WEBVTT - Neel Kashkari on the Fed’s Quest To Get To Full Employment 0:00:10.680 --> 0:00:14.720 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.760 --> 0:00:19.079 I'm Joe wisn't All and I'm Tracy all Away. So Tracy, 0:00:19.200 --> 0:00:21.640 this is a this is a fun time for us. 0:00:21.680 --> 0:00:24.000 This is a real treat. Last week, of course, we 0:00:24.079 --> 0:00:27.960 got to speak to UM Dallas FED President Rob Kaplan, 0:00:28.640 --> 0:00:31.960 and even since then, though, we've had a plenty going on, 0:00:32.040 --> 0:00:37.239 including a very big jobs report, yes, UM, like a 0:00:37.360 --> 0:00:41.000 powerhouse of a job's report, really, I think, UM. I 0:00:41.040 --> 0:00:44.960 think payrolls climbed by I think it was ninety three 0:00:45.200 --> 0:00:49.600 thousand in July, which was much much higher than economist 0:00:49.640 --> 0:00:53.120 expectations of about eight hundred seventy thousand, And of course 0:00:53.320 --> 0:00:56.760 the unemployment rate keeps drifting lower. I think it came 0:00:56.760 --> 0:00:59.480 in at what was at five point four percent, which 0:00:59.520 --> 0:01:03.560 is basicly the lowest since the pandemic started. And we're 0:01:03.600 --> 0:01:07.960 not quite where we were before the outbreak of COVID nineteen, 0:01:08.080 --> 0:01:11.399 but we're certainly getting closer, that's right. So, of course, 0:01:11.480 --> 0:01:14.280 in the early part of the summer you're probably recalled, 0:01:14.280 --> 0:01:17.200 there were like two reports or economists were looking for 0:01:17.240 --> 0:01:19.640 like big things. I got a million plus jobs and 0:01:19.680 --> 0:01:22.840 they didn't really materialize, and there's all kinds of concerns, Oh, 0:01:22.880 --> 0:01:27.119 what's holding back the labor market. The last two data points, however, 0:01:27.200 --> 0:01:30.080 have been quite strong, nearly a million each and no 0:01:30.200 --> 0:01:34.160 signs of slowing. We see the headline unemployment rate coming 0:01:34.200 --> 0:01:38.000 down pretty rapidly now, so I would say some of 0:01:38.040 --> 0:01:40.920 the labor market healing that maybe people thought would come 0:01:40.959 --> 0:01:44.720 a little a little sooner. Just the spring, it seems 0:01:44.760 --> 0:01:48.080 to be kicking into gear. Of course, the delta wave 0:01:48.200 --> 0:01:51.600 and the ongoing pandemic notwithstanding. Yeah, but of course, the 0:01:51.720 --> 0:01:55.880 question is what exactly our policymakers looking for when it 0:01:55.880 --> 0:01:59.360 comes to employment. And we've spoken about this quite a 0:01:59.360 --> 0:02:02.120 few times now out, but it does seem like the 0:02:02.200 --> 0:02:06.280 definition of full employment has changed to something much broader 0:02:06.400 --> 0:02:10.000 and inclusive, and everyone's trying to wrap their heads around 0:02:10.160 --> 0:02:12.679 exactly what that means at the same time that they're 0:02:12.680 --> 0:02:15.760 also trying to wrap their heads around average inflation targeting 0:02:15.840 --> 0:02:19.560 and things like that. Yeah, exactly right. Like so, we 0:02:19.680 --> 0:02:23.440 know that the FED has seems to be and I 0:02:23.480 --> 0:02:25.600 think a big part of the framework that was unveiled 0:02:25.639 --> 0:02:28.400 basically a year ago this time at Jackson Hole was 0:02:28.440 --> 0:02:32.240 about taking the employment side of the mandate more seriously, 0:02:32.440 --> 0:02:35.880 or to put it another way, not hiking or not 0:02:36.000 --> 0:02:38.840 trying to fight off inflation just because employment hits some 0:02:39.320 --> 0:02:41.920 arbitrary number that some economist model says, oh, this is 0:02:41.919 --> 0:02:44.680 full employment, like actually sort of like waiting to see, 0:02:45.080 --> 0:02:48.040 waiting to see it really happened. And so once again, 0:02:48.360 --> 0:02:50.760 you know, here we have the unemployment rate dropping rapidly 0:02:51.440 --> 0:02:54.680 at least as of last month. Hopefully it continues, and 0:02:54.840 --> 0:02:58.320 it seems like policymakers will once again be confronted maybe 0:02:58.360 --> 0:03:01.200 next year with questions of how much better can the 0:03:01.280 --> 0:03:04.920 labor market get? Yeah, and of course, I mean the 0:03:04.960 --> 0:03:07.639 big thing that everyone is watching is wage growth, right, 0:03:07.680 --> 0:03:11.520 and I think we did see a relatively significant spike 0:03:12.000 --> 0:03:14.800 in the payrolls report UM in particular some of the 0:03:15.320 --> 0:03:19.280 sort of like lower wage workers, people working in restaurants 0:03:19.320 --> 0:03:23.080 and leisure, they saw a fairly big spike. So again 0:03:23.120 --> 0:03:27.080 the question is what is full employment? Is this enough 0:03:27.080 --> 0:03:30.760 of a recovery to start boosting inflation through wages? And 0:03:30.800 --> 0:03:34.600 then what does that actually mean for um the average 0:03:34.760 --> 0:03:39.960 inflation framework that the Fed adopted last year exactly right, Well, 0:03:40.000 --> 0:03:43.920 once again we have the absolute perfect guest to speak 0:03:43.960 --> 0:03:46.240 to this. It's going to be a true treat. We're 0:03:46.240 --> 0:03:48.840 going to be speaking with Neil cash Cary. He's the 0:03:48.880 --> 0:03:51.880 president of the Minneapolis FED. And of course we had 0:03:52.000 --> 0:03:56.200 Neil on basically a year ago exactly this time, and 0:03:56.280 --> 0:03:58.520 at that time, some of these questions about the feds 0:03:58.560 --> 0:04:01.360 new framework, they were just sort of theoretical and like 0:04:01.440 --> 0:04:04.640 thinking about this, and suddenly theory is now being put 0:04:04.680 --> 0:04:06.680 into practice and we'll have to learn more about what 0:04:06.720 --> 0:04:09.960 the FED is going to do. I would characterize Neil 0:04:10.000 --> 0:04:13.080 as someone who has always taken the employment side of 0:04:13.120 --> 0:04:18.280 the Fed's mandate very seriously, long before, long before COVID hit, 0:04:18.520 --> 0:04:20.320 and so hearing how he'll think about some of these 0:04:20.400 --> 0:04:24.080 questions should be very interesting. Neil, thank you so much 0:04:24.160 --> 0:04:27.080 for coming back on odd lots. Thanks for having me. 0:04:27.120 --> 0:04:28.880 It's great to be with both of you. So what 0:04:29.000 --> 0:04:31.720 don't we just start, like, uh with you know, we 0:04:31.800 --> 0:04:34.960 got that job's report on Friday. We're recording this August nine. 0:04:35.200 --> 0:04:37.640 I guess by the time people hear this it'll be 0:04:37.800 --> 0:04:39.840 like a week and a half. But uh, you know, uh, 0:04:40.000 --> 0:04:42.760 we just got this job's report, very strong on all 0:04:42.839 --> 0:04:46.800 basically all the metrics. What is your assessment of the 0:04:46.880 --> 0:04:51.000 labor markets trajectory and healing right now. Well, you're right, 0:04:51.040 --> 0:04:53.719 the job report was very strong. I was very happy 0:04:53.720 --> 0:04:57.520 to see that we are making progress back towards the 0:04:57.600 --> 0:05:00.520 kind of labor market we had before the pandemic kid 0:05:00.760 --> 0:05:02.440 but as of you know, our math that we do 0:05:02.480 --> 0:05:04.640 it the Minneapolis feed, it still looks like we are 0:05:04.680 --> 0:05:07.960 six to eight million jobs below where we would have 0:05:08.000 --> 0:05:11.880 been had the COVID crisis not happened. And so that's 0:05:11.880 --> 0:05:13.599 what I'm focused on. Is there still a lot of 0:05:13.640 --> 0:05:16.520 Americans that are not either employed in jobs or they're 0:05:16.520 --> 0:05:19.000 not looking for work, and how long is it going 0:05:19.040 --> 0:05:20.919 to take and what is it going to take to 0:05:21.040 --> 0:05:24.080 bring them back in because they represent a meaningful share 0:05:24.080 --> 0:05:27.719 of our economy's potential and so good progress, but we 0:05:27.760 --> 0:05:30.359 still have a ways to go. It feels kind of 0:05:30.400 --> 0:05:33.200 weird um asking this question, because I do think the 0:05:33.279 --> 0:05:35.880 labor market recovery has been faster than a lot of 0:05:35.920 --> 0:05:41.120 people expected. But what do you think accounts for, um, 0:05:41.960 --> 0:05:44.400 you know, the need to create the fact that we 0:05:44.480 --> 0:05:48.040 haven't reached full employment just yet, Because of course, there 0:05:48.080 --> 0:05:51.520 are different theories. There's the idea that a lot of 0:05:51.560 --> 0:05:55.159 people people just got tired during COVID and decided to 0:05:55.160 --> 0:05:58.240 retire drop out of the labor force. There's the idea 0:05:58.360 --> 0:06:01.560 that people are risks about going back to work and 0:06:01.600 --> 0:06:06.320 potentially exposing themselves to covid um concerns around childcare. And 0:06:06.320 --> 0:06:10.480 there's also this idea of floating around about the Great Resignation, 0:06:10.800 --> 0:06:14.400 and this notion that people just, um, I guess sort 0:06:14.400 --> 0:06:18.560 of reconsidered their lives after a global pandemic and decided 0:06:18.640 --> 0:06:21.839 that they wanted to do something differently. So I'm curious 0:06:22.000 --> 0:06:26.240 how you're viewing I hesitate to call it sluggish recovery 0:06:26.440 --> 0:06:28.840 in the job market, but you know the fact that 0:06:28.839 --> 0:06:32.440 we're not quite there yet. What's going on? I put 0:06:32.520 --> 0:06:35.720 stock in all of the things you said, except for oh, 0:06:35.800 --> 0:06:38.520 people are reassessing their priorities in life. I'm one of 0:06:38.560 --> 0:06:41.680 the things we learned after the two thousand eight crisis. 0:06:41.720 --> 0:06:45.040 We heard, you know, there's something happens in macroeconomics whenever 0:06:45.080 --> 0:06:49.960 a shock gets the economy. Many macro economists reflectively raised 0:06:49.960 --> 0:06:53.080 the natural rate of unemployment their estimate of how low 0:06:53.120 --> 0:06:57.000 the unemployment rate can go without triggering high inflation. And 0:06:57.040 --> 0:06:59.960 they point to all sorts of theories and structural change 0:07:00.000 --> 0:07:03.000 ages and mismatches, and what we learned after the eight 0:07:03.080 --> 0:07:06.320 crisis is all of those stories were wrong. It turns 0:07:06.320 --> 0:07:10.680 out most Americans want to work. Most Americans find satisfaction 0:07:10.680 --> 0:07:12.560 in working. They need to work, they need to put 0:07:12.600 --> 0:07:15.680 food on the table. So that's my starting position. I 0:07:15.720 --> 0:07:19.080 believe the vast majority of Americans want to work if 0:07:19.080 --> 0:07:22.480 there are decent jobs available at decent wages. I do 0:07:22.600 --> 0:07:25.280 think that fear of COVID is real. You know, we 0:07:25.560 --> 0:07:28.600 the health professionals spent the last eighteen months telling us 0:07:28.600 --> 0:07:31.040 to take COVID seriously, and I think that they had 0:07:31.080 --> 0:07:33.040 a lot of success in doing that. It's going to 0:07:33.120 --> 0:07:35.960 take time for people to be confident again. I do 0:07:36.040 --> 0:07:38.920 think the child care issues are real, uh And I 0:07:39.000 --> 0:07:43.120 also think that they enhanced unemployment benefits are having some effect. 0:07:43.200 --> 0:07:46.160 If somebody says, well, I'm making just as much money 0:07:46.200 --> 0:07:50.080 on unemployment and it's gonna expire in a month, why 0:07:50.080 --> 0:07:52.520 shouldn't I wait a month before I go back into work. 0:07:52.800 --> 0:07:54.640 They're probably gonna be a lot of jobs available a 0:07:54.640 --> 0:07:57.480 month from now. So I think all of these factors 0:07:57.520 --> 0:08:00.480 are having some effect. But I start with the assumption 0:08:00.520 --> 0:08:03.480 of the vast majority of people want to work. If 0:08:03.520 --> 0:08:07.680 given the chance, you know, you mentioned, Okay, by the 0:08:07.720 --> 0:08:11.240 math that you've done at the Minneapolis FED, we're probably 0:08:11.560 --> 0:08:15.040 six to eight million jobs short of where we would 0:08:15.080 --> 0:08:18.760 have been absently where we would have been absent the 0:08:18.800 --> 0:08:22.640 COVID shock. So okay, that that's one starting point for 0:08:22.680 --> 0:08:25.840 thinking about how much slack there is. That big said, 0:08:26.000 --> 0:08:29.680 you know what, I guess the unemployment rate pre crisis was. 0:08:29.720 --> 0:08:32.160 I think it got down to three and a half percent. 0:08:32.559 --> 0:08:35.280 But one thing that we saw was that in the 0:08:35.400 --> 0:08:40.080 end economists are really it's real or let's just put 0:08:40.120 --> 0:08:42.120 this way, it's really difficult to know how good the 0:08:42.200 --> 0:08:46.480 labor market truly can be because we saw, you know, 0:08:46.559 --> 0:08:49.840 in the after the Great Financial crisis, so, oh, six 0:08:49.880 --> 0:08:52.120 and a half percent, maybe this is where full employment is. 0:08:52.160 --> 0:08:54.000 Then five and a half percent, there's like, oh, well, 0:08:54.040 --> 0:08:56.080 we can't go lower than five. Maybe four. Then we 0:08:56.080 --> 0:08:59.640 were down to four and we didn't get you know, 0:08:59.720 --> 0:09:01.839 even when we were three and a half percent. It's 0:09:01.880 --> 0:09:04.160 not like we had seen like some big like you know, 0:09:04.240 --> 0:09:09.800 inflationary wage price spiral. So you know, thinking back, okay, 0:09:09.800 --> 0:09:12.439 you start with that six to eight million, what else 0:09:12.600 --> 0:09:14.640 will you be looking for beyond I'm just sort of 0:09:14.679 --> 0:09:17.959 like pure number to think about. Okay, they're really the 0:09:18.040 --> 0:09:20.920 labor market really is in its best place, and we 0:09:20.960 --> 0:09:23.240 are not going to make some of the same mistakes 0:09:23.320 --> 0:09:28.199 last time as underestimating how good the jobs market can get. Well, 0:09:28.240 --> 0:09:31.080 I think we look at a lot of different measures, Joe. 0:09:31.679 --> 0:09:33.959 One of the things is what's happening to wage growth? 0:09:34.000 --> 0:09:36.319 And we are seeing wages pick up I think Tracy 0:09:36.360 --> 0:09:39.840 talked about a few minutes ago, and that's an important factor. 0:09:39.880 --> 0:09:42.400 But are those going to be sustained wage gains or 0:09:42.520 --> 0:09:46.920 those one time price adjustments as the economy is going 0:09:46.920 --> 0:09:49.600 through this reopening. So, just to back up, the economy 0:09:49.600 --> 0:09:51.959 went through a rapid shutdown and now it's going through 0:09:52.000 --> 0:09:55.480 a rapid reopening, and we're seeing lots of frictions as 0:09:55.559 --> 0:09:59.040 businesses are trying to make that adjustment, and you have 0:09:59.200 --> 0:10:02.120 this mismatch where the economy seems to be reopening more 0:10:02.200 --> 0:10:05.760 quickly than the full labor supply is coming online. Well, 0:10:05.760 --> 0:10:10.000 once we get to something more like normal, a new equilibrium, 0:10:10.120 --> 0:10:12.600 what does that look like and what wage growth are 0:10:12.640 --> 0:10:15.120 we seeing? We did see I think one of you 0:10:15.160 --> 0:10:19.520 mentioned that we did see faster wage growth at the 0:10:19.640 --> 0:10:24.600 end of the last expansion. So for the lowest income workers, 0:10:25.440 --> 0:10:28.160 that was great to see they were long overdue for 0:10:28.200 --> 0:10:30.320 a raise. But even if you look at their wage 0:10:30.320 --> 0:10:34.720 growth net of productivity, it was not suggesting high inflation 0:10:34.800 --> 0:10:37.120 was around the corner. So, just to your point, I'm 0:10:37.120 --> 0:10:40.280 not convinced we were actually at maximum employment before the 0:10:40.320 --> 0:10:43.720 COVID shock hit us. So that's that's exactly why I 0:10:43.800 --> 0:10:46.920 want us to be really humble about declaring where this 0:10:47.000 --> 0:10:49.439 is as good as it can get. Let's actually let 0:10:49.440 --> 0:10:52.760 the economy reopen, get people re engaged, and then let's 0:10:52.800 --> 0:10:55.560 see what the labor market looks like and what inflation 0:10:55.640 --> 0:10:59.040 looks like. Well, just on a similar note, can you 0:10:59.080 --> 0:11:02.360 maybe talk to us it full employment looks like from 0:11:02.400 --> 0:11:06.400 an inclusivity perspective, because this is something that Powell has 0:11:06.440 --> 0:11:09.960 talked about at the last Jackson Hole, this idea that 0:11:10.040 --> 0:11:14.440 the Fed is now going for a broad definition of 0:11:14.640 --> 0:11:18.880 full employment. It's a complicated topic and a lot of people, 0:11:18.960 --> 0:11:20.480 you know, we all look at a lot of different 0:11:20.480 --> 0:11:23.800 measures and trying to make this determination. For me, it 0:11:23.920 --> 0:11:27.080 really does come back to inflation, which is how tight 0:11:27.160 --> 0:11:30.880 can we get the labor market that is consistent with 0:11:31.800 --> 0:11:35.360 long run inflation at two. So to me, there are 0:11:35.360 --> 0:11:37.640 like two sides of a seesaw. If we think they're 0:11:37.640 --> 0:11:40.080 still slack in the labor market, then it's like they're 0:11:40.080 --> 0:11:42.160 going to have low inflation in the future. So let's 0:11:42.200 --> 0:11:44.600 try to tighten the labor market so we can actually 0:11:44.600 --> 0:11:47.560 get to our two percent inflation target over time. So 0:11:47.640 --> 0:11:49.480 that to me, ultimately is where we're going to know. 0:11:49.800 --> 0:11:52.360 You know, we we do not have the ability of targeting, 0:11:52.880 --> 0:11:55.719 for example, the black unemployment rate and saying we need 0:11:55.760 --> 0:11:59.079 to get the black unemployment rate to x and we're 0:11:59.120 --> 0:12:00.600 not going to be at full of ployment until we 0:12:00.600 --> 0:12:02.480 get it too X because we have to pay attention 0:12:02.520 --> 0:12:05.000 to what that means for on the inflation side of 0:12:05.000 --> 0:12:07.280 our dual mandate. So it really these two things are 0:12:07.679 --> 0:12:10.400 fundamentally linked in the way at least I think about 0:12:10.400 --> 0:12:14.319 monetary policy that Big said. I mean, one of the 0:12:14.360 --> 0:12:18.400 things we see is that in good economies or at 0:12:18.400 --> 0:12:21.480 the end of the long expansion, we did see that 0:12:21.600 --> 0:12:26.320 spread compressed between white unemployment and black unemployment. And you 0:12:26.320 --> 0:12:29.280 know you mentioned, okay, you get the answer to some 0:12:29.320 --> 0:12:32.040 of these questions is answered in inflation. But we have 0:12:32.120 --> 0:12:34.640 elevated the inflation right now. Now we could tell a 0:12:34.720 --> 0:12:37.800 story about the elevated inflation is like, oh, it's reopening 0:12:38.520 --> 0:12:42.880 and it's used cars, and it's semiconductors and its bottlenecks 0:12:42.880 --> 0:12:45.680 at the port. No, like, you know, that's just that's 0:12:45.679 --> 0:12:49.240 just one story to explain why elevated inflation is right 0:12:49.280 --> 0:12:53.360 now while there is still a high unemployment and be 0:12:53.600 --> 0:12:57.000 a high spread between white and black unemployment. So how 0:12:57.040 --> 0:13:00.080 do you, I mean, if if inflation is going to 0:13:00.160 --> 0:13:03.080 be the signal that you use, how do you sort 0:13:03.120 --> 0:13:05.720 of say, incorporate this moment right now in which if 0:13:05.720 --> 0:13:07.640 we're just going on inflation is like, oh, well, I 0:13:07.640 --> 0:13:10.200 guess we're there. Well, we look at a lot of 0:13:10.200 --> 0:13:13.160 different measures of inflation, so you know, just as you said, 0:13:13.200 --> 0:13:15.520 we know that the high inflation readings we're seeing right 0:13:15.559 --> 0:13:18.400 now are highly concentrated in a few sectors, whether it's 0:13:18.400 --> 0:13:22.840 autos or traveled and transportation related sectors. The vast majority 0:13:22.840 --> 0:13:24.880 of the inflation that we're seeing or in those sectors 0:13:25.200 --> 0:13:27.720 that is skewing the results if you look at broader 0:13:27.720 --> 0:13:30.200 based measures of inflation, if you look at various trim 0:13:30.240 --> 0:13:34.120 mean surveys, we're not seeing a high uptick and one 0:13:34.160 --> 0:13:36.600 thing is this math. You know, if the prices fell 0:13:36.760 --> 0:13:39.440 a year ago because of the shutdowns and now they're 0:13:39.440 --> 0:13:42.440 bouncing back, just the math of that says you're gonna 0:13:42.440 --> 0:13:44.640 see high inflation readings. So if you look at a 0:13:44.720 --> 0:13:48.959 two year inflation reading, you know, average inflation over two years, 0:13:49.280 --> 0:13:51.560 so you get away from this this v in the 0:13:51.559 --> 0:13:54.000 middle of it, you're around two point three percent or 0:13:54.000 --> 0:13:56.320 two point four percent inflation. So there are a lot 0:13:56.360 --> 0:13:58.200 of different measures that we look at to try to 0:13:58.280 --> 0:14:01.960 understand what is underlying inflation in the economy. And that's 0:14:01.960 --> 0:14:04.880 what gives me confidence that most of what we're seeing 0:14:04.960 --> 0:14:08.760 is associated with this reopening. And fundamentally, are we really 0:14:08.760 --> 0:14:12.000 going to have sustained high inflation if there's all this 0:14:12.160 --> 0:14:16.480 labor market slack still available? I find that hard to understand. Now, 0:14:16.880 --> 0:14:19.560 if the six to eight million Americans are never coming back, 0:14:20.000 --> 0:14:22.920 for whatever reason, into the workforce, then I think we 0:14:22.960 --> 0:14:26.800 need to reassess the economy's potential and reassess inflation. But 0:14:26.880 --> 0:14:29.720 I think it is far premature to draw that conclusion. 0:14:46.160 --> 0:14:50.240 So I have a slightly weird question, and I'm trying 0:14:50.240 --> 0:14:52.480 to think how exactly to phrase this. But you know, 0:14:52.760 --> 0:14:55.640 we have employment at five point four pc. We're talking 0:14:55.640 --> 0:15:01.320 about a sort of tail end of America that remains unemployed, 0:15:01.480 --> 0:15:06.000 and I guess I'm just wondering, is monetary policy the 0:15:06.120 --> 0:15:10.720 correct tool to get those people back into the workforce 0:15:11.520 --> 0:15:14.880 or does it need to be paired with some other 0:15:14.960 --> 0:15:17.800 type of policy um on on the fiscal or the 0:15:17.840 --> 0:15:21.360 government side, there's a lot of fiscal policy obviously there's 0:15:21.360 --> 0:15:23.680 been coming out of Washington over the last year in 0:15:23.720 --> 0:15:27.280 response to COVID, now the likely infrastructure bill, and then 0:15:27.320 --> 0:15:30.760 maybe more so, I do think fiscal policy is providing 0:15:30.960 --> 0:15:33.920 a big impulse to try to get the economy moving 0:15:33.960 --> 0:15:36.560 and get people back in so to me that both 0:15:36.640 --> 0:15:39.160 of them have an important role to play, I'll say 0:15:39.200 --> 0:15:43.280 things like targeted interventions such as worker retraining. I mean, 0:15:43.360 --> 0:15:47.480 all of these things are well meaning. Most programs that 0:15:47.520 --> 0:15:50.960 I've seen along the worker retraining side, they're very hard 0:15:51.040 --> 0:15:54.400 to do at scale. The best worker retraining programs I've 0:15:54.400 --> 0:15:57.800 seen are really where employers say, you know what, I 0:15:57.880 --> 0:16:00.400 need someone to run this machine, and I don't care 0:16:00.440 --> 0:16:03.080 if you've never done it before, I'll train you. That 0:16:03.240 --> 0:16:07.280 seems to have much more success than government oriented training programs, 0:16:07.320 --> 0:16:10.240 just because they're too blunt. So I think fiscal policy 0:16:10.320 --> 0:16:13.479 is doing a lot monetary policy has a role to play, 0:16:13.520 --> 0:16:15.280 and a lot of it is going to be business 0:16:15.400 --> 0:16:17.360 is saying, you know what, we're gonna bring you in, 0:16:17.480 --> 0:16:19.440 We're gonna teach you how to do this, and we're 0:16:19.440 --> 0:16:23.480 going to invest in you. And we saw that when 0:16:23.480 --> 0:16:26.720 businesses said they couldn't find workers, they started investing a 0:16:26.760 --> 0:16:31.280 lot more in training to develop the workforce that they needed. Right, 0:16:31.360 --> 0:16:33.640 And so does that get to this idea? I mean, 0:16:34.000 --> 0:16:37.400 you know, I think often economists think of like supply 0:16:38.040 --> 0:16:41.080 as a thing and demand as a thing. But if 0:16:41.160 --> 0:16:44.520 ultimately the key to getting retraining and there in the 0:16:44.600 --> 0:16:47.600 key to creating workforce with more skills is to get 0:16:47.640 --> 0:16:50.520 businesses to want to invest in their own employees and 0:16:50.560 --> 0:16:54.040 to get businesses to essentially want to meet be able 0:16:54.080 --> 0:16:56.760 to meet the demand they're saying. Does that speak to 0:16:56.840 --> 0:16:59.760 sort of like a fundamental power of I guess I 0:16:59.760 --> 0:17:04.359 would a demand side economics that maintain aggregant demand either 0:17:04.560 --> 0:17:09.480 through robust monetary policy ongoing aggressive fiscal policy, and then 0:17:09.560 --> 0:17:13.720 that you know, incentivizes the businesses to increase productivity through 0:17:13.760 --> 0:17:17.560 more training. I absolutely believe that. I mean, I think 0:17:17.800 --> 0:17:20.080 one of the things about this broad fiscal policy, of 0:17:20.200 --> 0:17:23.879 broad monetary policy is it actually works at scale of 0:17:23.920 --> 0:17:27.560 the US economy and by just creating this tight economy 0:17:27.640 --> 0:17:29.960 or a tight labor market. You know, we saw in 0:17:30.880 --> 0:17:34.399 eighteen nineteen businesses saying, you know what, I'm no longer 0:17:34.440 --> 0:17:37.280 going to drug test for certain jobs because these jobs 0:17:37.400 --> 0:17:38.920 I don't need to. I don't need to do the 0:17:39.000 --> 0:17:42.160 drug test. It's safe without it. Or I'm gonna give 0:17:42.440 --> 0:17:45.720 x cons a chance for certain types of jobs, or 0:17:45.760 --> 0:17:48.000 you know, you mentioned that, Joe, that you started to 0:17:48.040 --> 0:17:53.520 see some compression between black white unemployment to spread. This 0:17:53.560 --> 0:17:56.800 is what happens in a tight labor market. Businesses say, 0:17:56.840 --> 0:17:59.440 you know what, it's in my own interest to make 0:17:59.520 --> 0:18:02.879 these changes and develop the workforce that I need. And 0:18:03.000 --> 0:18:06.040 what I saw was there were profound benefits to society 0:18:06.119 --> 0:18:10.680 when they did that. M So, we just had your colleague, 0:18:10.880 --> 0:18:14.440 Robert Kaplan, the Dallas Fed President, on All Thoughts UM 0:18:14.480 --> 0:18:16.960 just the other day, and he was talking a lot 0:18:17.000 --> 0:18:22.439 about the difference between the situations facing large businesses versus 0:18:22.520 --> 0:18:25.240 small to medium sized businesses, and he was making the 0:18:25.280 --> 0:18:27.880 point that smaller businesses are going to find it more 0:18:27.960 --> 0:18:33.400 difficult to deal with rising inflation because their profit margins 0:18:33.400 --> 0:18:37.679 are probably narrower than big businesses that have scale and 0:18:37.960 --> 0:18:40.760 pricing power and can negotiate with their suppliers and things 0:18:40.800 --> 0:18:44.439 like that. I imagine that dynamic to some degree also 0:18:44.520 --> 0:18:48.520 applies to the labor markets. So the biggest businesses are 0:18:48.680 --> 0:18:51.840 going to have some power over wages. They're going to 0:18:51.880 --> 0:18:54.440 be able to pay more, and they're also probably going 0:18:54.480 --> 0:18:57.240 to be able to provide more training opportunities. Maybe to 0:18:57.560 --> 0:19:00.800 band together with other large business is to sort of 0:19:00.840 --> 0:19:04.080 share workers and exchange workers, and we've seen some examples 0:19:04.119 --> 0:19:07.800 of that. Is that something that's on your radar, like 0:19:07.880 --> 0:19:13.159 the idea of discrepancies between the experience of small and 0:19:13.240 --> 0:19:16.400 larger businesses here, Well, I think that there are always 0:19:16.400 --> 0:19:20.600 differences along the lines that you're saying, Tracy, But I 0:19:20.600 --> 0:19:22.520 don't think, at least for me, I don't think it 0:19:22.600 --> 0:19:25.720 leads me to can make a different conclusion about assessing 0:19:25.760 --> 0:19:28.680 the stance of monetary policy. Let's say that that thesis 0:19:28.760 --> 0:19:31.119 is right, that big businesses are going to do better 0:19:31.560 --> 0:19:33.920 in this current environment for all the reasons you just said, 0:19:34.280 --> 0:19:38.200 does that mean that we should make monetary policy less 0:19:38.240 --> 0:19:41.480 accommodative to slow the recovery sort of speak, to try 0:19:41.520 --> 0:19:43.800 to bring that into balance. That doesn't make sense to me. 0:19:44.280 --> 0:19:47.479 To me when I look at you know, there's some 0:19:47.520 --> 0:19:50.240 comments that workers have a lot of power right now 0:19:50.560 --> 0:19:53.680 relative to the past. Number one, what's wrong with that? 0:19:54.080 --> 0:19:56.000 You know, workers should have more power than they've had 0:19:56.000 --> 0:19:58.919 in the past. Number Two, When the six to eight 0:19:58.960 --> 0:20:02.080 million Americans come, can the labor force. My expectation is 0:20:02.400 --> 0:20:05.880 we're going to see that power balance become more balanced. 0:20:05.880 --> 0:20:09.399 So the power imbalance become more balanced and more normal 0:20:09.480 --> 0:20:12.080 over time, and so I don't want to overreact to 0:20:12.840 --> 0:20:16.320 what I would call frictions and imbalances as the economy 0:20:16.359 --> 0:20:20.240 goes through this reopening. Let's actually get the economy fully recovered, 0:20:20.480 --> 0:20:24.879 and then we can assess where the power lies. I 0:20:24.880 --> 0:20:27.920 want to pivot soon to some of the other questions, 0:20:27.920 --> 0:20:31.360 including inflation right now and how to interacts with the 0:20:31.400 --> 0:20:34.560 FED new framework one year on, but just sticking with 0:20:35.560 --> 0:20:38.199 employment for a little bit longer. You know, one of 0:20:38.240 --> 0:20:40.960 the things is we have seen the unemployment right now 0:20:41.080 --> 0:20:45.000 come dropped down rapidly five points uh four percent, I think, 0:20:45.200 --> 0:20:47.919 and you know, it could easily be not hard to 0:20:47.960 --> 0:20:50.800 imagine it in the fours, maybe early next year, maybe 0:20:50.880 --> 0:20:52.680 maybe at the end. At the end of this year. 0:20:53.080 --> 0:20:57.520 Labor force participation rate, however, even for prime age workers, 0:20:58.200 --> 0:21:03.879 remains considerably below crisis levels. Should that be incorporated? Is that? 0:21:03.960 --> 0:21:08.040 How how much is l FPR on your dashboard? And 0:21:08.080 --> 0:21:11.080 thinking about getting those numbers up, not just the unemployment 0:21:11.119 --> 0:21:14.600 right down. Oh, it's a fundamental Joe, I mean LFP 0:21:14.760 --> 0:21:18.280 and employment to population you know their cousins. Uh, those 0:21:18.280 --> 0:21:20.600 are fundamental measures. And this is one of the things 0:21:20.640 --> 0:21:22.800 we learned. You know, a lot of macro economists will say, well, 0:21:22.840 --> 0:21:26.480 the trend line of labor force participation has been declining, 0:21:26.560 --> 0:21:29.399 and that's why oftentimes we'll look at prime age. But 0:21:29.440 --> 0:21:31.480 even there they'll say, well, the trend line is declining. 0:21:32.080 --> 0:21:34.240 And one of my one of my good friends, the 0:21:34.359 --> 0:21:36.679 late great Eddie Lazier, who's a problem, who was a 0:21:36.680 --> 0:21:39.160 prominent labor market economist when I first joined the FED, 0:21:39.640 --> 0:21:41.119 he called me up and he said, the FED is 0:21:41.200 --> 0:21:44.320 misreading the labor market. The macro economists just think the 0:21:44.320 --> 0:21:47.119 trend lines are a certain direction, and they take that 0:21:47.200 --> 0:21:49.880 as gospel, and therefore it's always going to be trending down. 0:21:50.280 --> 0:21:52.880 And there's no good reason why it's trending down. And 0:21:52.960 --> 0:21:56.760 Eddie Lazier was correct, and so to me, that's why 0:21:56.800 --> 0:21:59.960 you know, getting LFP in employment to population at least 0:22:00.000 --> 0:22:03.000 act to where they were before, but not necessarily even 0:22:03.000 --> 0:22:05.639 declaring victory when we do that, I think that's a 0:22:05.680 --> 0:22:08.720 reasonable thing for us to try to achieve. You know, 0:22:08.720 --> 0:22:11.440 when when a lot of Americans they answer these surveys, 0:22:11.800 --> 0:22:14.040 they'll say, do you have a job? No? Are you 0:22:14.119 --> 0:22:16.720 looking for a job no? So then they're considered not 0:22:16.840 --> 0:22:20.160 in the labor force. Those same folks, many of them, 0:22:20.359 --> 0:22:22.960