960 Speaker 1: and even since then, though, we've had a plenty going on, 7 00:00:32,040 --> 00:00:37,239 Speaker 1: including a very big jobs report, yes, UM, like a 8 00:00:37,360 --> 00:00:41,000 Speaker 1: powerhouse of a job's report, really, I think, UM. I 9 00:00:41,040 --> 00:00:44,960 Speaker 1: think payrolls climbed by I think it was ninety three 10 00:00:45,200 --> 00:00:49,600 Speaker 1: thousand in July, which was much much higher than economist 11 00:00:49,640 --> 00:00:53,120 Speaker 1: expectations of about eight hundred seventy thousand, And of course 12 00:00:53,320 --> 00:00:56,760 Speaker 1: the unemployment rate keeps drifting lower. I think it came 13 00:00:56,760 --> 00:00:59,480 Speaker 1: in at what was at five point four percent, which 14 00:00:59,520 --> 00:01:03,560 Speaker 1: is basicly the lowest since the pandemic started. And we're 15 00:01:03,600 --> 00:01:07,960 Speaker 1: not quite where we were before the outbreak of COVID nineteen, 16 00:01:08,080 --> 00:01:11,399 Speaker 1: but we're certainly getting closer, that's right. So, of course, 17 00:01:11,480 --> 00:01:14,280 Speaker 1: in the early part of the summer you're probably recalled, 18 00:01:14,280 --> 00:01:17,200 Speaker 1: there were like two reports or economists were looking for 19 00:01:17,240 --> 00:01:19,640 Speaker 1: like big things. I got a million plus jobs and 20 00:01:19,680 --> 00:01:22,840 Speaker 1: they didn't really materialize, and there's all kinds of concerns, Oh, 21 00:01:22,880 --> 00:01:27,119 Speaker 1: what's holding back the labor market. The last two data points, however, 22 00:01:27,200 --> 00:01:30,080 Speaker 1: have been quite strong, nearly a million each and no 23 00:01:30,200 --> 00:01:34,160 Speaker 1: signs of slowing. We see the headline unemployment rate coming 24 00:01:34,200 --> 00:01:38,000 Speaker 1: down pretty rapidly now, so I would say some of 25 00:01:38,040 --> 00:01:40,920 Speaker 1: the labor market healing that maybe people thought would come 26 00:01:40,959 --> 00:01:44,720 Speaker 1: a little a little sooner. Just the spring, it seems 27 00:01:44,760 --> 00:01:48,080 Speaker 1: to be kicking into gear. Of course, the delta wave 28 00:01:48,200 --> 00:01:51,600 Speaker 1: and the ongoing pandemic notwithstanding. Yeah, but of course, the 29 00:01:51,720 --> 00:01:55,880 Speaker 1: question is what exactly our policymakers looking for when it 30 00:01:55,880 --> 00:01:59,360 Speaker 1: comes to employment. And we've spoken about this quite a 31 00:01:59,360 --> 00:02:02,120 Speaker 1: few times now out, but it does seem like the 32 00:02:02,200 --> 00:02:06,280 Speaker 1: definition of full employment has changed to something much broader 33 00:02:06,400 --> 00:02:10,000 Speaker 1: and inclusive, and everyone's trying to wrap their heads around 34 00:02:10,160 --> 00:02:12,679 Speaker 1: exactly what that means at the same time that they're 35 00:02:12,680 --> 00:02:15,760 Speaker 1: also trying to wrap their heads around average inflation targeting 36 00:02:15,840 --> 00:02:19,560 Speaker 1: and things like that. Yeah, exactly right. Like so, we 37 00:02:19,680 --> 00:02:23,440 Speaker 1: know that the FED has seems to be and I 38 00:02:23,480 --> 00:02:25,600 Speaker 1: think a big part of the framework that was unveiled 39 00:02:25,639 --> 00:02:28,400 Speaker 1: basically a year ago this time at Jackson Hole was 40 00:02:28,440 --> 00:02:32,240 Speaker 1: about taking the employment side of the mandate more seriously, 41 00:02:32,440 --> 00:02:35,880 Speaker 1: or to put it another way, not hiking or not 42 00:02:36,000 --> 00:02:38,840 Speaker 1: trying to fight off inflation just because employment hits some 43 00:02:39,320 --> 00:02:41,920 Speaker 1: arbitrary number that some economist model says, oh, this is 44 00:02:41,919 --> 00:02:44,680 Speaker 1: full employment, like actually sort of like waiting to see, 45 00:02:45,080 --> 00:02:48,040 Speaker 1: waiting to see it really happened. And so once again, 46 00:02:48,360 --> 00:02:50,760 Speaker 1: you know, here we have the unemployment rate dropping rapidly 47 00:02:51,440 --> 00:02:54,680 Speaker 1: at least as of last month. Hopefully it continues, and 48 00:02:54,840 --> 00:02:58,320 Speaker 1: it seems like policymakers will once again be confronted maybe 49 00:02:58,360 --> 00:03:01,200 Speaker 1: next year with questions of how much better can the 50 00:03:01,280 --> 00:03:04,920 Speaker 1: labor market get? Yeah, and of course, I mean the 51 00:03:04,960 --> 00:03:07,639 Speaker 1: big thing that everyone is watching is wage growth, right, 52 00:03:07,680 --> 00:03:11,520 Speaker 1: and I think we did see a relatively significant spike 53 00:03:12,000 --> 00:03:14,800 Speaker 1: in the payrolls report UM in particular some of the 54 00:03:15,320 --> 00:03:19,280 Speaker 1: sort of like lower wage workers, people working in restaurants 55 00:03:19,320 --> 00:03:23,080 Speaker 1: and leisure, they saw a fairly big spike. So again 56 00:03:23,120 --> 00:03:27,080 Speaker 1: the question is what is full employment? Is this enough 57 00:03:27,080 --> 00:03:30,760 Speaker 1: of a recovery to start boosting inflation through wages? And 58 00:03:30,800 --> 00:03:34,600 Speaker 1: then what does that actually mean for um the average 59 00:03:34,760 --> 00:03:39,960 Speaker 1: inflation framework that the Fed adopted last year exactly right, Well, 60 00:03:40,000 --> 00:03:43,920 Speaker 1: once again we have the absolute perfect guest to speak 61 00:03:43,960 --> 00:03:46,240 Speaker 1: to this. It's going to be a true treat. We're 62 00:03:46,240 --> 00:03:48,840 Speaker 1: going to be speaking with Neil cash Cary. He's the 63 00:03:48,880 --> 00:03:51,880 Speaker 1: president of the Minneapolis FED. And of course we had 64 00:03:52,000 --> 00:03:56,200 Speaker 1: Neil on basically a year ago exactly this time, and 65 00:03:56,280 --> 00:03:58,520 Speaker 1: at that time, some of these questions about the feds 66 00:03:58,560 --> 00:04:01,360 Speaker 1: new framework, they were just sort of theoretical and like 67 00:04:01,440 --> 00:04:04,640 Speaker 1: thinking about this, and suddenly theory is now being put 68 00:04:04,680 --> 00:04:06,680 Speaker 1: into practice and we'll have to learn more about what 69 00:04:06,720 --> 00:04:09,960 Speaker 1: the FED is going to do. I would characterize Neil 70 00:04:10,000 --> 00:04:13,080 Speaker 1: as someone who has always taken the employment side of 71 00:04:13,120 --> 00:04:18,280 Speaker 1: the Fed's mandate very seriously, long before, long before COVID hit, 72 00:04:18,520 --> 00:04:20,320 Speaker 1: and so hearing how he'll think about some of these 73 00:04:20,400 --> 00:04:24,080 Speaker 1: questions should be very interesting. Neil, thank you so much 74 00:04:24,160 --> 00:04:27,080 Speaker 1: for coming back on odd lots. Thanks for having me. 75 00:04:27,120 --> 00:04:28,880 Speaker 1: It's great to be with both of you. So what 76 00:04:29,000 --> 00:04:31,720 Speaker 1: don't we just start, like, uh with you know, we 77 00:04:31,800 --> 00:04:34,960 Speaker 1: got that job's report on Friday. We're recording this August nine. 78 00:04:35,200 --> 00:04:37,640 Speaker 1: I guess by the time people hear this it'll be 79 00:04:37,800 --> 00:04:39,840 Speaker 1: like a week and a half. But uh, you know, uh, 80 00:04:40,000 --> 00:04:42,760 Speaker 1: we just got this job's report, very strong on all 81 00:04:42,839 --> 00:04:46,800 Speaker 1: basically all the metrics. What is your assessment of the 82 00:04:46,880 --> 00:04:51,000 Speaker 1: labor markets trajectory and healing right now. Well, you're right, 83 00:04:51,040 --> 00:04:53,719 Speaker 1: the job report was very strong. I was very happy 84 00:04:53,720 --> 00:04:57,520 Speaker 1: to see that we are making progress back towards the 85 00:04:57,600 --> 00:05:00,520 Speaker 1: kind of labor market we had before the pandemic kid 86 00:05:00,760 --> 00:05:02,440 Speaker 1: but as of you know, our math that we do 87 00:05:02,480 --> 00:05:04,640 Speaker 1: it the Minneapolis feed, it still looks like we are 88 00:05:04,680 --> 00:05:07,960 Speaker 1: six to eight million jobs below where we would have 89 00:05:08,000 --> 00:05:11,880 Speaker 1: been had the COVID crisis not happened. And so that's 90 00:05:11,880 --> 00:05:13,599 Speaker 1: what I'm focused on. Is there still a lot of 91 00:05:13,640 --> 00:05:16,520 Speaker 1: Americans that are not either employed in jobs or they're 92 00:05:16,520 --> 00:05:19,000 Speaker 1: not looking for work, and how long is it going 93 00:05:19,040 --> 00:05:20,919 Speaker 1: to take and what is it going to take to 94 00:05:21,040 --> 00:05:24,080 Speaker 1: bring them back in because they represent a meaningful share 95 00:05:24,080 --> 00:05:27,719 Speaker 1: of our economy's potential and so good progress, but we 96 00:05:27,760 --> 00:05:30,359 Speaker 1: still have a ways to go. It feels kind of 97 00:05:30,400 --> 00:05:33,200 Speaker 1: weird um asking this question, because I do think the 98 00:05:33,279 --> 00:05:35,880 Speaker 1: labor market recovery has been faster than a lot of 99 00:05:35,920 --> 00:05:41,120 Speaker 1: people expected. But what do you think accounts for, um, 100 00:05:41,960 --> 00:05:44,400 Speaker 1: you know, the need to create the fact that we 101 00:05:44,480 --> 00:05:48,040 Speaker 1: haven't reached full employment just yet, Because of course, there 102 00:05:48,080 --> 00:05:51,520 Speaker 1: are different theories. There's the idea that a lot of 103 00:05:51,560 --> 00:05:55,159 Speaker 1: people people just got tired during COVID and decided to 104 00:05:55,160 --> 00:05:58,240 Speaker 1: retire drop out of the labor force. There's the idea 105 00:05:58,360 --> 00:06:01,560 Speaker 1: that people are risks about going back to work and 106 00:06:01,600 --> 00:06:06,320 Speaker 1: potentially exposing themselves to covid um concerns around childcare. And 107 00:06:06,320 --> 00:06:10,480 Speaker 1: there's also this idea of floating around about the Great Resignation, 108 00:06:10,800 --> 00:06:14,400 Speaker 1: and this notion that people just, um, I guess sort 109 00:06:14,400 --> 00:06:18,560 Speaker 1: of reconsidered their lives after a global pandemic and decided 110 00:06:18,640 --> 00:06:21,839 Speaker 1: that they wanted to do something differently. So I'm curious 111 00:06:22,000 --> 00:06:26,240 Speaker 1: how you're viewing I hesitate to call it sluggish recovery 112 00:06:26,440 --> 00:06:28,840 Speaker 1: in the job market, but you know the fact that 113 00:06:28,839 --> 00:06:32,440 Speaker 1: we're not quite there yet. What's going on? I put 114 00:06:32,520 --> 00:06:35,720 Speaker 1: stock in all of the things you said, except for oh, 115 00:06:35,800 --> 00:06:38,520 Speaker 1: people are reassessing their priorities in life. I'm one of 116 00:06:38,560 --> 00:06:41,680 Speaker 1: the things we learned after the two thousand eight crisis. 117 00:06:41,720 --> 00:06:45,040 Speaker 1: We heard, you know, there's something happens in macroeconomics whenever 118 00:06:45,080 --> 00:06:49,960 Speaker 1: a shock gets the economy. Many macro economists reflectively raised 119 00:06:49,960 --> 00:06:53,080 Speaker 1: the natural rate of unemployment their estimate of how low 120 00:06:53,120 --> 00:06:57,000 Speaker 1: the unemployment rate can go without triggering high inflation. And 121 00:06:57,040 --> 00:06:59,960 Speaker 1: they point to all sorts of theories and structural change 122 00:07:00,000 --> 00:07:03,000 Speaker 1: ages and mismatches, and what we learned after the eight 123 00:07:03,080 --> 00:07:06,320 Speaker 1: crisis is all of those stories were wrong. It turns 124 00:07:06,320 --> 00:07:10,680 Speaker 1: out most Americans want to work. Most Americans find satisfaction 125 00:07:10,680 --> 00:07:12,560 Speaker 1: in working. They need to work, they need to put 126 00:07:12,600 --> 00:07:15,680 Speaker 1: food on the table. So that's my starting position. I 127 00:07:15,720 --> 00:07:19,080 Speaker 1: believe the vast majority of Americans want to work if 128 00:07:19,080 --> 00:07:22,480 Speaker 1: there are decent jobs available at decent wages. I do 129 00:07:22,600 --> 00:07:25,280 Speaker 1: think that fear of COVID is real. You know, we 130 00:07:25,560 --> 00:07:28,600 Speaker 1: the health professionals spent the last eighteen months telling us 131 00:07:28,600 --> 00:07:31,040 Speaker 1: to take COVID seriously, and I think that they had 132 00:07:31,080 --> 00:07:33,040 Speaker 1: a lot of success in doing that. It's going to 133 00:07:33,120 --> 00:07:35,960 Speaker 1: take time for people to be confident again. I do 134 00:07:36,040 --> 00:07:38,920 Speaker 1: think the child care issues are real, uh And I 135 00:07:39,000 --> 00:07:43,120 Speaker 1: also think that they enhanced unemployment benefits are having some effect. 136 00:07:43,200 --> 00:07:46,160 Speaker 1: If somebody says, well, I'm making just as much money 137 00:07:46,200 --> 00:07:50,080 Speaker 1: on unemployment and it's gonna expire in a month, why 138 00:07:50,080 --> 00:07:52,520 Speaker 1: shouldn't I wait a month before I go back into work. 139 00:07:52,800 --> 00:07:54,640 Speaker 1: They're probably gonna be a lot of jobs available a 140 00:07:54,640 --> 00:07:57,480 Speaker 1: month from now. So I think all of these factors 141 00:07:57,520 --> 00:08:00,480 Speaker 1: are having some effect. But I start with the assumption 142 00:08:00,520 --> 00:08:03,480 Speaker 1: of the vast majority of people want to work. If 143 00:08:03,520 --> 00:08:07,680 Speaker 1: given the chance, you know, you mentioned, Okay, by the 144 00:08:07,720 --> 00:08:11,240 Speaker 1: math that you've done at the Minneapolis FED, we're probably 145 00:08:11,560 --> 00:08:15,040 Speaker 1: six to eight million jobs short of where we would 146 00:08:15,080 --> 00:08:18,760 Speaker 1: have been absently where we would have been absent the 147 00:08:18,800 --> 00:08:22,640 Speaker 1: COVID shock. So okay, that that's one starting point for 148 00:08:22,680 --> 00:08:25,840 Speaker 1: thinking about how much slack there is. That big said, 149 00:08:26,000 --> 00:08:29,680 Speaker 1: you know what, I guess the unemployment rate pre crisis was. 150 00:08:29,720 --> 00:08:32,160 Speaker 1: I think it got down to three and a half percent. 151 00:08:32,559 --> 00:08:35,280 Speaker 1: But one thing that we saw was that in the 152 00:08:35,400 --> 00:08:40,080 Speaker 1: end economists are really it's real or let's just put 153 00:08:40,120 --> 00:08:42,120 Speaker 1: this way, it's really difficult to know how good the 154 00:08:42,200 --> 00:08:46,480 Speaker 1: labor market truly can be because we saw, you know, 155 00:08:46,559 --> 00:08:49,840 Speaker 1: in the after the Great Financial crisis, so, oh, six 156 00:08:49,880 --> 00:08:52,120 Speaker 1: and a half percent, maybe this is where full employment is. 157 00:08:52,160 --> 00:08:54,000 Speaker 1: Then five and a half percent, there's like, oh, well, 158 00:08:54,040 --> 00:08:56,080 Speaker 1: we can't go lower than five. Maybe four. Then we 159 00:08:56,080 --> 00:08:59,640 Speaker 1: were down to four and we didn't get you know, 160 00:08:59,720 --> 00:09:01,839 Speaker 1: even when we were three and a half percent. It's 161 00:09:01,880 --> 00:09:04,160 Speaker 1: not like we had seen like some big like you know, 162 00:09:04,240 --> 00:09:09,800 Speaker 1: inflationary wage price spiral. So you know, thinking back, okay, 163 00:09:09,800 --> 00:09:12,439 Speaker 1: you start with that six to eight million, what else 164 00:09:12,600 --> 00:09:14,640 Speaker 1: will you be looking for beyond I'm just sort of 165 00:09:14,679 --> 00:09:17,959 Speaker 1: like pure number to think about. Okay, they're really the 166 00:09:18,040 --> 00:09:20,920 Speaker 1: labor market really is in its best place, and we 167 00:09:20,960 --> 00:09:23,240 Speaker 1: are not going to make some of the same mistakes 168 00:09:23,320 --> 00:09:28,199 Speaker 1: last time as underestimating how good the jobs market can get. Well, 169 00:09:28,240 --> 00:09:31,080 Speaker 1: I think we look at a lot of different measures, Joe. 170 00:09:31,679 --> 00:09:33,959 Speaker 1: One of the things is what's happening to wage growth? 171 00:09:34,000 --> 00:09:36,319 Speaker 1: And we are seeing wages pick up I think Tracy 172 00:09:36,360 --> 00:09:39,840 Speaker 1: talked about a few minutes ago, and that's an important factor. 173 00:09:39,880 --> 00:09:42,400 Speaker 1: But are those going to be sustained wage gains or 174 00:09:42,520 --> 00:09:46,920 Speaker 1: those one time price adjustments as the economy is going 175 00:09:46,920 --> 00:09:49,600 Speaker 1: through this reopening. So, just to back up, the economy 176 00:09:49,600 --> 00:09:51,959 Speaker 1: went through a rapid shutdown and now it's going through 177 00:09:52,000 --> 00:09:55,480 Speaker 1: a rapid reopening, and we're seeing lots of frictions as 178 00:09:55,559 --> 00:09:59,040 Speaker 1: businesses are trying to make that adjustment, and you have 179 00:09:59,200 --> 00:10:02,120 Speaker 1: this mismatch where the economy seems to be reopening more 180 00:10:02,200 --> 00:10:05,760 Speaker 1: quickly than the full labor supply is coming online. Well, 181 00:10:05,760 --> 00:10:10,000 Speaker 1: once we get to something more like normal, a new equilibrium, 182 00:10:10,120 --> 00:10:12,600 Speaker 1: what does that look like and what wage growth are 183 00:10:12,640 --> 00:10:15,120 Speaker 1: we seeing? We did see I think one of you 184 00:10:15,160 --> 00:10:19,520 Speaker 1: mentioned that we did see faster wage growth at the 185 00:10:19,640 --> 00:10:24,600 Speaker 1: end of the last expansion. So for the lowest income workers, 186 00:10:25,440 --> 00:10:28,160 Speaker 1: that was great to see they were long overdue for 187 00:10:28,200 --> 00:10:30,320 Speaker 1: a raise. But even if you look at their wage 188 00:10:30,320 --> 00:10:34,720 Speaker 1: growth net of productivity, it was not suggesting high inflation 189 00:10:34,800 --> 00:10:37,120 Speaker 1: was around the corner. So, just to your point, I'm 190 00:10:37,120 --> 00:10:40,280 Speaker 1: not convinced we were actually at maximum employment before the 191 00:10:40,320 --> 00:10:43,720 Speaker 1: COVID shock hit us. So that's that's exactly why I 192 00:10:43,800 --> 00:10:46,920 Speaker 1: want us to be really humble about declaring where this 193 00:10:47,000 --> 00:10:49,439 Speaker 1: is as good as it can get. Let's actually let 194 00:10:49,440 --> 00:10:52,760 Speaker 1: the economy reopen, get people re engaged, and then let's 195 00:10:52,800 --> 00:10:55,560 Speaker 1: see what the labor market looks like and what inflation 196 00:10:55,640 --> 00:10:59,040 Speaker 1: looks like. Well, just on a similar note, can you 197 00:10:59,080 --> 00:11:02,360 Speaker 1: maybe talk to us it full employment looks like from 198 00:11:02,400 --> 00:11:06,400 Speaker 1: an inclusivity perspective, because this is something that Powell has 199 00:11:06,440 --> 00:11:09,960 Speaker 1: talked about at the last Jackson Hole, this idea that 200 00:11:10,040 --> 00:11:14,440 Speaker 1: the Fed is now going for a broad definition of 201 00:11:14,640 --> 00:11:18,880 Speaker 1: full employment. It's a complicated topic and a lot of people, 202 00:11:18,960 --> 00:11:20,480 Speaker 1: you know, we all look at a lot of different 203 00:11:20,480 --> 00:11:23,800 Speaker 1: measures and trying to make this determination. For me, it 204 00:11:23,920 --> 00:11:27,080 Speaker 1: really does come back to inflation, which is how tight 205 00:11:27,160 --> 00:11:30,880 Speaker 1: can we get the labor market that is consistent with 206 00:11:31,800 --> 00:11:35,360 Speaker 1: long run inflation at two. So to me, there are 207 00:11:35,360 --> 00:11:37,640 Speaker 1: like two sides of a seesaw. If we think they're 208 00:11:37,640 --> 00:11:40,080 Speaker 1: still slack in the labor market, then it's like they're 209 00:11:40,080 --> 00:11:42,160 Speaker 1: going to have low inflation in the future. So let's 210 00:11:42,200 --> 00:11:44,600 Speaker 1: try to tighten the labor market so we can actually 211 00:11:44,600 --> 00:11:47,560 Speaker 1: get to our two percent inflation target over time. So 212 00:11:47,640 --> 00:11:49,480 Speaker 1: that to me, ultimately is where we're going to know. 213 00:11:49,800 --> 00:11:52,360 Speaker 1: You know, we we do not have the ability of targeting, 214 00:11:52,880 --> 00:11:55,719 Speaker 1: for example, the black unemployment rate and saying we need 215 00:11:55,760 --> 00:11:59,079 Speaker 1: to get the black unemployment rate to x and we're 216 00:11:59,120 --> 00:12:00,600 Speaker 1: not going to be at full of ployment until we 217 00:12:00,600 --> 00:12:02,480 Speaker 1: get it too X because we have to pay attention 218 00:12:02,520 --> 00:12:05,000 Speaker 1: to what that means for on the inflation side of 219 00:12:05,000 --> 00:12:07,280 Speaker 1: our dual mandate. So it really these two things are 220 00:12:07,679 --> 00:12:10,400 Speaker 1: fundamentally linked in the way at least I think about 221 00:12:10,400 --> 00:12:14,319 Speaker 1: monetary policy that Big said. I mean, one of the 222 00:12:14,360 --> 00:12:18,400 Speaker 1: things we see is that in good economies or at 223 00:12:18,400 --> 00:12:21,480 Speaker 1: the end of the long expansion, we did see that 224 00:12:21,600 --> 00:12:26,320 Speaker 1: spread compressed between white unemployment and black unemployment. And you 225 00:12:26,320 --> 00:12:29,280 Speaker 1: know you mentioned, okay, you get the answer to some 226 00:12:29,320 --> 00:12:32,040 Speaker 1: of these questions is answered in inflation. But we have 227 00:12:32,120 --> 00:12:34,640 Speaker 1: elevated the inflation right now. Now we could tell a 228 00:12:34,720 --> 00:12:37,800 Speaker 1: story about the elevated inflation is like, oh, it's reopening 229 00:12:38,520 --> 00:12:42,880 Speaker 1: and it's used cars, and it's semiconductors and its bottlenecks 230 00:12:42,880 --> 00:12:45,680 Speaker 1: at the port. No, like, you know, that's just that's 231 00:12:45,679 --> 00:12:49,240 Speaker 1: just one story to explain why elevated inflation is right 232 00:12:49,280 --> 00:12:53,360 Speaker 1: now while there is still a high unemployment and be 233 00:12:53,600 --> 00:12:57,000 Speaker 1: a high spread between white and black unemployment. So how 234 00:12:57,040 --> 00:13:00,080 Speaker 1: do you, I mean, if if inflation is going to 235 00:13:00,160 --> 00:13:03,080 Speaker 1: be the signal that you use, how do you sort 236 00:13:03,120 --> 00:13:05,720 Speaker 1: of say, incorporate this moment right now in which if 237 00:13:05,720 --> 00:13:07,640 Speaker 1: we're just going on inflation is like, oh, well, I 238 00:13:07,640 --> 00:13:10,200 Speaker 1: guess we're there. Well, we look at a lot of 239 00:13:10,200 --> 00:13:13,160 Speaker 1: different measures of inflation, so you know, just as you said, 240 00:13:13,200 --> 00:13:15,520 Speaker 1: we know that the high inflation readings we're seeing right 241 00:13:15,559 --> 00:13:18,400 Speaker 1: now are highly concentrated in a few sectors, whether it's 242 00:13:18,400 --> 00:13:22,840 Speaker 1: autos or traveled and transportation related sectors. The vast majority 243 00:13:22,840 --> 00:13:24,880 Speaker 1: of the inflation that we're seeing or in those sectors 244 00:13:25,200 --> 00:13:27,720 Speaker 1: that is skewing the results if you look at broader 245 00:13:27,720 --> 00:13:30,200 Speaker 1: based measures of inflation, if you look at various trim 246 00:13:30,240 --> 00:13:34,120 Speaker 1: mean surveys, we're not seeing a high uptick and one 247 00:13:34,160 --> 00:13:36,600 Speaker 1: thing is this math. You know, if the prices fell 248 00:13:36,760 --> 00:13:39,440 Speaker 1: a year ago because of the shutdowns and now they're 249 00:13:39,440 --> 00:13:42,440 Speaker 1: bouncing back, just the math of that says you're gonna 250 00:13:42,440 --> 00:13:44,640 Speaker 1: see high inflation readings. So if you look at a 251 00:13:44,720 --> 00:13:48,959 Speaker 1: two year inflation reading, you know, average inflation over two years, 252 00:13:49,280 --> 00:13:51,560 Speaker 1: so you get away from this this v in the 253 00:13:51,559 --> 00:13:54,000 Speaker 1: middle of it, you're around two point three percent or 254 00:13:54,000 --> 00:13:56,320 Speaker 1: two point four percent inflation. So there are a lot 255 00:13:56,360 --> 00:13:58,200 Speaker 1: of different measures that we look at to try to 256 00:13:58,280 --> 00:14:01,960 Speaker 1: understand what is underlying inflation in the economy. And that's 257 00:14:01,960 --> 00:14:04,880 Speaker 1: what gives me confidence that most of what we're seeing 258 00:14:04,960 --> 00:14:08,760 Speaker 1: is associated with this reopening. And fundamentally, are we really 259 00:14:08,760 --> 00:14:12,000 Speaker 1: going to have sustained high inflation if there's all this 260 00:14:12,160 --> 00:14:16,480 Speaker 1: labor market slack still available? I find that hard to understand. Now, 261 00:14:16,880 --> 00:14:19,560 Speaker 1: if the six to eight million Americans are never coming back, 262 00:14:20,000 --> 00:14:22,920 Speaker 1: for whatever reason, into the workforce, then I think we 263 00:14:22,960 --> 00:14:26,800 Speaker 1: need to reassess the economy's potential and reassess inflation. But 264 00:14:26,880 --> 00:14:29,720 Speaker 1: I think it is far premature to draw that conclusion. 265 00:14:46,160 --> 00:14:50,240 Speaker 1: So I have a slightly weird question, and I'm trying 266 00:14:50,240 --> 00:14:52,480 Speaker 1: to think how exactly to phrase this. But you know, 267 00:14:52,760 --> 00:14:55,640 Speaker 1: we have employment at five point four pc. We're talking 268 00:14:55,640 --> 00:15:01,320 Speaker 1: about a sort of tail end of America that remains unemployed, 269 00:15:01,480 --> 00:15:06,000 Speaker 1: and I guess I'm just wondering, is monetary policy the 270 00:15:06,120 --> 00:15:10,720 Speaker 1: correct tool to get those people back into the workforce 271 00:15:11,520 --> 00:15:14,880 Speaker 1: or does it need to be paired with some other 272 00:15:14,960 --> 00:15:17,800 Speaker 1: type of policy um on on the fiscal or the 273 00:15:17,840 --> 00:15:21,360 Speaker 1: government side, there's a lot of fiscal policy obviously there's 274 00:15:21,360 --> 00:15:23,680 Speaker 1: been coming out of Washington over the last year in 275 00:15:23,720 --> 00:15:27,280 Speaker 1: response to COVID, now the likely infrastructure bill, and then 276 00:15:27,320 --> 00:15:30,760 Speaker 1: maybe more so, I do think fiscal policy is providing 277 00:15:30,960 --> 00:15:33,920 Speaker 1: a big impulse to try to get the economy moving 278 00:15:33,960 --> 00:15:36,560 Speaker 1: and get people back in so to me that both 279 00:15:36,640 --> 00:15:39,160 Speaker 1: of them have an important role to play, I'll say 280 00:15:39,200 --> 00:15:43,280 Speaker 1: things like targeted interventions such as worker retraining. I mean, 281 00:15:43,360 --> 00:15:47,480 Speaker 1: all of these things are well meaning. Most programs that 282 00:15:47,520 --> 00:15:50,960 Speaker 1: I've seen along the worker retraining side, they're very hard 283 00:15:51,040 --> 00:15:54,400 Speaker 1: to do at scale. The best worker retraining programs I've 284 00:15:54,400 --> 00:15:57,800 Speaker 1: seen are really where employers say, you know what, I 285 00:15:57,880 --> 00:16:00,400 Speaker 1: need someone to run this machine, and I don't care 286 00:16:00,440 --> 00:16:03,080 Speaker 1: if you've never done it before, I'll train you. That 287 00:16:03,240 --> 00:16:07,280 Speaker 1: seems to have much more success than government oriented training programs, 288 00:16:07,320 --> 00:16:10,240 Speaker 1: just because they're too blunt. So I think fiscal policy 289 00:16:10,320 --> 00:16:13,479 Speaker 1: is doing a lot monetary policy has a role to play, 290 00:16:13,520 --> 00:16:15,280 Speaker 1: and a lot of it is going to be business 291 00:16:15,400 --> 00:16:17,360 Speaker 1: is saying, you know what, we're gonna bring you in, 292 00:16:17,480 --> 00:16:19,440 Speaker 1: We're gonna teach you how to do this, and we're 293 00:16:19,440 --> 00:16:23,480 Speaker 1: going to invest in you. And we saw that when 294 00:16:23,480 --> 00:16:26,720 Speaker 1: businesses said they couldn't find workers, they started investing a 295 00:16:26,760 --> 00:16:31,280 Speaker 1: lot more in training to develop the workforce that they needed. Right, 296 00:16:31,360 --> 00:16:33,640 Speaker 1: And so does that get to this idea? I mean, 297 00:16:34,000 --> 00:16:37,400 Speaker 1: you know, I think often economists think of like supply 298 00:16:38,040 --> 00:16:41,080 Speaker 1: as a thing and demand as a thing. But if 299 00:16:41,160 --> 00:16:44,520 Speaker 1: ultimately the key to getting retraining and there in the 300 00:16:44,600 --> 00:16:47,600 Speaker 1: key to creating workforce with more skills is to get 301 00:16:47,640 --> 00:16:50,520 Speaker 1: businesses to want to invest in their own employees and 302 00:16:50,560 --> 00:16:54,040 Speaker 1: to get businesses to essentially want to meet be able 303 00:16:54,080 --> 00:16:56,760 Speaker 1: to meet the demand they're saying. Does that speak to 304 00:16:56,840 --> 00:16:59,760 Speaker 1: sort of like a fundamental power of I guess I 305 00:16:59,760 --> 00:17:04,359 Speaker 1: would a demand side economics that maintain aggregant demand either 306 00:17:04,560 --> 00:17:09,480 Speaker 1: through robust monetary policy ongoing aggressive fiscal policy, and then 307 00:17:09,560 --> 00:17:13,720 Speaker 1: that you know, incentivizes the businesses to increase productivity through 308 00:17:13,760 --> 00:17:17,560 Speaker 1: more training. I absolutely believe that. I mean, I think 309 00:17:17,800 --> 00:17:20,080 Speaker 1: one of the things about this broad fiscal policy, of 310 00:17:20,200 --> 00:17:23,879 Speaker 1: broad monetary policy is it actually works at scale of 311 00:17:23,920 --> 00:17:27,560 Speaker 1: the US economy and by just creating this tight economy 312 00:17:27,640 --> 00:17:29,960 Speaker 1: or a tight labor market. You know, we saw in 313 00:17:30,880 --> 00:17:34,399 Speaker 1: eighteen nineteen businesses saying, you know what, I'm no longer 314 00:17:34,440 --> 00:17:37,280 Speaker 1: going to drug test for certain jobs because these jobs 315 00:17:37,400 --> 00:17:38,920 Speaker 1: I don't need to. I don't need to do the 316 00:17:39,000 --> 00:17:42,160 Speaker 1: drug test. It's safe without it. Or I'm gonna give 317 00:17:42,440 --> 00:17:45,720 Speaker 1: x cons a chance for certain types of jobs, or 318 00:17:45,760 --> 00:17:48,000 Speaker 1: you know, you mentioned that, Joe, that you started to 319 00:17:48,040 --> 00:17:53,520 Speaker 1: see some compression between black white unemployment to spread. This 320 00:17:53,560 --> 00:17:56,800 Speaker 1: is what happens in a tight labor market. Businesses say, 321 00:17:56,840 --> 00:17:59,440 Speaker 1: you know what, it's in my own interest to make 322 00:17:59,520 --> 00:18:02,879 Speaker 1: these changes and develop the workforce that I need. And 323 00:18:03,000 --> 00:18:06,040 Speaker 1: what I saw was there were profound benefits to society 324 00:18:06,119 --> 00:18:10,680 Speaker 1: when they did that. M So, we just had your colleague, 325 00:18:10,880 --> 00:18:14,440 Speaker 1: Robert Kaplan, the Dallas Fed President, on All Thoughts UM 326 00:18:14,480 --> 00:18:16,960 Speaker 1: just the other day, and he was talking a lot 327 00:18:17,000 --> 00:18:22,439 Speaker 1: about the difference between the situations facing large businesses versus 328 00:18:22,520 --> 00:18:25,240 Speaker 1: small to medium sized businesses, and he was making the 329 00:18:25,280 --> 00:18:27,880 Speaker 1: point that smaller businesses are going to find it more 330 00:18:27,960 --> 00:18:33,400 Speaker 1: difficult to deal with rising inflation because their profit margins 331 00:18:33,400 --> 00:18:37,679 Speaker 1: are probably narrower than big businesses that have scale and 332 00:18:37,960 --> 00:18:40,760 Speaker 1: pricing power and can negotiate with their suppliers and things 333 00:18:40,800 --> 00:18:44,439 Speaker 1: like that. I imagine that dynamic to some degree also 334 00:18:44,520 --> 00:18:48,520 Speaker 1: applies to the labor markets. So the biggest businesses are 335 00:18:48,680 --> 00:18:51,840 Speaker 1: going to have some power over wages. They're going to 336 00:18:51,880 --> 00:18:54,440 Speaker 1: be able to pay more, and they're also probably going 337 00:18:54,480 --> 00:18:57,240 Speaker 1: to be able to provide more training opportunities. Maybe to 338 00:18:57,560 --> 00:19:00,800 Speaker 1: band together with other large business is to sort of 339 00:19:00,840 --> 00:19:04,080 Speaker 1: share workers and exchange workers, and we've seen some examples 340 00:19:04,119 --> 00:19:07,800 Speaker 1: of that. Is that something that's on your radar, like 341 00:19:07,880 --> 00:19:13,159 Speaker 1: the idea of discrepancies between the experience of small and 342 00:19:13,240 --> 00:19:16,400 Speaker 1: larger businesses here, Well, I think that there are always 343 00:19:16,400 --> 00:19:20,600 Speaker 1: differences along the lines that you're saying, Tracy, But I 344 00:19:20,600 --> 00:19:22,520 Speaker 1: don't think, at least for me, I don't think it 345 00:19:22,600 --> 00:19:25,720 Speaker 1: leads me to can make a different conclusion about assessing 346 00:19:25,760 --> 00:19:28,680 Speaker 1: the stance of monetary policy. Let's say that that thesis 347 00:19:28,760 --> 00:19:31,119 Speaker 1: is right, that big businesses are going to do better 348 00:19:31,560 --> 00:19:33,920 Speaker 1: in this current environment for all the reasons you just said, 349 00:19:34,280 --> 00:19:38,200 Speaker 1: does that mean that we should make monetary policy less 350 00:19:38,240 --> 00:19:41,480 Speaker 1: accommodative to slow the recovery sort of speak, to try 351 00:19:41,520 --> 00:19:43,800 Speaker 1: to bring that into balance. That doesn't make sense to me. 352 00:19:44,280 --> 00:19:47,479 Speaker 1: To me when I look at you know, there's some 353 00:19:47,520 --> 00:19:50,240 Speaker 1: comments that workers have a lot of power right now 354 00:19:50,560 --> 00:19:53,680 Speaker 1: relative to the past. Number one, what's wrong with that? 355 00:19:54,080 --> 00:19:56,000 Speaker 1: You know, workers should have more power than they've had 356 00:19:56,000 --> 00:19:58,919 Speaker 1: in the past. Number Two, When the six to eight 357 00:19:58,960 --> 00:20:02,080 Speaker 1: million Americans come, can the labor force. My expectation is 358 00:20:02,400 --> 00:20:05,880 Speaker 1: we're going to see that power balance become more balanced. 359 00:20:05,880 --> 00:20:09,399 Speaker 1: So the power imbalance become more balanced and more normal 360 00:20:09,480 --> 00:20:12,080 Speaker 1: over time, and so I don't want to overreact to 361 00:20:12,840 --> 00:20:16,320 Speaker 1: what I would call frictions and imbalances as the economy 362 00:20:16,359 --> 00:20:20,240 Speaker 1: goes through this reopening. Let's actually get the economy fully recovered, 363 00:20:20,480 --> 00:20:24,879 Speaker 1: and then we can assess where the power lies. I 364 00:20:24,880 --> 00:20:27,920 Speaker 1: want to pivot soon to some of the other questions, 365 00:20:27,920 --> 00:20:31,360 Speaker 1: including inflation right now and how to interacts with the 366 00:20:31,400 --> 00:20:34,560 Speaker 1: FED new framework one year on, but just sticking with 367 00:20:35,560 --> 00:20:38,199 Speaker 1: employment for a little bit longer. You know, one of 368 00:20:38,240 --> 00:20:40,960 Speaker 1: the things is we have seen the unemployment right now 369 00:20:41,080 --> 00:20:45,000 Speaker 1: come dropped down rapidly five points uh four percent, I think, 370 00:20:45,200 --> 00:20:47,919 Speaker 1: and you know, it could easily be not hard to 371 00:20:47,960 --> 00:20:50,800 Speaker 1: imagine it in the fours, maybe early next year, maybe 372 00:20:50,880 --> 00:20:52,680 Speaker 1: maybe at the end. At the end of this year. 373 00:20:53,080 --> 00:20:57,520 Speaker 1: Labor force participation rate, however, even for prime age workers, 374 00:20:58,200 --> 00:21:03,879 Speaker 1: remains considerably below crisis levels. Should that be incorporated? Is that? 375 00:21:03,960 --> 00:21:08,040 Speaker 1: How how much is l FPR on your dashboard? And 376 00:21:08,080 --> 00:21:11,080 Speaker 1: thinking about getting those numbers up, not just the unemployment 377 00:21:11,119 --> 00:21:14,600 Speaker 1: right down. Oh, it's a fundamental Joe, I mean LFP 378 00:21:14,760 --> 00:21:18,280 Speaker 1: and employment to population you know their cousins. Uh, those 379 00:21:18,280 --> 00:21:20,600 Speaker 1: are fundamental measures. And this is one of the things 380 00:21:20,640 --> 00:21:22,800 Speaker 1: we learned. You know, a lot of macro economists will say, well, 381 00:21:22,840 --> 00:21:26,480 Speaker 1: the trend line of labor force participation has been declining, 382 00:21:26,560 --> 00:21:29,399 Speaker 1: and that's why oftentimes we'll look at prime age. But 383 00:21:29,440 --> 00:21:31,480 Speaker 1: even there they'll say, well, the trend line is declining. 384 00:21:32,080 --> 00:21:34,240 Speaker 1: And one of my one of my good friends, the 385 00:21:34,359 --> 00:21:36,679 Speaker 1: late great Eddie Lazier, who's a problem, who was a 386 00:21:36,680 --> 00:21:39,160 Speaker 1: prominent labor market economist when I first joined the FED, 387 00:21:39,640 --> 00:21:41,119 Speaker 1: he called me up and he said, the FED is 388 00:21:41,200 --> 00:21:44,320 Speaker 1: misreading the labor market. The macro economists just think the 389 00:21:44,320 --> 00:21:47,119 Speaker 1: trend lines are a certain direction, and they take that 390 00:21:47,200 --> 00:21:49,880 Speaker 1: as gospel, and therefore it's always going to be trending down. 391 00:21:50,280 --> 00:21:52,880 Speaker 1: And there's no good reason why it's trending down. And 392 00:21:52,960 --> 00:21:56,760 Speaker 1: Eddie Lazier was correct, and so to me, that's why 393 00:21:56,800 --> 00:21:59,960 Speaker 1: you know, getting LFP in employment to population at least 394 00:22:00,000 --> 00:22:03,000 Speaker 1: act to where they were before, but not necessarily even 395 00:22:03,000 --> 00:22:05,639 Speaker 1: declaring victory when we do that, I think that's a 396 00:22:05,680 --> 00:22:08,720 Speaker 1: reasonable thing for us to try to achieve. You know, 397 00:22:08,720 --> 00:22:11,440 Speaker 1: when when a lot of Americans they answer these surveys, 398 00:22:11,800 --> 00:22:14,040 Speaker 1: they'll say, do you have a job? No? Are you 399 00:22:14,119 --> 00:22:16,720 Speaker 1: looking for a job no? So then they're considered not 400 00:22:16,840 --> 00:22:20,160 Speaker 1: in the labor force. Those same folks, many of them, 401 00:22:20,359 --> 00:22:22,960 Speaker 1: the next month they take a job. All right, that's 402 00:22:22,960 --> 00:22:25,520 Speaker 1: not it's not supposed to work that way, but that's 403 00:22:25,520 --> 00:22:28,280 Speaker 1: the way it actually does work. So let's actually see 404 00:22:28,520 --> 00:22:30,840 Speaker 1: let's not just ask people are you looking, Let's actually 405 00:22:30,880 --> 00:22:34,040 Speaker 1: see what happens in the wage data, what happens in 406 00:22:34,080 --> 00:22:38,280 Speaker 1: the jobs data, what happens in the inflation data. So 407 00:22:38,320 --> 00:22:40,920 Speaker 1: on that note, why don't we move over to the 408 00:22:40,960 --> 00:22:45,399 Speaker 1: inflation discussion. And you're on the record as saying that 409 00:22:45,440 --> 00:22:50,679 Speaker 1: you think, um, the current price increases are probably transitory. 410 00:22:50,800 --> 00:22:54,919 Speaker 1: I'm curious, is there something that would make you think 411 00:22:55,200 --> 00:22:59,480 Speaker 1: that inflation was something more than transitory, something that's more 412 00:22:59,560 --> 00:23:03,840 Speaker 1: broad based based um, something potentially more permanent. Is it just, uh, 413 00:23:04,080 --> 00:23:07,520 Speaker 1: the wage growth that that you just mentioned wage, The 414 00:23:07,520 --> 00:23:10,200 Speaker 1: wage growth is one piece of it. It is looking 415 00:23:10,200 --> 00:23:12,679 Speaker 1: at the sectors that are seeing high inflation readings. As 416 00:23:12,720 --> 00:23:15,439 Speaker 1: we mentioned a few minutes ago, it's highly concentrated in 417 00:23:15,560 --> 00:23:20,240 Speaker 1: autos and in travel and transportation sectors right now, and 418 00:23:20,280 --> 00:23:22,840 Speaker 1: so if we saw it more broadly, that would be 419 00:23:22,880 --> 00:23:25,680 Speaker 1: another factor that I would pay a lot of attention to. Then, 420 00:23:25,680 --> 00:23:27,879 Speaker 1: going back to the labor market, if we thought these 421 00:23:27,920 --> 00:23:30,960 Speaker 1: six day million Americans were not coming in coming back, 422 00:23:31,840 --> 00:23:34,119 Speaker 1: that would also give me pause. You know, if the 423 00:23:34,160 --> 00:23:37,359 Speaker 1: delta variant really puts a chill on hiring and chilling 424 00:23:37,760 --> 00:23:40,480 Speaker 1: people returning, that would also give me pause. And then, 425 00:23:40,480 --> 00:23:43,760 Speaker 1: of course, we also pay attention to market based measures 426 00:23:43,760 --> 00:23:46,720 Speaker 1: of inflation and inflation expectations. And as you all know, 427 00:23:46,840 --> 00:23:50,120 Speaker 1: I know you follow the treasury market very closely. Long 428 00:23:50,240 --> 00:23:54,679 Speaker 1: term treasury yields are not they're not implying high inflation 429 00:23:55,440 --> 00:23:57,399 Speaker 1: five or ten years from now. And so all of 430 00:23:57,440 --> 00:24:01,119 Speaker 1: those things right now are indicating to me that this 431 00:24:01,200 --> 00:24:04,359 Speaker 1: high inflation is likely going to be transitory. If those 432 00:24:04,400 --> 00:24:07,280 Speaker 1: measures were to change, that would cause me to reassess 433 00:24:07,359 --> 00:24:12,000 Speaker 1: that conclusion. Let's talk about the interaction of the data 434 00:24:12,320 --> 00:24:15,400 Speaker 1: with the new framework, and of course, again about almost 435 00:24:15,400 --> 00:24:18,119 Speaker 1: a year on here since Jackson Hole, where the FED 436 00:24:18,640 --> 00:24:23,720 Speaker 1: unveiled it's flexible average inflation targeting framework. And you know 437 00:24:23,840 --> 00:24:28,119 Speaker 1: my general interpretation of the new framework, and you use 438 00:24:28,200 --> 00:24:31,200 Speaker 1: the word humble before, and I think it is intended 439 00:24:31,240 --> 00:24:34,520 Speaker 1: to be more humble framework and to not over react 440 00:24:34,600 --> 00:24:38,879 Speaker 1: to now try to preempt inflation, to tolerate some short 441 00:24:39,000 --> 00:24:42,679 Speaker 1: term overshoots. Does the inflation that we're seeing that we 442 00:24:42,720 --> 00:24:46,200 Speaker 1: can ascribe to reopening I guess the question is doesn't 443 00:24:46,240 --> 00:24:48,840 Speaker 1: count for that. So when you think about, like, okay, 444 00:24:48,880 --> 00:24:52,320 Speaker 1: over time, this two percent, if we get this sort 445 00:24:52,359 --> 00:24:55,159 Speaker 1: of inflation, that's oh, it's there's something we're going on 446 00:24:55,240 --> 00:24:57,960 Speaker 1: with used cars and bottlenecks at the ports because imports 447 00:24:57,960 --> 00:25:01,159 Speaker 1: are so high, because people still aren't spending money on 448 00:25:01,280 --> 00:25:04,800 Speaker 1: services and all of these things. Do these periods of 449 00:25:04,920 --> 00:25:08,920 Speaker 1: elevated inflation that we can reasonably chalk up to those things, 450 00:25:09,119 --> 00:25:14,280 Speaker 1: do they count towards towards the average? Well, that's a 451 00:25:14,400 --> 00:25:16,919 Speaker 1: very good question, Joe, and I think that my guess 452 00:25:16,960 --> 00:25:19,840 Speaker 1: is there would be a wide range of opinions, uh, 453 00:25:19,840 --> 00:25:22,399 Speaker 1: and the Federal Open Market Committee about that. The answer 454 00:25:22,440 --> 00:25:25,080 Speaker 1: to that question, in my mind, because I have a 455 00:25:25,080 --> 00:25:28,480 Speaker 1: lot of confidence that these inflation readings are transitory, That's 456 00:25:28,520 --> 00:25:30,800 Speaker 1: not what I intended when I said we should achieve 457 00:25:30,840 --> 00:25:34,000 Speaker 1: a modest overshoot. You know what motivated the new framework. 458 00:25:34,440 --> 00:25:37,400 Speaker 1: What motivated the new framework was basically, we were undershooting 459 00:25:37,400 --> 00:25:39,919 Speaker 1: our inflation target for ten years, and we know the 460 00:25:40,000 --> 00:25:42,800 Speaker 1: zero lower bound is a constraint on policy, and so 461 00:25:42,880 --> 00:25:45,760 Speaker 1: we said, look, let's allow for a modest overshoot so 462 00:25:45,800 --> 00:25:49,439 Speaker 1: we can actually average two inflation over time and get 463 00:25:49,520 --> 00:25:52,480 Speaker 1: you know, our estimates are that underlying inflation is roughly 464 00:25:52,520 --> 00:25:55,200 Speaker 1: around one point eight percent or it has been. Let's 465 00:25:55,200 --> 00:25:57,879 Speaker 1: get underlying inflation back to two percent. In my mind, 466 00:25:58,960 --> 00:26:02,280 Speaker 1: temporary transit tory high inflation readings because of the reopening 467 00:26:02,600 --> 00:26:05,400 Speaker 1: are not actually going to be effective in boosting underlying 468 00:26:05,440 --> 00:26:09,520 Speaker 1: inflation to two on average over time, and that's why 469 00:26:09,800 --> 00:26:12,920 Speaker 1: in my mind they don't really count. But I think 470 00:26:12,920 --> 00:26:15,720 Speaker 1: there's probably a wide range of opinions around the committee 471 00:26:15,760 --> 00:26:18,480 Speaker 1: as to that. As to that question, it certainly wasn't 472 00:26:18,520 --> 00:26:22,000 Speaker 1: what I intended a year ago. Do you think the 473 00:26:22,040 --> 00:26:25,840 Speaker 1: market understands the Fed's new framework. And I mean the 474 00:26:25,880 --> 00:26:28,280 Speaker 1: reason I asked that is because, as you just noted, 475 00:26:28,520 --> 00:26:35,480 Speaker 1: bond yields remain incredibly stubbornly low, despite ostensibly a willingness 476 00:26:35,520 --> 00:26:40,600 Speaker 1: from the FED to tolerate higher levels of price increases. 477 00:26:41,560 --> 00:26:45,280 Speaker 1: So I think they do. I don't want to declare victory, 478 00:26:45,320 --> 00:26:47,480 Speaker 1: but if you look at the market measures of inflation 479 00:26:47,520 --> 00:26:53,080 Speaker 1: expectations embedded in tips, for example, in nominal treasuries, you're 480 00:26:53,080 --> 00:26:56,320 Speaker 1: seeing higher inflation for the next few years, let's say, 481 00:26:56,320 --> 00:27:00,320 Speaker 1: the next five years, and then not much action out 482 00:27:00,359 --> 00:27:04,119 Speaker 1: at ten years or beyond. That's completely consistent with what 483 00:27:04,160 --> 00:27:08,400 Speaker 1: our framework is attempting to engineer, which is the framework 484 00:27:08,480 --> 00:27:11,280 Speaker 1: essentially is trying to boost inflation expectations for the next 485 00:27:11,280 --> 00:27:15,280 Speaker 1: few years while leaving long term inflation expectations anchored at 486 00:27:15,320 --> 00:27:19,640 Speaker 1: two over the long term. That's what the market indicators 487 00:27:19,680 --> 00:27:24,119 Speaker 1: are saying. So I think that sophisticated market participants have 488 00:27:24,240 --> 00:27:27,280 Speaker 1: paid very close attention to the new framework, and I 489 00:27:27,320 --> 00:27:30,240 Speaker 1: do think it is it seems to be working as 490 00:27:30,359 --> 00:27:33,959 Speaker 1: intended in generating those kinds of outcomes. But you know, 491 00:27:34,200 --> 00:27:36,120 Speaker 1: it's still early. It's only been a year we're going 492 00:27:36,160 --> 00:27:39,080 Speaker 1: through this reopening. You know, it's it's far too soon 493 00:27:39,119 --> 00:27:42,679 Speaker 1: to draw any firm conclusions. This is it's funny you 494 00:27:42,840 --> 00:27:45,680 Speaker 1: ended up saying it's too soon to draw any conclusions, 495 00:27:45,720 --> 00:27:48,399 Speaker 1: because that's what I was thinking about. Something I was 496 00:27:48,440 --> 00:27:52,479 Speaker 1: thinking about is okay. So one of the sort of 497 00:27:52,520 --> 00:27:54,840 Speaker 1: I guess it seems to be one of the new 498 00:27:54,880 --> 00:27:57,960 Speaker 1: guiding principles of this sort of more humble fed of like, Okay, 499 00:27:58,000 --> 00:28:00,560 Speaker 1: let's see how let's see where we can go. Let's 500 00:28:00,560 --> 00:28:04,400 Speaker 1: actually wait to see evidence that we've hit our targets 501 00:28:04,440 --> 00:28:07,840 Speaker 1: before we start um raising rates and so forth. And 502 00:28:07,920 --> 00:28:11,320 Speaker 1: yet you're you, as a member of the FOMC, are 503 00:28:11,400 --> 00:28:13,919 Speaker 1: tasked with coming up with dots and uh, you know, 504 00:28:13,960 --> 00:28:18,280 Speaker 1: put out your okay three and beyond like forecast for 505 00:28:18,400 --> 00:28:20,920 Speaker 1: what rates are. Do you think there is a tension 506 00:28:21,640 --> 00:28:25,520 Speaker 1: between a destination based framework of let's wait and see 507 00:28:26,200 --> 00:28:30,640 Speaker 1: versus a dots requirement, which implicitly is sort of asking 508 00:28:30,720 --> 00:28:34,119 Speaker 1: you to make a prediction of what the trajectory of 509 00:28:34,320 --> 00:28:37,679 Speaker 1: the economy, employment, and inflation will look like over the 510 00:28:37,720 --> 00:28:40,880 Speaker 1: next couple of years. I think the dot plot is 511 00:28:40,880 --> 00:28:42,880 Speaker 1: deeply flawed for a lot of reasons. Joe for the 512 00:28:42,880 --> 00:28:45,560 Speaker 1: reason you mentioned, but I just think in general it 513 00:28:46,000 --> 00:28:50,560 Speaker 1: draws way too much attention from the press, from market participants, 514 00:28:50,600 --> 00:28:54,120 Speaker 1: from the public. Uh, They're not meant to be forecasts. 515 00:28:54,120 --> 00:28:56,520 Speaker 1: They're meant to be this is what we think optimal 516 00:28:56,560 --> 00:28:59,640 Speaker 1: policy is to achieve the goals that we have. So 517 00:28:59,760 --> 00:29:03,080 Speaker 1: to I think the dot plot is does more harm 518 00:29:03,120 --> 00:29:04,720 Speaker 1: than good, and if you're up to me, I would 519 00:29:04,760 --> 00:29:10,080 Speaker 1: kill it. So a related question, but is there something 520 00:29:10,320 --> 00:29:13,440 Speaker 1: you would do differently at the FED or you know, 521 00:29:13,480 --> 00:29:15,680 Speaker 1: if you had the chance to maybe change the way 522 00:29:15,720 --> 00:29:18,200 Speaker 1: the FED currently operates, is there something that you would 523 00:29:18,640 --> 00:29:21,560 Speaker 1: alter or get rid of, like the dot plot or 524 00:29:21,680 --> 00:29:23,840 Speaker 1: I don't know the use of the word transitory in 525 00:29:23,920 --> 00:29:27,360 Speaker 1: describing inflation things like that. Well, I mean, I think 526 00:29:27,400 --> 00:29:29,880 Speaker 1: the dot plot is one clearer one that I've said 527 00:29:29,880 --> 00:29:31,640 Speaker 1: for a long time we should get rid of. The 528 00:29:31,640 --> 00:29:34,320 Speaker 1: second thing is, you know, it's it's funny the fo 529 00:29:34,440 --> 00:29:38,680 Speaker 1: m C statement itself. It's quite a cumbersome statement to read, 530 00:29:38,800 --> 00:29:41,520 Speaker 1: and when I read it with a fresh set of eyes, 531 00:29:41,800 --> 00:29:45,280 Speaker 1: it feels kind of clunky. And what's difficult about it 532 00:29:45,320 --> 00:29:48,000 Speaker 1: is it's not simply the words on the page that 533 00:29:48,080 --> 00:29:51,000 Speaker 1: convey the information. The real information is the change in 534 00:29:51,040 --> 00:29:54,000 Speaker 1: the words on the page. And every meeting, you know, 535 00:29:54,040 --> 00:29:56,760 Speaker 1: we go through great deliberations and people are very thoughtful 536 00:29:56,800 --> 00:29:59,640 Speaker 1: about how they want to change the words on the 537 00:29:59,680 --> 00:30:02,480 Speaker 1: page to convey the message to the public and the 538 00:30:02,520 --> 00:30:05,960 Speaker 1: financial markets. But then after a year or two, you 539 00:30:06,080 --> 00:30:07,600 Speaker 1: end up with this thing and it says, well, wait 540 00:30:07,600 --> 00:30:09,320 Speaker 1: a second, if I read this with a clean sheet 541 00:30:09,320 --> 00:30:10,800 Speaker 1: of you know, with a clean set of eyes, so 542 00:30:10,920 --> 00:30:13,800 Speaker 1: to speak, would I write it this way if I 543 00:30:13,880 --> 00:30:16,200 Speaker 1: was starting over? The answers probably know. So that's one 544 00:30:16,240 --> 00:30:18,720 Speaker 1: that I struggle with, which is, you know, could we 545 00:30:18,760 --> 00:30:21,800 Speaker 1: do a refresh on the statement. It's hard to do 546 00:30:21,840 --> 00:30:25,520 Speaker 1: a refresh because you know, you are conveying information by 547 00:30:25,560 --> 00:30:27,920 Speaker 1: the changes that you're making, and if you just said 548 00:30:27,960 --> 00:30:30,560 Speaker 1: we're going to start with a clean sheet of paper, uh, 549 00:30:30,640 --> 00:30:32,920 Speaker 1: it'll probably introduce a lot of uncertainty. These people try 550 00:30:32,960 --> 00:30:35,400 Speaker 1: to get a new baseline, so to speak, of what 551 00:30:35,440 --> 00:30:38,600 Speaker 1: the statement is telling us. Well, you're certainly offering a 552 00:30:38,800 --> 00:30:43,560 Speaker 1: full employment for professional FED watchers who who do the 553 00:30:43,560 --> 00:30:46,440 Speaker 1: whole red line strike through and try to tell us what, 554 00:30:46,520 --> 00:30:50,600 Speaker 1: you know, some further progress versus progress means and put 555 00:30:50,640 --> 00:30:54,960 Speaker 1: those into actual English. You know. One of the things 556 00:30:55,040 --> 00:30:59,680 Speaker 1: that's being debated that debated right now and in terms 557 00:30:59,760 --> 00:31:04,440 Speaker 1: of ranges is obviously um the asset purchases and asset 558 00:31:04,480 --> 00:31:08,280 Speaker 1: purchases were really cranked up when the crisis hit for 559 00:31:08,320 --> 00:31:12,040 Speaker 1: all kinds of reasons for financial market plumbing in your view, 560 00:31:12,520 --> 00:31:14,680 Speaker 1: I mean, I guess it's kind of a two part question, 561 00:31:14,760 --> 00:31:19,080 Speaker 1: but what do you think asset purchases accomplished and at 562 00:31:19,080 --> 00:31:22,480 Speaker 1: this point, like what are they doing? And to sort 563 00:31:22,480 --> 00:31:24,760 Speaker 1: of where do you stand? Do you think that the 564 00:31:24,840 --> 00:31:28,680 Speaker 1: economy is in a position where they can start to 565 00:31:28,720 --> 00:31:33,240 Speaker 1: be wound down without causing a major setback. You know, 566 00:31:33,280 --> 00:31:36,040 Speaker 1: I'm always reminded when we study the asset purchases with 567 00:31:36,080 --> 00:31:38,320 Speaker 1: my economists at ME and said, I'm always reminded of 568 00:31:38,680 --> 00:31:43,160 Speaker 1: former Chairman Bernanke's very famous quip that quantitative easing works 569 00:31:43,200 --> 00:31:46,680 Speaker 1: in practice but not in theory. And that's I mean, 570 00:31:46,720 --> 00:31:49,080 Speaker 1: I think that's he really nails it with that, because 571 00:31:49,080 --> 00:31:52,280 Speaker 1: when when the economists go through their models and you 572 00:31:52,320 --> 00:31:55,560 Speaker 1: get very modest effects, but we can actually see very 573 00:31:55,640 --> 00:31:58,760 Speaker 1: large effects. Because I think it's sending a message about 574 00:31:58,760 --> 00:32:02,320 Speaker 1: the committees over all stance on monetary policy. Are we 575 00:32:02,400 --> 00:32:06,080 Speaker 1: committed to being a commodative for the foreseeable future. And 576 00:32:06,200 --> 00:32:10,160 Speaker 1: that's why modest changes can lead to big changes in 577 00:32:10,240 --> 00:32:13,920 Speaker 1: expectations and potentially big moves. And that's where that's why 578 00:32:13,960 --> 00:32:16,480 Speaker 1: the Taper tantrum was such a big effect, had such 579 00:32:16,520 --> 00:32:19,840 Speaker 1: a big effect in and so I do think right 580 00:32:19,840 --> 00:32:22,400 Speaker 1: now it is still providing support to the economy. I 581 00:32:22,400 --> 00:32:25,440 Speaker 1: think it is still signaling that the Committee is committed 582 00:32:25,840 --> 00:32:29,920 Speaker 1: to achieving our dual mandate goals, to really achieving maximum employment, 583 00:32:29,960 --> 00:32:32,840 Speaker 1: and it's sending a message that we are not going 584 00:32:32,880 --> 00:32:37,640 Speaker 1: to prematurely normalized monetary policy and declare victory before we've 585 00:32:37,640 --> 00:32:40,480 Speaker 1: actually achieved our goals. So that to me is useful 586 00:32:40,520 --> 00:32:43,920 Speaker 1: and powerful. But as you know, the Committee said that 587 00:32:43,960 --> 00:32:47,240 Speaker 1: when we see substantial further progress then we would normalize 588 00:32:47,240 --> 00:32:49,720 Speaker 1: our asset purchases. I think if we see a few 589 00:32:49,720 --> 00:32:52,280 Speaker 1: more jobs reports like the one we just got, then 590 00:32:52,320 --> 00:32:55,160 Speaker 1: I would feel comfortable saying, yeah, we are maybe haven't 591 00:32:55,200 --> 00:32:58,200 Speaker 1: completely filled the whole that we've been in, but we've 592 00:32:58,200 --> 00:33:00,480 Speaker 1: made a lot of progress and now and will be 593 00:33:00,480 --> 00:33:05,480 Speaker 1: the time to start tapering our asset purchases. So on 594 00:33:05,600 --> 00:33:09,760 Speaker 1: this note, you are one of the more dovish people 595 00:33:09,840 --> 00:33:13,080 Speaker 1: at the Fed, possibly the most devilish person at the FED, 596 00:33:13,120 --> 00:33:15,960 Speaker 1: and at the same time, you were very, very active 597 00:33:16,800 --> 00:33:20,400 Speaker 1: during the two thousand and eight financial crisis. I think, 598 00:33:20,560 --> 00:33:22,760 Speaker 1: you know, you have the perfect sort of vantage point 599 00:33:22,840 --> 00:33:26,200 Speaker 1: to see everything that was happening and also to see 600 00:33:26,680 --> 00:33:30,440 Speaker 1: just how bad things had gotten. So I'm curious, how 601 00:33:30,480 --> 00:33:34,400 Speaker 1: are you weighing the sort of the risks of tightening 602 00:33:34,480 --> 00:33:39,000 Speaker 1: monetary policy too early versus the risks of keeping it 603 00:33:39,480 --> 00:33:43,160 Speaker 1: too loose for too long and getting some sort of 604 00:33:43,200 --> 00:33:46,960 Speaker 1: imbalance built up in the financial system. Well, I'm very 605 00:33:47,000 --> 00:33:48,760 Speaker 1: focused on the I mean the risk. We pay a 606 00:33:48,840 --> 00:33:51,240 Speaker 1: lot of attention to financial stability risk, we pay a 607 00:33:51,280 --> 00:33:54,360 Speaker 1: lot of attention to risk of inflation. I see the 608 00:33:54,360 --> 00:33:57,680 Speaker 1: bigger risk if if monetary policy is too accommodative for 609 00:33:57,720 --> 00:34:00,600 Speaker 1: too long. To me, I think that the biggest risk 610 00:34:00,640 --> 00:34:02,600 Speaker 1: is that it shows up in high inflation into these 611 00:34:02,640 --> 00:34:06,360 Speaker 1: transitory readings end up not being transitory and it becomes 612 00:34:06,440 --> 00:34:08,920 Speaker 1: more broad based, and then we would have to adjust 613 00:34:09,040 --> 00:34:12,000 Speaker 1: monetary policy to make sure that inflation expectations are anchored. 614 00:34:12,280 --> 00:34:14,640 Speaker 1: I don't think I've not seen any evidence that monetary 615 00:34:14,680 --> 00:34:18,840 Speaker 1: policy is the right tool to address financial stability risks. 616 00:34:19,000 --> 00:34:21,000 Speaker 1: You know, I don't want to say never, but whenever 617 00:34:21,040 --> 00:34:23,920 Speaker 1: I analyze it with our economists, it just seems like 618 00:34:24,280 --> 00:34:27,680 Speaker 1: Monterrey policy is such a blunt instrument that it allows 619 00:34:27,719 --> 00:34:30,160 Speaker 1: you a way to try to rein in potential accesses 620 00:34:30,239 --> 00:34:33,600 Speaker 1: on Wall Street. I would much rather, for example, raised 621 00:34:33,600 --> 00:34:36,960 Speaker 1: the countercyclical capital buffer to make sure that the biggest 622 00:34:36,960 --> 00:34:39,880 Speaker 1: banks have enough capital so they can withstand any downturns. 623 00:34:40,200 --> 00:34:41,759 Speaker 1: Then say, you know what, we're going to slow the 624 00:34:41,840 --> 00:34:45,279 Speaker 1: labor market recovery because we're worried about some froththiness in 625 00:34:45,360 --> 00:34:47,800 Speaker 1: Wall Street. And then, you know, one more quick comment, 626 00:34:48,520 --> 00:34:50,960 Speaker 1: think about the tech bubble bursting in two thousand and 627 00:34:50,960 --> 00:34:54,200 Speaker 1: two thousand one, uh that that was clearly a bubble. 628 00:34:54,600 --> 00:34:57,320 Speaker 1: It burst, It didn't lead to a deep recession. It 629 00:34:57,400 --> 00:35:00,120 Speaker 1: led to a very mild recession. And if the did 630 00:35:00,239 --> 00:35:03,239 Speaker 1: try to use monetary policy to keep the to keep 631 00:35:03,239 --> 00:35:06,040 Speaker 1: the tech bubble from inflating in the first place, the 632 00:35:06,200 --> 00:35:08,680 Speaker 1: cost of the economy would have been much much larger 633 00:35:09,080 --> 00:35:11,479 Speaker 1: than what ended up happening when the tech bubble burst. 634 00:35:11,560 --> 00:35:14,239 Speaker 1: And so we have to be very careful about saying 635 00:35:14,239 --> 00:35:16,560 Speaker 1: we're going to use monetary policy to try to rein 636 00:35:16,600 --> 00:35:37,080 Speaker 1: in Wall Street just one more thing on financial stability. 637 00:35:37,239 --> 00:35:41,359 Speaker 1: There is um currently some concern about this idea of 638 00:35:41,640 --> 00:35:44,560 Speaker 1: lots of excess reserves just sort of slashing away in 639 00:35:44,600 --> 00:35:49,040 Speaker 1: the financial system, showing up on bank balance sheets. Um 640 00:35:49,160 --> 00:35:53,240 Speaker 1: so that banks are actually turning away some large depositors. 641 00:35:53,800 --> 00:35:56,200 Speaker 1: Is that a concern for you when it comes to 642 00:35:56,200 --> 00:35:59,919 Speaker 1: the Fed's asset purchase program or does it not really read? 643 00:36:00,480 --> 00:36:03,479 Speaker 1: Is something that's top of mind. You know, we paid 644 00:36:03,480 --> 00:36:06,080 Speaker 1: close attention to it, and I know the overnight reverse 645 00:36:06,160 --> 00:36:08,959 Speaker 1: repo facilities has been getting a lot of attention because 646 00:36:09,000 --> 00:36:11,799 Speaker 1: the volumes are going up. The purpose of that is 647 00:36:11,840 --> 00:36:16,560 Speaker 1: to keep short term interest rates in the roughly related 648 00:36:16,600 --> 00:36:18,560 Speaker 1: to the band that the Committee is set for the 649 00:36:18,560 --> 00:36:21,879 Speaker 1: Federal funds rate. And so in a sense, you could 650 00:36:21,880 --> 00:36:24,480 Speaker 1: think of it as a as a way of having 651 00:36:24,600 --> 00:36:27,120 Speaker 1: some type of yield curve control where the FED is 652 00:36:27,160 --> 00:36:29,799 Speaker 1: buying a lot of long term assets, but then we 653 00:36:29,840 --> 00:36:32,440 Speaker 1: don't want short term rates to go negative, and so 654 00:36:32,600 --> 00:36:35,880 Speaker 1: we have this floor in a sense which is keeping 655 00:36:36,360 --> 00:36:39,080 Speaker 1: uh which is allowing banks to park some of their 656 00:36:39,120 --> 00:36:42,080 Speaker 1: reserves essentially at the FED to keep short term rates 657 00:36:42,080 --> 00:36:44,919 Speaker 1: from going negative. And so I think this is not 658 00:36:45,600 --> 00:36:49,239 Speaker 1: it doesn't trike me as highly concerning. It's kind of understandable, 659 00:36:49,320 --> 00:36:51,959 Speaker 1: especially when the FED made a technical adjustment and raise 660 00:36:52,040 --> 00:36:55,680 Speaker 1: the rate that it pays on reserves at the after 661 00:36:55,719 --> 00:36:58,400 Speaker 1: the last meeting. So it isn't highly concerning to me, 662 00:36:59,040 --> 00:37:01,719 Speaker 1: and you know, we're gonna just keep watching it. I 663 00:37:02,120 --> 00:37:06,120 Speaker 1: have one last question, and it actually relates to the 664 00:37:06,200 --> 00:37:09,880 Speaker 1: first part of the conversation, but I you know, I 665 00:37:10,080 --> 00:37:13,080 Speaker 1: thinking back to you know, you're talking about the spread 666 00:37:13,360 --> 00:37:17,279 Speaker 1: between um white unemployment and black unemployment and how far 667 00:37:17,360 --> 00:37:20,160 Speaker 1: that can go down and other indicators of when the 668 00:37:20,200 --> 00:37:25,640 Speaker 1: economy has meet met maximum employment potential, and the gauge 669 00:37:25,719 --> 00:37:28,759 Speaker 1: that you're using is on the inflation side. And it 670 00:37:28,800 --> 00:37:32,759 Speaker 1: seems to me, therefore that even with this new framework 671 00:37:32,800 --> 00:37:35,280 Speaker 1: that you know, there's still this sort of like deeply 672 00:37:35,520 --> 00:37:39,680 Speaker 1: embedded I guess it's like Philip's curve idea that ultimately 673 00:37:39,719 --> 00:37:44,520 Speaker 1: there is some tension that ultimately, like the overemployment to 674 00:37:44,840 --> 00:37:47,400 Speaker 1: the extent that that could be such a thing, is 675 00:37:47,520 --> 00:37:53,280 Speaker 1: indicated by overly hot inflation or undesirable inflation. And I'm curious, 676 00:37:53,360 --> 00:37:57,000 Speaker 1: you know, obviously again there's this Philip's curve. This trade 677 00:37:57,040 --> 00:38:01,840 Speaker 1: off contributed arguably to some of premature hiking that we 678 00:38:01,920 --> 00:38:04,400 Speaker 1: saw post crisis, the idea that, okay, five and a 679 00:38:04,440 --> 00:38:06,719 Speaker 1: half percent, four and a half percent, these must be 680 00:38:06,960 --> 00:38:09,680 Speaker 1: levels that which inflation is going to take off. Do 681 00:38:09,719 --> 00:38:13,480 Speaker 1: you ever question that core premise, the premise of a 682 00:38:13,560 --> 00:38:17,480 Speaker 1: trade off, and whether the two things, inflation and employment, 683 00:38:17,520 --> 00:38:20,120 Speaker 1: maybe do they even have much to do with each other. 684 00:38:21,200 --> 00:38:23,760 Speaker 1: I do. It's a it's a good question, I do. 685 00:38:23,880 --> 00:38:25,680 Speaker 1: You know, we we we debate it once in a 686 00:38:25,680 --> 00:38:29,359 Speaker 1: while with my economists. You know, if, for example, if 687 00:38:30,400 --> 00:38:33,320 Speaker 1: the Fed just gave everybody twice as many dollars, so 688 00:38:33,400 --> 00:38:35,400 Speaker 1: they said, your the dollar you have in your pocket 689 00:38:35,560 --> 00:38:39,000 Speaker 1: or in your PayPal account is not two dollars, you 690 00:38:39,040 --> 00:38:42,560 Speaker 1: would expect to see prices double in the economy if 691 00:38:42,600 --> 00:38:45,279 Speaker 1: everybody's money got worth half as much, or you know, 692 00:38:45,480 --> 00:38:47,799 Speaker 1: had to two x the amount. And that's got nothing 693 00:38:47,840 --> 00:38:49,879 Speaker 1: to do with the labor market. That's just how much 694 00:38:49,880 --> 00:38:52,480 Speaker 1: money is in people's pockets trying to buy the same 695 00:38:52,560 --> 00:38:56,440 Speaker 1: number of goods and services. But fundamentally, I do believe 696 00:38:56,480 --> 00:38:58,200 Speaker 1: that there is a linkage. I do believe that for 697 00:38:58,360 --> 00:39:01,880 Speaker 1: most firms, the bulk of their expenses are their employee 698 00:39:01,880 --> 00:39:04,440 Speaker 1: base and their wages and that if we're going to 699 00:39:04,560 --> 00:39:08,680 Speaker 1: see firms having higher prices and passion those on the consumers, 700 00:39:09,040 --> 00:39:11,319 Speaker 1: that wages is going to be a very important piece 701 00:39:11,400 --> 00:39:13,440 Speaker 1: of that. And so I do believe that there is 702 00:39:13,480 --> 00:39:16,920 Speaker 1: a linkage between the labor market and inflation. I'm not 703 00:39:17,000 --> 00:39:19,680 Speaker 1: ready to write that off, but we do. You know, 704 00:39:19,760 --> 00:39:23,600 Speaker 1: we do debate one another about some of these more 705 00:39:23,600 --> 00:39:27,760 Speaker 1: fundamental questions about how prices are set and how monitory 706 00:39:27,800 --> 00:39:32,080 Speaker 1: policy can affect the economy. Neil, there's such a real 707 00:39:32,120 --> 00:39:34,359 Speaker 1: treat to have you back on odd LODs, Neil cash Kari, 708 00:39:34,440 --> 00:39:37,120 Speaker 1: thank you so much for joining us. Thanks for having me. 709 00:39:37,160 --> 00:39:39,040 Speaker 1: It's great to be with you both. Yeah, that was great. 710 00:39:40,920 --> 00:39:57,160 Speaker 1: We'll do it again next August. You know, Tracy, I 711 00:39:57,200 --> 00:40:01,000 Speaker 1: was thinking about Neil's point about sort of ripping up 712 00:40:01,040 --> 00:40:03,319 Speaker 1: the approach to the statement and just starting with like 713 00:40:03,360 --> 00:40:07,120 Speaker 1: a clearer, clearer form of communication. And one thing I 714 00:40:07,160 --> 00:40:10,239 Speaker 1: really do admire about Neil is although he not a 715 00:40:10,239 --> 00:40:14,759 Speaker 1: trend economist, he's obviously very deep in it and one 716 00:40:14,760 --> 00:40:18,799 Speaker 1: of the better policymakers at sort of just talking about 717 00:40:18,840 --> 00:40:20,920 Speaker 1: what they're up to in a plain English that anyone 718 00:40:20,920 --> 00:40:24,320 Speaker 1: can understand. Yeah, that's definitely true. I remember there was 719 00:40:24,360 --> 00:40:27,080 Speaker 1: a study gosh, I guess it was like five or 720 00:40:27,120 --> 00:40:29,359 Speaker 1: six years back now, but there was a study that 721 00:40:29,800 --> 00:40:32,520 Speaker 1: went through all the f O m C statements over 722 00:40:32,600 --> 00:40:36,120 Speaker 1: time and crunch some of the numbers on word length 723 00:40:36,600 --> 00:40:40,800 Speaker 1: and also on readability, and you could see this really 724 00:40:40,840 --> 00:40:44,040 Speaker 1: strong trend that the statements were getting longer and longer 725 00:40:44,400 --> 00:40:48,600 Speaker 1: basically since the financial crisis, and also the reading level 726 00:40:48,640 --> 00:40:51,560 Speaker 1: that you needed in order to understand them was going up, 727 00:40:51,600 --> 00:40:53,879 Speaker 1: so it used to be high school level, I think, 728 00:40:53,920 --> 00:40:56,200 Speaker 1: and by the end of it, in theory you would 729 00:40:56,239 --> 00:40:59,120 Speaker 1: have needed a PhD to kind of understand it. And then, 730 00:40:59,160 --> 00:41:01,879 Speaker 1: of course Neil's point was that you know, not only 731 00:41:01,920 --> 00:41:04,400 Speaker 1: would you have to be able to um read it 732 00:41:04,560 --> 00:41:06,520 Speaker 1: and comprehend it that way, but you'd also have to 733 00:41:06,560 --> 00:41:09,120 Speaker 1: be able to compare it to the previous statement to 734 00:41:09,640 --> 00:41:12,719 Speaker 1: get you know, to try to discern the signals from 735 00:41:12,880 --> 00:41:16,040 Speaker 1: the Central Bank. So point taken there for sure. And 736 00:41:16,080 --> 00:41:18,800 Speaker 1: also on the dot plot, like again, that seems to 737 00:41:18,800 --> 00:41:21,520 Speaker 1: be a major point of contention at the food Yeah, 738 00:41:21,600 --> 00:41:23,640 Speaker 1: it's interesting because all these things, like, you know, you 739 00:41:23,680 --> 00:41:27,480 Speaker 1: have the dot plot and um of course, the press conference, 740 00:41:27,680 --> 00:41:30,600 Speaker 1: which under Paul has actually gone to every meeting. Before 741 00:41:30,640 --> 00:41:33,040 Speaker 1: they were just I think four times a year. But 742 00:41:33,080 --> 00:41:40,200 Speaker 1: they're essentially like all these new monetary policy innovations, so 743 00:41:40,239 --> 00:41:43,160 Speaker 1: to speak, all that came out of the Great Financial Crisis, 744 00:41:43,160 --> 00:41:45,480 Speaker 1: like bernanke, like the dots didn't exist before that, the 745 00:41:45,480 --> 00:41:49,640 Speaker 1: press conference didn't exist prior to before that. So it's 746 00:41:49,719 --> 00:41:52,520 Speaker 1: interesting to see, like, you know, Okay, maybe some of 747 00:41:52,560 --> 00:41:55,640 Speaker 1: these things made sense during the Great Financial Crisis when 748 00:41:55,640 --> 00:41:58,760 Speaker 1: it was like particularly important to communicate to the public 749 00:41:59,040 --> 00:42:03,040 Speaker 1: or to market that uh, you know how the sort 750 00:42:03,040 --> 00:42:06,399 Speaker 1: of the battle mindset, the battle footing that the FED 751 00:42:06,560 --> 00:42:08,200 Speaker 1: was on. But you know it is it does raise 752 00:42:08,320 --> 00:42:11,520 Speaker 1: questions whether at some point, in a different environment, some 753 00:42:11,600 --> 00:42:15,760 Speaker 1: of these tools and approaches will need to change totally. 754 00:42:15,800 --> 00:42:19,200 Speaker 1: And again we've we've had the change to the FEDS framework, 755 00:42:19,280 --> 00:42:22,640 Speaker 1: but you kind of wonder if an experience as big 756 00:42:22,719 --> 00:42:27,120 Speaker 1: and as idiosyncratic as the pandemic might lead to um 757 00:42:27,600 --> 00:42:32,160 Speaker 1: new communication styles and tools as well. I guess, you know, 758 00:42:32,239 --> 00:42:35,279 Speaker 1: we might find out at Jackson Hole. Yeah, this is 759 00:42:35,320 --> 00:42:37,440 Speaker 1: the coming Jackson Hole will be interesting. You know, I 760 00:42:37,440 --> 00:42:39,880 Speaker 1: still think it's interesting going back to I'm still a 761 00:42:39,920 --> 00:42:42,640 Speaker 1: little bit hung up on what I see as some 762 00:42:42,760 --> 00:42:47,680 Speaker 1: ambiguity in um the thinking right now, So as Neil 763 00:42:47,800 --> 00:42:52,799 Speaker 1: put it, inflation is still the indicator that tells us 764 00:42:53,000 --> 00:42:56,840 Speaker 1: when the economy has reached full potential. But then you 765 00:42:56,880 --> 00:42:59,480 Speaker 1: could have inflation like we have right now, in which 766 00:42:59,520 --> 00:43:01,480 Speaker 1: you can tell story that it has nothing to do 767 00:43:01,520 --> 00:43:06,279 Speaker 1: with full potential and it's all about idiosyncratic shocks. But then, 768 00:43:06,320 --> 00:43:08,840 Speaker 1: I guess my where I'm hung up still is Okay, 769 00:43:08,880 --> 00:43:12,239 Speaker 1: if we can establish and accept that some kind of 770 00:43:12,360 --> 00:43:16,160 Speaker 1: inflations are not really related to full potential or to 771 00:43:16,280 --> 00:43:20,240 Speaker 1: maximum employment, then how good of a guide is it really? 772 00:43:20,880 --> 00:43:22,960 Speaker 1: Because no matter where we are, I mean, we could 773 00:43:23,000 --> 00:43:27,000 Speaker 1: have employment unemployment at three percent, and then you could 774 00:43:27,080 --> 00:43:30,400 Speaker 1: still imagine a world in which inflation picks up, and 775 00:43:30,480 --> 00:43:34,560 Speaker 1: yet economists remained divided about what's the cause. Maybe it's oil, 776 00:43:34,600 --> 00:43:37,240 Speaker 1: I mean, you know, you let's imagine, let's say imagine 777 00:43:37,360 --> 00:43:39,319 Speaker 1: unemployment where to follow a three percent and you had 778 00:43:39,360 --> 00:43:41,719 Speaker 1: an oil shock in the Middle East. Right, you could 779 00:43:41,719 --> 00:43:44,200 Speaker 1: always come up with stories about, well, this isn't the 780 00:43:44,239 --> 00:43:47,280 Speaker 1: real inflation, or this isn't the inflation that we're targeting 781 00:43:47,320 --> 00:43:50,759 Speaker 1: with our new framework, or this inflation can be ascribed 782 00:43:50,800 --> 00:43:53,799 Speaker 1: to X or y, and so it still seems like 783 00:43:53,840 --> 00:43:57,320 Speaker 1: there is this tension that emerges in which, if inflation 784 00:43:57,480 --> 00:44:00,800 Speaker 1: is going to be the ultimate arbiter, well what happens 785 00:44:00,840 --> 00:44:03,160 Speaker 1: if you you know, you could still tell stories about 786 00:44:03,160 --> 00:44:05,360 Speaker 1: why that doesn't really count. And so I think there 787 00:44:05,400 --> 00:44:09,480 Speaker 1: are still areas of ambiguity about, you know, what is 788 00:44:09,520 --> 00:44:11,120 Speaker 1: the FED going to do? And when is the FED 789 00:44:11,160 --> 00:44:13,160 Speaker 1: going to act, uh, you know, next year and the 790 00:44:13,200 --> 00:44:17,880 Speaker 1: year beyond, if employment, if unemployment keeps dropping, right, it 791 00:44:17,880 --> 00:44:21,319 Speaker 1: feels like the inflation story is almost always open to 792 00:44:21,400 --> 00:44:25,680 Speaker 1: some interpretation um and cherry picking the data inflation tells 793 00:44:25,760 --> 00:44:29,320 Speaker 1: us when we're at maximum employment, except when it doesn't, 794 00:44:29,360 --> 00:44:32,280 Speaker 1: because except when it's about something else. I was about 795 00:44:32,320 --> 00:44:35,480 Speaker 1: to say, I really liked, um, I really liked your 796 00:44:35,480 --> 00:44:38,200 Speaker 1: your Phillips curve question, because I think that kind of 797 00:44:38,200 --> 00:44:40,120 Speaker 1: gets to the heart of it as well, Like we're 798 00:44:40,200 --> 00:44:44,480 Speaker 1: sort of assuming that there's still some relationship now. But 799 00:44:44,760 --> 00:44:48,520 Speaker 1: you know, before COVID, everyone was sort of giving up 800 00:44:48,680 --> 00:44:51,560 Speaker 1: on the Phillips curve because we were, you know, we 801 00:44:51,600 --> 00:44:54,600 Speaker 1: had an unemployment at something like three percent and inflation 802 00:44:54,640 --> 00:44:58,160 Speaker 1: hadn't gone up for years. And now inflation seems to 803 00:44:58,200 --> 00:45:01,600 Speaker 1: be the signal, which is kind of weird and definitely 804 00:45:01,680 --> 00:45:05,279 Speaker 1: to your point, ambiguous in many ways. Again, this is 805 00:45:05,280 --> 00:45:07,359 Speaker 1: why I like talking to Neil, because I really think 806 00:45:07,400 --> 00:45:10,040 Speaker 1: he's probably one of the most like, sort of open 807 00:45:10,160 --> 00:45:13,840 Speaker 1: minded thinkers on all this stuff. And you know, he 808 00:45:13,920 --> 00:45:17,000 Speaker 1: comes at it from a non academic perspective, but I 809 00:45:17,040 --> 00:45:20,279 Speaker 1: think he does genuinely sort of like wrestle with this 810 00:45:20,320 --> 00:45:23,640 Speaker 1: stuff in an intellectually honest manner and sort of see 811 00:45:23,760 --> 00:45:26,400 Speaker 1: some of the same tensions that a lot of people 812 00:45:27,160 --> 00:45:31,200 Speaker 1: who aren't you know, lifetime steeped in the academy see 813 00:45:31,280 --> 00:45:34,680 Speaker 1: with some of these some of these debates. He's definitely 814 00:45:34,760 --> 00:45:38,279 Speaker 1: very candid and open on these thorny issues, which we 815 00:45:38,320 --> 00:45:41,520 Speaker 1: appreciate on all lots. Absolutely, shall we leave it there, 816 00:45:41,880 --> 00:45:45,520 Speaker 1: Let's leave it there? Okay. This has been another episode 817 00:45:45,600 --> 00:45:48,400 Speaker 1: of the All Thoughts podcast. I'm Tracy Halloway. You can 818 00:45:48,440 --> 00:45:52,080 Speaker 1: follow me on Twitter at Tracy Halloway and I'm Joe 819 00:45:52,080 --> 00:45:54,640 Speaker 1: Why Isn't Thal. You can follow me on Twitter at 820 00:45:54,680 --> 00:45:58,040 Speaker 1: the Stalwart. Follow our guests on Twitter. Neil cash car 821 00:45:58,120 --> 00:46:01,120 Speaker 1: He's at Neil cash Cary one of the only I 822 00:46:01,200 --> 00:46:04,480 Speaker 1: think probably the only f O m C member who's 823 00:46:04,480 --> 00:46:08,520 Speaker 1: sort of like regularly tweets, like a Twitter at Neil 824 00:46:08,560 --> 00:46:12,920 Speaker 1: cash Cary. Follow our producer Laura Carlson. She's at Laura M. Carlson. 825 00:46:13,200 --> 00:46:17,080 Speaker 1: Followed the Bloomberg head of podcast, Francesca Levi at Francesca Today. 826 00:46:17,640 --> 00:46:20,520 Speaker 1: And check out all of our podcast at Bloomberg under 827 00:46:20,600 --> 00:46:23,280 Speaker 1: the handle at podcasts. Thanks for listening.