1 00:00:02,730 --> 00:00:05,600 Speaker 1: Bloomberg Audio Studios. Podcasts. 2 00:00:05,920 --> 00:00:07,240 Speaker 2: Radio. News. 3 00:00:18,370 --> 00:00:21,670 Speaker 3: Hello and welcome to another episode of the Odd Lots podcast. 4 00:00:21,810 --> 00:00:22,910 Speaker 3: I'm Joe Wiesenthal. 5 00:00:23,090 --> 00:00:24,090 Speaker 4: And I'm Tracy Alloway. 6 00:00:24,270 --> 00:00:27,400 Speaker 3: Tracy is still here in Jackson Hole. We are recording this. 7 00:00:27,500 --> 00:00:27,880 Speaker 2: What is that? 8 00:00:28,260 --> 00:00:33,819 Speaker 3: The 27th. So before Chairman Worsh's big speech, etc. But 9 00:00:33,979 --> 00:00:35,680 Speaker 3: when we're here in Jackson Hole, we have to talk 10 00:00:35,720 --> 00:00:38,290 Speaker 3: to as many people as we can about the state 11 00:00:38,310 --> 00:00:41,629 Speaker 3: of monetary policy, the economy, central banking. All the good 12 00:00:41,690 --> 00:00:43,370 Speaker 3: stuff we love to talk about. Yeah, definitely. 13 00:00:43,430 --> 00:00:45,809 Speaker 4: And we don't play favorites on this show, but one 14 00:00:45,850 --> 00:00:47,229 Speaker 4: of our favorite Fed presidents. 15 00:00:47,409 --> 00:00:48,370 Speaker 3: We don't play favorites. 16 00:00:48,590 --> 00:00:48,810 Speaker 2: What? 17 00:00:49,430 --> 00:00:51,089 Speaker 3: If we were to. That's right. 18 00:00:51,110 --> 00:00:53,229 Speaker 4: We're going to be speaking with Austin Goolsbee of the 19 00:00:53,250 --> 00:00:53,790 Speaker 4: Chicago Fed. 20 00:00:53,930 --> 00:00:54,260 Speaker 2: That's right. 21 00:00:54,310 --> 00:00:57,680 Speaker 3: Literally the perfect guest. Someone we've had on several times. So, Austin, 22 00:00:58,040 --> 00:00:58,880 Speaker 3: thank you so much. 23 00:00:58,800 --> 00:01:00,620 Speaker 2: For coming back on. Thank you for having me. 24 00:01:00,660 --> 00:01:01,820 Speaker 1: Did you see any booze? 25 00:01:02,380 --> 00:01:03,080 Speaker 2: No moves. 26 00:01:03,260 --> 00:01:04,140 Speaker 3: I saw a bear. 27 00:01:04,500 --> 00:01:05,399 Speaker 1: You saw a bear. 28 00:01:05,420 --> 00:01:06,520 Speaker 3: I saw a black bear. 29 00:01:06,560 --> 00:01:09,280 Speaker 4: Along with some of our producers yesterday. It's very exciting. 30 00:01:09,360 --> 00:01:10,650 Speaker 4: I've never seen one here before. 31 00:01:11,270 --> 00:01:16,330 Speaker 3: Hopefully not indicative of anything in the broader economy. There's 32 00:01:16,350 --> 00:01:19,070 Speaker 3: so many places to start. How about a simple question? 33 00:01:19,569 --> 00:01:22,590 Speaker 3: Right now, when you look at where the Fed has 34 00:01:22,720 --> 00:01:24,940 Speaker 3: rate set, when you look at the curve, when you 35 00:01:24,959 --> 00:01:27,520 Speaker 3: look at the state of the economy, would you characterize 36 00:01:27,560 --> 00:01:29,039 Speaker 3: policy as restrictive right now? 37 00:01:31,190 --> 00:01:35,869 Speaker 1: Depends what you think the underlying inflation rate is. Let's 38 00:01:35,890 --> 00:01:38,610 Speaker 1: not forget what matters is the real rate. 39 00:01:38,880 --> 00:01:39,160 Speaker 5: Yeah. 40 00:01:39,670 --> 00:01:44,360 Speaker 1: Rate minus expected inflation or actual inflation. 41 00:01:43,860 --> 00:01:44,959 Speaker 2: Over some period. 42 00:01:46,459 --> 00:01:48,540 Speaker 1: In the long run, where do we think it's going 43 00:01:48,560 --> 00:01:54,440 Speaker 1: to end up? I loosely think 3% rates with 2% 44 00:01:54,440 --> 00:02:00,730 Speaker 1: inflation and 1% real is kind of an eventual landing spot. 45 00:02:03,740 --> 00:02:09,180 Speaker 1: The real rate, if the inflation rate is 3 plus percent, 46 00:02:11,320 --> 00:02:14,920 Speaker 1: the real rate is a lot lower than. 47 00:02:14,740 --> 00:02:21,330 Speaker 5: If inflation is headed back to target. So you can't... 48 00:02:21,650 --> 00:02:25,730 Speaker 5: I don't think you can really answer that without saying. 49 00:02:28,580 --> 00:02:31,460 Speaker 1: I'm OK with waiting to see, but I'm a little 50 00:02:31,520 --> 00:02:35,430 Speaker 1: nervous that the inflation side has, over the last six months, 51 00:02:35,490 --> 00:02:36,370 Speaker 1: not been looking great. 52 00:02:36,750 --> 00:02:37,090 Speaker 2: Got it. 53 00:02:37,570 --> 00:02:40,230 Speaker 4: Not to get too technical right at the jump of 54 00:02:40,270 --> 00:02:44,210 Speaker 4: this conversation, but when we talk about the restrictiveness of 55 00:02:44,270 --> 00:02:47,380 Speaker 4: monetary policy, I mean, we're talking about where it sits 56 00:02:47,660 --> 00:02:50,720 Speaker 4: next to our star and our star is unobservable at 57 00:02:50,760 --> 00:02:53,440 Speaker 4: the best of times. And now we're in this environment 58 00:02:53,490 --> 00:02:55,650 Speaker 4: where I don't think anyone would disagree that we have 59 00:02:55,660 --> 00:02:58,530 Speaker 4: this huge structural change in the form of AI. Do 60 00:02:58,570 --> 00:03:00,910 Speaker 4: we have any more confidence in the neutral rate of 61 00:03:01,350 --> 00:03:04,950 Speaker 4: interest versus where we are in terms of restrictiveness? 62 00:03:06,930 --> 00:03:09,769 Speaker 1: I love, you know, I was an academic for a 63 00:03:09,750 --> 00:03:12,690 Speaker 1: 30 years so I love saying let's get out of 64 00:03:12,730 --> 00:03:15,970 Speaker 1: the world of theory you know let's get back I 65 00:03:16,010 --> 00:03:19,500 Speaker 1: always called our star our Sasquatch and you know somehow 66 00:03:19,540 --> 00:03:22,660 Speaker 1: it feels with this as a backdrop because you can 67 00:03:22,700 --> 00:03:26,040 Speaker 1: never see it until after it was left and you 68 00:03:26,080 --> 00:03:30,570 Speaker 1: know here was a footprint and when I say that 69 00:03:31,110 --> 00:03:36,030 Speaker 1: it's because I don't think our star while the concept 70 00:03:36,110 --> 00:03:40,870 Speaker 1: exists I don't find it helpful for me in determining, well, 71 00:03:40,910 --> 00:03:45,710 Speaker 1: what should the, what should the next monetary policy move be? 72 00:03:46,050 --> 00:03:49,530 Speaker 1: Because it's not observable. It's even in the best of times, 73 00:03:49,810 --> 00:03:56,250 Speaker 1: not observable. That said, I think if you start thinking 74 00:03:56,310 --> 00:03:59,810 Speaker 1: longer run, what does an increase in the productivity growth 75 00:04:00,130 --> 00:04:05,200 Speaker 1: rate do to our star? I think it increases it 76 00:04:06,080 --> 00:04:10,830 Speaker 1: because faster growth, you got to have a, higher steady state. 77 00:04:12,050 --> 00:04:12,610 Speaker 2: Interest rate. 78 00:04:13,330 --> 00:04:16,870 Speaker 1: And I gave a speech last year, I mean, at 79 00:04:16,910 --> 00:04:22,230 Speaker 1: the last Hoover conference that was kind of thinking about 80 00:04:23,410 --> 00:04:27,250 Speaker 1: if you think AI is increasing productivity, it makes a 81 00:04:27,330 --> 00:04:30,810 Speaker 1: big difference to what that means for the here and 82 00:04:30,920 --> 00:04:35,900 Speaker 1: now R star. Is this expected or is it unexpected? 83 00:04:36,220 --> 00:04:42,789 Speaker 1: So if it's, unexpected landing on you then inflation goes 84 00:04:42,870 --> 00:04:46,380 Speaker 1: down and in a way people aren't adjusting their behavior 85 00:04:46,400 --> 00:04:49,599 Speaker 1: in the short run and rates can go down but 86 00:04:49,900 --> 00:04:53,700 Speaker 1: if the bigger the hype the more we're about to 87 00:04:53,820 --> 00:04:57,630 Speaker 1: have a giant bounty that's going to come from technology 88 00:04:58,370 --> 00:05:01,150 Speaker 1: you could easily overheat the economy in the short run 89 00:05:01,190 --> 00:05:04,450 Speaker 1: and you have to raise the rates and we kind 90 00:05:04,490 --> 00:05:07,580 Speaker 1: of live that through the mid to to late 90s. 91 00:05:07,810 --> 00:05:11,130 Speaker 3: Yeah, that's right. How about we maybe try to reverse, 92 00:05:11,570 --> 00:05:14,580 Speaker 3: take the question from the opposite direction? So setting aside 93 00:05:14,700 --> 00:05:19,000 Speaker 3: theoretical questions about R-Star, setting aside how we would measure restrictiveness, 94 00:05:19,300 --> 00:05:22,280 Speaker 3: let's just take your point. The inflation data is still warm. 95 00:05:22,620 --> 00:05:25,000 Speaker 3: There are signs that it's going in the wrong direction, 96 00:05:25,260 --> 00:05:26,600 Speaker 3: even if here, whatever. 97 00:05:27,180 --> 00:05:27,420 Speaker 2: Why? 98 00:05:27,860 --> 00:05:30,300 Speaker 3: How would you decompose the drivers of. 99 00:05:30,339 --> 00:05:32,320 Speaker 1: Either persistently high inflation or the upward rate? That's what 100 00:05:32,339 --> 00:05:39,900 Speaker 1: we're trying to figure out. I was saying even before 101 00:05:39,960 --> 00:05:44,440 Speaker 1: Liberation Day, as the tariffs came in, I warned, you'll remember, 102 00:05:45,720 --> 00:05:49,690 Speaker 1: let's be careful. We learned during COVID that if a 103 00:05:49,790 --> 00:05:55,349 Speaker 1: supply shock, is that supposed to be transitory? If it's 104 00:05:55,390 --> 00:05:58,430 Speaker 1: big enough, can end up taking a lot longer than 105 00:05:58,450 --> 00:06:03,880 Speaker 1: we initially forecast. And that was my fear that, while 106 00:06:04,380 --> 00:06:07,740 Speaker 1: one and done tariffs are supposed to be an increase 107 00:06:07,760 --> 00:06:12,350 Speaker 1: to the price level, increase to the price level and 108 00:06:12,450 --> 00:06:17,589 Speaker 1: a temporary inflation shock. Where was the evidence that that 109 00:06:17,610 --> 00:06:21,730 Speaker 1: was true? We've been dealing with that to add a 110 00:06:22,550 --> 00:06:27,770 Speaker 1: oil price, war driven price shock on top of it 111 00:06:27,920 --> 00:06:35,190 Speaker 1: before that one went away. That's a dicier proposition. some 112 00:06:35,290 --> 00:06:40,420 Speaker 1: component of the increase in inflation is from those two parts, 113 00:06:40,770 --> 00:06:45,020 Speaker 1: tariffs and, and one time increase in price of oil, 114 00:06:45,360 --> 00:06:51,520 Speaker 1: which hopefully should go away as inflation. But if you 115 00:06:51,560 --> 00:06:57,070 Speaker 1: look at services, that's not really caused from tariffs. That's 116 00:06:57,110 --> 00:07:00,150 Speaker 1: not really caused from oil prices. That's a deeper level 117 00:07:00,190 --> 00:07:07,670 Speaker 1: of concern. So in my, is it a, decomposition, I'm 118 00:07:08,050 --> 00:07:13,510 Speaker 1: hopeful that much of it came from those temporary slash 119 00:07:13,610 --> 00:07:18,280 Speaker 1: transitory factors. I'm giving myself hives even using that word. 120 00:07:19,360 --> 00:07:22,720 Speaker 1: And if so, then we should see it. It should 121 00:07:22,780 --> 00:07:27,080 Speaker 1: go away. We can't, it can't be that each quarter 122 00:07:27,120 --> 00:07:29,760 Speaker 1: we say, ah, yes, it's about to go away. Just 123 00:07:29,820 --> 00:07:35,040 Speaker 1: not yet. You know, three months from now. And so 124 00:07:35,100 --> 00:07:39,520 Speaker 1: that's why I was okay with if we get one 125 00:07:39,580 --> 00:07:45,750 Speaker 1: or two readings of inflation that are moderating, it's perfectly 126 00:07:45,870 --> 00:07:49,750 Speaker 1: fine to say, let's wait a meeting or two meetings 127 00:07:49,810 --> 00:07:55,180 Speaker 1: or whatever. Let's see if this is the heralded introduction 128 00:07:55,780 --> 00:07:56,700 Speaker 1: of the temporary part. 129 00:07:57,240 --> 00:08:01,250 Speaker 4: So- In a normal world, these shocks are supposed to be, again, 130 00:08:01,430 --> 00:08:04,730 Speaker 4: using the dreaded T word, transitory, like one-off levels to 131 00:08:04,930 --> 00:08:06,720 Speaker 4: the price and then they kind of fade away. I 132 00:08:08,220 --> 00:08:10,420 Speaker 4: think it's fair to say in recent years, we've seen 133 00:08:10,660 --> 00:08:13,750 Speaker 4: shock after shock after shock. Do you think that the 134 00:08:13,790 --> 00:08:17,750 Speaker 4: central bank needs to start incorporating that kind of uncertainty 135 00:08:17,950 --> 00:08:18,890 Speaker 4: into its mandate? 136 00:08:18,910 --> 00:08:19,250 Speaker 3: Yeah, probably. 137 00:08:19,270 --> 00:08:21,390 Speaker 4: Just assume that the world's more uncertain. 138 00:08:21,490 --> 00:08:21,990 Speaker 1: Into its mandate. 139 00:08:22,010 --> 00:08:23,770 Speaker 3: Sorry, not into the mandate, into its thinking. 140 00:08:23,810 --> 00:08:25,210 Speaker 1: Yeah, into its thinking, yes. 141 00:08:25,680 --> 00:08:26,820 Speaker 2: I think that you're honest. 142 00:08:27,220 --> 00:08:31,760 Speaker 1: It does feel like we're getting more supply shocks. The 143 00:08:31,840 --> 00:08:40,360 Speaker 1: traditional world shocks aren't the main thing happening. It's not 144 00:08:40,420 --> 00:08:47,099 Speaker 1: commodity prices. Normally- the grubby reality of the business cycle, demand-driven, 145 00:08:47,960 --> 00:08:53,160 Speaker 1: unemployment goes up when inflation goes down, inflation goes up 146 00:08:53,260 --> 00:08:56,520 Speaker 1: when unemployment goes down. When both of those things are 147 00:08:56,580 --> 00:09:01,300 Speaker 1: moving together, like what happens with these supply shocks, there's 148 00:09:01,360 --> 00:09:04,600 Speaker 1: not an automatic playbook of what to do. I do 149 00:09:04,760 --> 00:09:07,940 Speaker 1: think that we at the Fed and the central banks 150 00:09:07,980 --> 00:09:12,390 Speaker 1: all around the world should be contemplating at the least, 151 00:09:12,410 --> 00:09:13,709 Speaker 1: what are you going to do if we're going to 152 00:09:13,770 --> 00:09:18,380 Speaker 1: get more and more shocks? That's a slightly different, you 153 00:09:18,440 --> 00:09:23,220 Speaker 1: kind of raise a second point, which is with the 154 00:09:23,300 --> 00:09:29,660 Speaker 1: tariffs and with the war, here, I think that has 155 00:09:29,780 --> 00:09:36,030 Speaker 1: piled this uncertainty on top of itself. And I think 156 00:09:36,070 --> 00:09:38,470 Speaker 1: that's what's led in the labor market to this kind 157 00:09:38,490 --> 00:09:43,199 Speaker 1: of high low hiring, low firing, which is not a 158 00:09:43,250 --> 00:09:49,140 Speaker 1: normal combination. I think it's a combination that characterizes uncertainty. 159 00:09:50,400 --> 00:09:52,340 Speaker 1: So yeah, we should start. 160 00:09:52,179 --> 00:09:52,800 Speaker 2: Thinking that way. 161 00:09:53,830 --> 00:09:55,810 Speaker 3: Just on AI real quick. Look, none of us know 162 00:09:56,010 --> 00:09:59,969 Speaker 3: what AI as a technology will mean for productivity. Hopefully, 163 00:10:00,929 --> 00:10:04,820 Speaker 3: great things happen. In the here and now, though, there's 164 00:10:04,860 --> 00:10:07,160 Speaker 3: another factor that people talk about, which is just there's 165 00:10:07,179 --> 00:10:11,840 Speaker 3: an extraordinarily high amount of spending going on in the 166 00:10:11,880 --> 00:10:14,319 Speaker 3: build out of it. And I'm curious on both the 167 00:10:14,420 --> 00:10:18,620 Speaker 3: maybe like theoretical level, but also in a conversations that 168 00:10:18,679 --> 00:10:22,900 Speaker 3: you have with businesses in your district level. Does that 169 00:10:22,960 --> 00:10:25,860 Speaker 3: show up? Does it feel like, okay, if we look 170 00:10:25,900 --> 00:10:29,400 Speaker 3: at supply chains, they are getting tighter because companies that 171 00:10:29,440 --> 00:10:32,939 Speaker 3: are building this out are competing for real resources, whether 172 00:10:32,960 --> 00:10:36,210 Speaker 3: we're talking about labor, materials, commodities, parts, and so forth. 173 00:10:36,429 --> 00:10:36,989 Speaker 4: Yes. 174 00:10:37,910 --> 00:10:43,030 Speaker 1: And you hear it from business executives. But in some ways, 175 00:10:43,090 --> 00:10:47,390 Speaker 1: I feel like maybe too much that if you look 176 00:10:47,660 --> 00:10:53,340 Speaker 1: at the price pressures, coming from AI data centers, the 177 00:10:53,400 --> 00:10:58,209 Speaker 1: build-out of very high investment. This isn't the first time 178 00:10:59,390 --> 00:11:05,109 Speaker 1: that there's been high investment as an indicator of economic growth. 179 00:11:06,590 --> 00:11:12,320 Speaker 1: But the overall overheating of the economy is kind of 180 00:11:12,360 --> 00:11:17,370 Speaker 1: the deeper question. Sectoral AI is going up. and some 181 00:11:17,510 --> 00:11:21,810 Speaker 1: other industry is competing for electricians and construction and complaining 182 00:11:21,870 --> 00:11:25,860 Speaker 1: bitterly about that, that's not the same thing as the 183 00:11:26,000 --> 00:11:29,900 Speaker 1: economy's overheating. It has to get out of its lane 184 00:11:30,600 --> 00:11:35,440 Speaker 1: of just direct competition and drive up wages, drive up 185 00:11:35,540 --> 00:11:39,240 Speaker 1: prices outside of just its lane. Because if this one 186 00:11:39,280 --> 00:11:43,080 Speaker 1: going up leads this one to go down, in the aggregate, 187 00:11:45,420 --> 00:11:47,970 Speaker 1: in a way, the national economy unemployment rate and the 188 00:11:48,010 --> 00:11:51,130 Speaker 1: national gdp growth rate tell you a lot about where 189 00:11:51,170 --> 00:11:55,840 Speaker 1: you are in the in aggregate economy that said you 190 00:11:55,880 --> 00:12:00,060 Speaker 1: hear it you go around the midwest the chicago district 191 00:12:00,120 --> 00:12:02,720 Speaker 1: is kind of hard of the midwest we're in iowa 192 00:12:02,740 --> 00:12:06,290 Speaker 1: cedar rapids iowa i'm like what's the biggest problem And 193 00:12:06,309 --> 00:12:09,110 Speaker 1: they're like, the data centers are buying up all the land. 194 00:12:09,470 --> 00:12:12,910 Speaker 1: They're driving up the prices. Nobody can construct, can do 195 00:12:13,050 --> 00:12:21,280 Speaker 1: any construction. You can't get an HVAC person. So it 196 00:12:21,340 --> 00:12:25,900 Speaker 1: doesn't feel like we're far from what is the sort 197 00:12:25,940 --> 00:12:30,950 Speaker 1: of traditional excess demand and outputs above potential. 198 00:12:31,110 --> 00:12:31,840 Speaker 2: And that's. 199 00:12:33,490 --> 00:12:37,550 Speaker 1: Driving up inflation. And if it does, back to your 200 00:12:37,570 --> 00:12:42,470 Speaker 1: first question, then we're not restrictive enough. If that starts 201 00:12:42,510 --> 00:12:47,079 Speaker 1: happening in the aggregate, we're not restrictive enough. I don't 202 00:12:47,100 --> 00:12:50,959 Speaker 1: know how to say, is this restrictive or not restrictive? 203 00:12:51,340 --> 00:12:56,440 Speaker 1: Everything's relative to something. And if inflation starts going the 204 00:12:56,460 --> 00:13:03,600 Speaker 1: wrong way, driven by just old fashioned investment is so high, 205 00:13:04,190 --> 00:13:08,470 Speaker 1: and growth is so high that we're getting that impulse, 206 00:13:09,230 --> 00:13:11,010 Speaker 1: then I think it's not restrictive enough. 207 00:13:11,550 --> 00:13:13,670 Speaker 4: It is true that people complain about not being able 208 00:13:13,690 --> 00:13:16,940 Speaker 4: to get contractors all the time. And now it's just, oh, 209 00:13:16,960 --> 00:13:17,900 Speaker 4: it's the data center. 210 00:13:17,960 --> 00:13:18,800 Speaker 2: Exactly. 211 00:13:18,840 --> 00:13:22,520 Speaker 1: So that is what I mean. That's filled into the 212 00:13:23,059 --> 00:13:29,880 Speaker 1: boogeyman is if you can't find an electrician, I half 213 00:13:29,940 --> 00:13:31,859 Speaker 1: expect people to be like, I need to go to 214 00:13:31,900 --> 00:13:34,320 Speaker 1: the dentist. They can't see me for three weeks. Thanks 215 00:13:34,400 --> 00:13:38,000 Speaker 1: a lot, data centers. Well, okay. 216 00:13:38,059 --> 00:13:41,110 Speaker 4: What's the difference when it comes to Fed policy between 217 00:13:41,350 --> 00:13:45,590 Speaker 4: an economy that's growing mostly because of consumption versus an 218 00:13:45,630 --> 00:13:48,990 Speaker 4: economy that's mostly growing because of investment? How do you 219 00:13:49,110 --> 00:13:50,309 Speaker 4: treat that difference? 220 00:13:53,240 --> 00:13:58,060 Speaker 1: In the short run, it's probably not that different. just 221 00:13:58,260 --> 00:14:01,800 Speaker 1: in the business cycle sense of there are many different 222 00:14:01,860 --> 00:14:06,170 Speaker 1: ways you could go. We've seen overheating from housing construction 223 00:14:06,190 --> 00:14:10,170 Speaker 1: getting out faster than the economy can handle. We've seen 224 00:14:10,309 --> 00:14:14,630 Speaker 1: consumer spending, savings rate go to zero, consumer spending's faster 225 00:14:14,670 --> 00:14:18,610 Speaker 1: than economy can handle. We're seeing a business investment driven 226 00:14:19,010 --> 00:14:23,670 Speaker 1: threat to more than economy can handle. In the short run, 227 00:14:23,740 --> 00:14:26,620 Speaker 1: if it's demand driven, I kind of think it's not. 228 00:14:27,510 --> 00:14:30,480 Speaker 1: Fed has a very unsophisticated tool. We can raise the 229 00:14:30,530 --> 00:14:33,280 Speaker 1: interest rate, lower the interest rate. What makes it work 230 00:14:33,340 --> 00:14:36,860 Speaker 1: is that usually the most cyclical industries are the most 231 00:14:36,960 --> 00:14:40,560 Speaker 1: interest rate sensitive industries. So it kind of does make 232 00:14:40,620 --> 00:14:46,180 Speaker 1: sense that the Fed be the tip of the spear. 233 00:14:50,090 --> 00:14:52,989 Speaker 1: If by that question, you're asking the deeper thing of, well, 234 00:14:53,030 --> 00:14:56,980 Speaker 1: what does it mean long run? you hope that the 235 00:14:57,040 --> 00:15:03,480 Speaker 1: investment will enhance potential output in the future. So then 236 00:15:03,520 --> 00:15:06,640 Speaker 1: it would be different down the road, five years, 10 years, 237 00:15:06,820 --> 00:15:09,110 Speaker 1: if productivity growth remains high. 238 00:15:11,450 --> 00:15:12,410 Speaker 2: But then we're. 239 00:15:12,290 --> 00:15:14,750 Speaker 1: Also sort of back to our discussion of, well, what 240 00:15:14,790 --> 00:15:17,750 Speaker 1: does that mean for rates long run? I actually think 241 00:15:17,870 --> 00:15:22,670 Speaker 1: rates could be higher if the growth rate is higher. 242 00:15:24,070 --> 00:15:27,610 Speaker 1: For all the best reasons. I mean, that's the manna 243 00:15:27,650 --> 00:15:29,150 Speaker 1: from heaven, productivity growth. 244 00:15:29,210 --> 00:15:30,450 Speaker 3: That was the normalization that. 245 00:15:30,390 --> 00:15:32,170 Speaker 2: People wanted for the year. We would love that. 246 00:15:32,390 --> 00:15:35,670 Speaker 1: We would love that normalization. If we could grow 3% 247 00:15:35,670 --> 00:15:39,500 Speaker 1: a year and incomes are growing without inflation because of 248 00:15:39,520 --> 00:15:44,320 Speaker 1: productivity growth. At the same time, let's be a little wary. 249 00:15:44,560 --> 00:15:48,940 Speaker 1: I've been, from early on, highlighting maybe some of this 250 00:15:49,020 --> 00:15:54,570 Speaker 1: technology is raising the productivity growth rate, but... We've now 251 00:15:54,610 --> 00:15:58,130 Speaker 1: gotten six months in a row of pretty crummy productivity growth. 252 00:15:58,190 --> 00:16:05,390 Speaker 1: So let's not all conclude before it's actually manifested that 253 00:16:05,430 --> 00:16:07,270 Speaker 1: we've had a change of era. 254 00:16:07,290 --> 00:16:10,500 Speaker 3: I want to keep speculating about what the future is 255 00:16:10,530 --> 00:16:13,240 Speaker 3: going to be. That's the best guy. I want to 256 00:16:13,320 --> 00:16:16,460 Speaker 3: ask one more question about the past, actually. Because we've 257 00:16:16,660 --> 00:16:18,760 Speaker 3: actually had a few different, over the years, we've had 258 00:16:18,800 --> 00:16:22,470 Speaker 3: a few different versions of this conversation, this question, which is, 259 00:16:23,020 --> 00:16:25,070 Speaker 3: Inflation has come down quite a bit from its peak 260 00:16:25,310 --> 00:16:28,729 Speaker 3: in the post-COVID era. But there's this question of why, right? 261 00:16:28,770 --> 00:16:32,190 Speaker 3: Because the unemployment rate never took off. It was kind 262 00:16:32,230 --> 00:16:36,770 Speaker 3: of immaculate. Except there has been significant housing cooling. In 263 00:16:36,810 --> 00:16:39,350 Speaker 3: a different era, they used to say the housing market 264 00:16:39,430 --> 00:16:42,550 Speaker 3: cycle is the business cycle. That hasn't been the case 265 00:16:42,590 --> 00:16:45,530 Speaker 3: in several years from now. It's totally disconnected. Do you 266 00:16:45,570 --> 00:16:48,870 Speaker 3: have any, sitting here in August 2026, and you look 267 00:16:48,890 --> 00:16:51,200 Speaker 3: at housing continuing to be soft, you look at where 268 00:16:51,220 --> 00:16:55,300 Speaker 3: inflation is, maybe signs of it gathering steam again from 269 00:16:55,340 --> 00:16:58,140 Speaker 3: an elevated level. Do you have any theory of the 270 00:16:58,200 --> 00:17:01,680 Speaker 3: case of the last few years of the relationship between 271 00:17:01,720 --> 00:17:04,879 Speaker 3: what the Fed did, the hikes, and what they really 272 00:17:04,920 --> 00:17:07,960 Speaker 3: did to the economy and how much they contributed to 273 00:17:08,040 --> 00:17:10,030 Speaker 3: taking the economy off the boil in 2022, 2023? Idris, 274 00:17:10,050 --> 00:17:11,070 Speaker 3: I thought you were going to go. 275 00:17:11,010 --> 00:17:11,550 Speaker 1: A different. 276 00:17:13,030 --> 00:17:14,109 Speaker 2: Way back to the old. 277 00:17:16,550 --> 00:17:19,320 Speaker 1: How much was supply and how much was demand in 278 00:17:19,450 --> 00:17:20,840 Speaker 1: the rise up in inflation? 279 00:17:20,859 --> 00:17:23,140 Speaker 3: Yeah, but I'm sort of talking about what you did, 280 00:17:23,160 --> 00:17:25,020 Speaker 3: the aggressive rate hikes. 281 00:17:25,240 --> 00:17:30,400 Speaker 1: I think the aggressive rate hikes, the shoe that did 282 00:17:30,500 --> 00:17:34,960 Speaker 1: not drop, I think that supply was a major driver 283 00:17:35,160 --> 00:17:37,899 Speaker 1: of the run up to inflation. And the healing of 284 00:17:37,960 --> 00:17:41,670 Speaker 1: supply eventually was a major component of the drop to inflation. 285 00:17:43,300 --> 00:17:45,879 Speaker 1: As long as you say that, as long as you're 286 00:17:45,940 --> 00:17:49,680 Speaker 1: not trying to have it both ways and both sides, 287 00:17:49,760 --> 00:17:52,740 Speaker 1: it feels like in that debate, want to have it 288 00:17:52,790 --> 00:17:56,350 Speaker 1: both ways in the sense they want to blame the 289 00:17:56,970 --> 00:18:04,129 Speaker 1: run up on fiscal policy, say, but then the, and 290 00:18:04,170 --> 00:18:07,810 Speaker 1: the fiscal and monetary policy that it was all about stimulus. 291 00:18:08,310 --> 00:18:11,030 Speaker 1: And then it, then you just say, well, Why did 292 00:18:11,070 --> 00:18:13,560 Speaker 1: it come down? Then they want to say, no, no, 293 00:18:13,580 --> 00:18:16,780 Speaker 1: they don't deserve any credit for that. That was all 294 00:18:17,100 --> 00:18:22,880 Speaker 1: from supply chain healing. I think it was loosely two-thirds 295 00:18:22,960 --> 00:18:28,490 Speaker 1: supply and one-third demand then. I wasn't there when it 296 00:18:28,530 --> 00:18:34,430 Speaker 1: went up, so you can't blame me. But I do 297 00:18:34,570 --> 00:18:41,379 Speaker 1: think that the Fed's aggressive action permitted the one shoe 298 00:18:41,700 --> 00:18:45,489 Speaker 1: not to drop that was hugely important. And that is 299 00:18:46,230 --> 00:18:50,510 Speaker 1: at the P side note for, for odd lots listeners, 300 00:18:50,750 --> 00:18:57,350 Speaker 1: you will know that historically CPI of 2.3%, we kind 301 00:18:57,390 --> 00:19:03,090 Speaker 1: of think correlates with a PCE of 2.0%. Even as 302 00:19:03,290 --> 00:19:10,050 Speaker 1: CPI was pushing close to 10% inflation, if you looked 303 00:19:10,400 --> 00:19:18,890 Speaker 1: at inflation compensation in the tips, it remained steadily at 2.3% CPI. 304 00:19:19,390 --> 00:19:24,830 Speaker 1: So exactly 2% inflation target. To me, that was a 305 00:19:24,910 --> 00:19:30,750 Speaker 1: piece of evidence that having a 2.0% inflation target was 306 00:19:30,850 --> 00:19:34,879 Speaker 1: exactly the anchor that its advocate said. And I think 307 00:19:36,859 --> 00:19:40,950 Speaker 1: it was critically important That the Fed not lose control. 308 00:19:41,100 --> 00:19:44,000 Speaker 1: If they had lost the anchor, I think we would 309 00:19:44,040 --> 00:19:45,899 Speaker 1: have had a heck of a time trying to get 310 00:19:45,960 --> 00:19:49,330 Speaker 1: rid of the inflation. So I think the Fed deserves 311 00:19:49,350 --> 00:19:49,970 Speaker 1: a lot of credit. 312 00:19:50,550 --> 00:19:51,270 Speaker 2: At that moment. 313 00:19:51,950 --> 00:19:59,560 Speaker 1: And then if you had plugged into chat GPT or 314 00:19:59,619 --> 00:20:05,139 Speaker 1: some AI trained on all the data through history and said, 315 00:20:05,619 --> 00:20:12,150 Speaker 1: inflation is double, triple the target. What should the Fed do? 316 00:20:13,150 --> 00:20:16,610 Speaker 1: It would have said, jack the interest rate up to 20% 317 00:20:16,609 --> 00:20:18,870 Speaker 1: and have a huge recession because that's the only way 318 00:20:18,910 --> 00:20:22,890 Speaker 1: you ever get rid of inflation. And I do think 319 00:20:22,950 --> 00:20:28,020 Speaker 1: the Fed's understanding that there was a component that was 320 00:20:28,100 --> 00:20:32,440 Speaker 1: not going to be permanent and that the much maligned 321 00:20:32,700 --> 00:20:38,930 Speaker 1: or mocked immaculate disinflation was in fact possible. I do 322 00:20:38,990 --> 00:20:42,130 Speaker 1: think that the Fed deserves credit for recognizing that, too. 323 00:20:43,730 --> 00:20:46,280 Speaker 1: On the other side, they were slow out of the gate. 324 00:20:46,580 --> 00:20:47,700 Speaker 1: You can't look back. 325 00:20:47,540 --> 00:20:50,480 Speaker 2: And say they weren't. They clearly weren't. 326 00:21:06,550 --> 00:21:08,950 Speaker 4: So since you brought up tips, we should talk about 327 00:21:08,970 --> 00:21:11,170 Speaker 4: the bond market, right? So we're at this weird point 328 00:21:11,210 --> 00:21:13,770 Speaker 4: in time in the bond market where short-term rates are 329 00:21:13,790 --> 00:21:17,909 Speaker 4: still pretty steady. The longer-term yields have been going up. 330 00:21:18,080 --> 00:21:22,100 Speaker 4: Tips haven't really been pricing in that much inflation. So 331 00:21:22,440 --> 00:21:24,860 Speaker 4: when you look at bond yields at the moment, especially 332 00:21:24,880 --> 00:21:26,940 Speaker 4: at the long end of the curve, what is that 333 00:21:26,980 --> 00:21:27,420 Speaker 4: telling you? 334 00:21:27,940 --> 00:21:30,240 Speaker 1: If you're a central banker or you're one of the 335 00:21:30,320 --> 00:21:35,480 Speaker 1: Fed heads, don't get into every blip in Twitter of 336 00:21:35,580 --> 00:21:38,270 Speaker 1: the bond market. I kind of think you need a 337 00:21:38,290 --> 00:21:41,139 Speaker 1: little bit of time to sort out what's driving it. 338 00:21:42,119 --> 00:21:46,899 Speaker 1: Long yields going up. Could be people are expecting inflation. 339 00:21:47,200 --> 00:21:50,520 Speaker 1: Could be people think that the Fed is going to 340 00:21:50,580 --> 00:21:53,440 Speaker 1: have to be on a path that rates will be higher. 341 00:21:53,880 --> 00:21:58,169 Speaker 1: Could be there's a lot more competition in issuance and 342 00:21:58,230 --> 00:22:04,370 Speaker 1: just more bonds getting put out. And it's probably some 343 00:22:04,430 --> 00:22:10,000 Speaker 1: combination of of all of those, I don't put that 344 00:22:10,100 --> 00:22:14,240 Speaker 1: much credence on the argument that there's a general freak 345 00:22:14,320 --> 00:22:18,200 Speaker 1: out about the credit worthiness of the United States. Because 346 00:22:18,380 --> 00:22:21,200 Speaker 1: if you really think that a country is going to 347 00:22:22,150 --> 00:22:27,030 Speaker 1: experience default, the rates aren't whatever, 5%, you know, five 348 00:22:27,070 --> 00:22:31,870 Speaker 1: and a quarter percent. That's just a historically pretty normal rate. 349 00:22:32,450 --> 00:22:36,200 Speaker 1: So I think, look, we're watching that. It does have 350 00:22:36,220 --> 00:22:39,590 Speaker 1: an impact on the economy, but whenever you're looking at 351 00:22:39,660 --> 00:22:41,950 Speaker 1: market reactions, you got to think a little bit about 352 00:22:41,990 --> 00:22:45,450 Speaker 1: this reflection problem that part of it is what do 353 00:22:45,490 --> 00:22:48,570 Speaker 1: they think the Fed is going to do? And so 354 00:22:48,590 --> 00:22:51,949 Speaker 1: I don't like, but Paul Volcker used to tell me, 355 00:22:52,770 --> 00:22:56,429 Speaker 1: our job is to act and the market's job is 356 00:22:56,470 --> 00:22:59,510 Speaker 1: to react and let's not get the order mixed up. 357 00:22:59,650 --> 00:23:01,310 Speaker 2: And that's kind of where I start. 358 00:23:01,530 --> 00:23:03,710 Speaker 4: This is exactly what I was going to ask you next, 359 00:23:04,109 --> 00:23:07,050 Speaker 4: because Kevin Warsh has gone on the record saying that 360 00:23:07,130 --> 00:23:09,070 Speaker 4: he thinks there should be less forward guidance from the 361 00:23:09,109 --> 00:23:12,050 Speaker 4: Fed and that the market should be playing more ball 362 00:23:12,430 --> 00:23:15,890 Speaker 4: versus being the referee. So he's suggesting that the bond 363 00:23:15,930 --> 00:23:18,330 Speaker 4: market can send a useful signal through yields. 364 00:23:18,369 --> 00:23:21,629 Speaker 1: I think you learn a lot from bond markets. As 365 00:23:21,650 --> 00:23:24,690 Speaker 1: you know, the rules, I don't speak for anybody else 366 00:23:24,710 --> 00:23:29,250 Speaker 1: or weigh in of what somebody else's message is. Personally, 367 00:23:29,790 --> 00:23:33,850 Speaker 1: speaking only for myself, I agreed with the, and I 368 00:23:33,910 --> 00:23:39,470 Speaker 1: think it's healthy, in a general way to refresh every 369 00:23:39,560 --> 00:23:43,600 Speaker 1: once in a while what any organization's doing and have 370 00:23:43,619 --> 00:23:46,899 Speaker 1: a rethink. But on the specific thing of should we 371 00:23:46,940 --> 00:23:50,420 Speaker 1: have less forward guidance of saying, here is where we 372 00:23:50,480 --> 00:23:53,020 Speaker 1: think rates are going in the next six months. If 373 00:23:53,320 --> 00:23:56,120 Speaker 1: X thing happens, then I promise I'm going to vote 374 00:23:56,180 --> 00:23:59,239 Speaker 1: for an increase, a cut, a blah, blah, blah. I 375 00:23:59,300 --> 00:24:03,699 Speaker 1: think that adds to volatility and threatens to get us 376 00:24:03,859 --> 00:24:06,740 Speaker 1: into a tying of our hands that I don't think 377 00:24:06,780 --> 00:24:11,439 Speaker 1: is healthy. So I have embraced this. Let's engage in 378 00:24:11,500 --> 00:24:17,980 Speaker 1: last forward guidance. That's different from should the market tell. 379 00:24:17,840 --> 00:24:20,760 Speaker 2: Us what to do? I'm not a fan of it, but. 380 00:24:21,060 --> 00:24:23,780 Speaker 1: The Federal Reserve Act says by law what we're supposed 381 00:24:23,820 --> 00:24:28,369 Speaker 1: to look at. maximizing employment, stabilizing prices. Doesn't say anything 382 00:24:28,430 --> 00:24:31,490 Speaker 1: about stock market, doesn't say anything about bond market. So 383 00:24:31,970 --> 00:24:37,699 Speaker 1: gathering information from them, I'm totally for. Using that as a, ah, 384 00:24:37,760 --> 00:24:40,500 Speaker 1: then that's what we should do, I'm less. 385 00:24:40,960 --> 00:24:44,859 Speaker 3: Well, speaking then of communication technologies, the thing that always 386 00:24:44,920 --> 00:24:49,020 Speaker 3: makes me feel very old is reminding people that press conferences, 387 00:24:49,560 --> 00:24:54,420 Speaker 3: dot plots and so forth are very recent innovations. And 388 00:24:54,740 --> 00:24:57,200 Speaker 3: they were brought in because the Fed had a specific 389 00:24:57,260 --> 00:25:00,920 Speaker 3: problem in 2008, 2009, et cetera. They solved the problem 390 00:25:01,200 --> 00:25:04,669 Speaker 3: perhaps at the time. As we think like what is 391 00:25:04,770 --> 00:25:08,420 Speaker 3: suitable for this new era, Could it say like, maybe 392 00:25:08,440 --> 00:25:10,879 Speaker 3: it doesn't make sense to have press conferences. Maybe dots 393 00:25:10,920 --> 00:25:14,220 Speaker 3: have outlived their usefulness. Maybe we don't need as many 394 00:25:14,260 --> 00:25:16,720 Speaker 3: meetings as we used to have or something like that. 395 00:25:17,420 --> 00:25:19,770 Speaker 3: Should all these things be on the table in terms of. 396 00:25:19,660 --> 00:25:21,990 Speaker 1: Like- Yeah, look, you've seen the table. I always say 397 00:25:22,010 --> 00:25:24,250 Speaker 1: the biggest table I've ever seen in my life. 398 00:25:24,030 --> 00:25:25,369 Speaker 2: Is the FOMC table. 399 00:25:26,330 --> 00:25:29,229 Speaker 1: There's room for plenty of stuff on that table. All 400 00:25:29,250 --> 00:25:32,470 Speaker 1: of that should be on the table. We have this 401 00:25:33,330 --> 00:25:38,930 Speaker 1: outside task force headed by outside folks. that's contemplating a 402 00:25:38,950 --> 00:25:41,890 Speaker 1: lot of these issues about communication, I think it's healthy. 403 00:25:43,150 --> 00:25:48,040 Speaker 1: Let's rethink all of those. You're right to remind the history. 404 00:25:48,500 --> 00:25:51,980 Speaker 1: We were at zero. The interest rate was at zero. 405 00:25:52,619 --> 00:25:56,300 Speaker 1: And if you plugged into the formulas, what should the 406 00:25:56,340 --> 00:26:00,440 Speaker 1: interest rate be? It was like 96%. And so the 407 00:26:00,560 --> 00:26:05,330 Speaker 1: Fed at that time was facing unprecedented challenges. And they 408 00:26:05,369 --> 00:26:09,090 Speaker 1: were trying to, what do you do when the interest 409 00:26:09,109 --> 00:26:13,250 Speaker 1: rate is already zero? And giving forward guidance in an 410 00:26:13,330 --> 00:26:15,990 Speaker 1: environment where you're at the zero lower bound, where you're like, 411 00:26:16,090 --> 00:26:19,930 Speaker 1: not only is the rate not gonna go up, it's 412 00:26:19,970 --> 00:26:22,780 Speaker 1: not gonna go up for years. It's not gonna go 413 00:26:22,880 --> 00:26:26,580 Speaker 1: up till the unemployment rate comes down. All of those 414 00:26:26,680 --> 00:26:31,000 Speaker 1: things can work at a time. The Evans rule, the 415 00:26:31,060 --> 00:26:35,210 Speaker 1: Evans rule, Each of those is kind of a creative 416 00:26:35,270 --> 00:26:38,590 Speaker 1: solution to a problem that they were facing. We're in 417 00:26:38,630 --> 00:26:43,040 Speaker 1: a totally different environment. And so we should, look, we 418 00:26:43,060 --> 00:26:44,240 Speaker 1: should think through all of those. 419 00:26:45,080 --> 00:26:47,700 Speaker 4: Joe, do you remember, I think when the Fed first 420 00:26:47,740 --> 00:26:49,940 Speaker 4: started the dot plot, we were both at Bloomberg. 421 00:26:49,960 --> 00:26:50,980 Speaker 3: Do you remember? 422 00:26:51,040 --> 00:26:51,199 Speaker 2: No way. 423 00:26:51,960 --> 00:26:53,820 Speaker 3: We were not at both at Bloomberg. 424 00:26:53,880 --> 00:26:54,639 Speaker 2: Oh, were we not? 425 00:26:54,800 --> 00:26:57,040 Speaker 3: No, it was definitely. 426 00:26:56,500 --> 00:26:57,460 Speaker 1: Earlier than that. 427 00:26:57,480 --> 00:26:58,200 Speaker 3: I do remember. 428 00:26:58,220 --> 00:27:01,080 Speaker 1: You weren't at Bloomberg. I was at Bloomberg. 429 00:27:01,119 --> 00:27:03,310 Speaker 4: Well, I genuine, but I remember there was like this 430 00:27:03,450 --> 00:27:05,690 Speaker 4: all hands committee at one point to try to like 431 00:27:05,750 --> 00:27:08,469 Speaker 4: figure out a way to display the Fed's dot plot. 432 00:27:08,490 --> 00:27:09,230 Speaker 1: This part is true. 433 00:27:09,290 --> 00:27:09,609 Speaker 2: Yeah. 434 00:27:09,810 --> 00:27:12,330 Speaker 3: As it became clear that this became a thing, there 435 00:27:12,350 --> 00:27:14,230 Speaker 3: was a very, a lot of efforts to sort of 436 00:27:14,250 --> 00:27:18,090 Speaker 3: like formalize the presentation of the dot plot in graphical fashion. 437 00:27:18,109 --> 00:27:19,730 Speaker 1: I thought you were going to say this is like the, 438 00:27:19,780 --> 00:27:24,190 Speaker 1: like our, My mom's generation. Everybody remembers where they were 439 00:27:24,230 --> 00:27:26,830 Speaker 1: when John F. Kennedy, you remember the day the dot 440 00:27:26,850 --> 00:27:28,370 Speaker 1: plot came out. 441 00:27:28,390 --> 00:27:30,550 Speaker 4: I remember where I was when the BOE retired the 442 00:27:30,609 --> 00:27:35,150 Speaker 4: fan charts. I was really sad about that, but that's it. Wait, so, okay, 443 00:27:35,170 --> 00:27:37,389 Speaker 4: you talked about the Fed was trying to solve a 444 00:27:37,430 --> 00:27:40,209 Speaker 4: problem with rates at the zero bound in terms of communications. 445 00:27:40,630 --> 00:27:43,369 Speaker 4: What is the problem that you think the Fed is 446 00:27:43,410 --> 00:27:45,820 Speaker 4: trying to solve now in terms of comms? Why have 447 00:27:45,840 --> 00:27:48,149 Speaker 4: the task force? other than there's a new Fed chair 448 00:27:48,210 --> 00:27:48,490 Speaker 4: and he. 449 00:27:48,410 --> 00:27:49,030 Speaker 2: Wants to lead the staff. 450 00:27:49,050 --> 00:27:50,429 Speaker 1: Well, I mean, the new Fed chair, he wants to 451 00:27:50,470 --> 00:27:53,230 Speaker 1: think through some of these issues. I think we're not 452 00:27:53,730 --> 00:27:57,449 Speaker 1: anywhere near the zero lower bound. So some of the 453 00:27:57,530 --> 00:28:03,240 Speaker 1: logics of the communication tools that existed before, we should revisit. 454 00:28:03,400 --> 00:28:08,580 Speaker 1: And I've been on public record for years about the SEP. 455 00:28:09,900 --> 00:28:15,119 Speaker 1: I don't like any time the members of the Fed 456 00:28:15,950 --> 00:28:22,129 Speaker 1: are writing down what they're interpreting as predictions that don't 457 00:28:22,190 --> 00:28:25,050 Speaker 1: turn out to be true, I think you pay a 458 00:28:25,090 --> 00:28:28,290 Speaker 1: little price in terms of credibility, that people can go 459 00:28:28,350 --> 00:28:31,109 Speaker 1: back and look and say, wait, aren't you the bozos 460 00:28:31,130 --> 00:28:36,460 Speaker 1: who said that by now, whatever, inflation would be 2%, 461 00:28:36,460 --> 00:28:40,260 Speaker 1: the unemployment rate would be something? So that it asks 462 00:28:40,340 --> 00:28:44,260 Speaker 1: about one year, two years, three years ahead and the 463 00:28:44,320 --> 00:28:48,720 Speaker 1: long run, Do we really need all of that? That 464 00:28:48,800 --> 00:28:55,450 Speaker 1: was my expressed starting point. And in the dot plot itself, 465 00:28:56,690 --> 00:29:00,270 Speaker 1: I find it can use a purpose. I think it's 466 00:29:00,330 --> 00:29:04,330 Speaker 1: important that the world be able to understand something like 467 00:29:04,370 --> 00:29:08,880 Speaker 1: the reaction function, worldview of the members of the committee. 468 00:29:09,390 --> 00:29:14,740 Speaker 1: And in a way, the dot plot could serve as that, except. 469 00:29:15,560 --> 00:29:16,040 Speaker 2: the. 470 00:29:16,440 --> 00:29:21,650 Speaker 1: Assumptions are not tied to the rate of the dots 471 00:29:22,070 --> 00:29:26,410 Speaker 1: so to quote the median inflation and the median rate 472 00:29:26,890 --> 00:29:32,000 Speaker 1: but that's not necessarily the same person right and so 473 00:29:32,200 --> 00:29:36,560 Speaker 1: it's it doesn't actually serve as a reaction function so 474 00:29:36,580 --> 00:29:39,280 Speaker 1: i think there's a lot of things you could do 475 00:29:39,340 --> 00:29:40,630 Speaker 1: with the SEP. 476 00:29:40,900 --> 00:29:43,480 Speaker 3: I'm actually glad you brought up reaction function as a 477 00:29:43,540 --> 00:29:46,580 Speaker 3: distinct thing from forward guidance. Because I feel like when 478 00:29:46,620 --> 00:29:49,160 Speaker 3: people talk about the Fed, they are distinct and they 479 00:29:49,240 --> 00:29:52,500 Speaker 3: often get conflated. And so people say, like, we don't 480 00:29:52,540 --> 00:29:55,480 Speaker 3: want forward guidance. And they say, oh, we're not going 481 00:29:55,500 --> 00:29:57,100 Speaker 3: to hold the market's hand. We're not going to say 482 00:29:57,120 --> 00:29:58,220 Speaker 3: what we're going to do the next two minutes. 483 00:29:58,260 --> 00:29:58,800 Speaker 2: It's like, great. 484 00:30:00,060 --> 00:30:03,160 Speaker 3: There's no reason for the central bankers to be pre-committing 485 00:30:03,220 --> 00:30:06,500 Speaker 3: what they're going to do. Nonetheless, it strikes me as 486 00:30:06,860 --> 00:30:09,980 Speaker 3: still valuable to have some understanding of how the central 487 00:30:10,000 --> 00:30:13,100 Speaker 3: bank is thinking about its tools in relation to the data. 488 00:30:13,260 --> 00:30:16,220 Speaker 1: And what do you see in the world? That's where 489 00:30:16,260 --> 00:30:19,840 Speaker 1: my head is. So when I say forward guidance, I 490 00:30:19,900 --> 00:30:23,730 Speaker 1: mean literally of the form. Here is what I. 491 00:30:24,720 --> 00:30:26,100 Speaker 2: intend to do with rates. 492 00:30:26,140 --> 00:30:28,740 Speaker 1: Here is what I think is the appropriate rate move 493 00:30:28,820 --> 00:30:31,740 Speaker 1: at the next meeting. And it's the tying of hands. 494 00:30:32,640 --> 00:30:36,220 Speaker 1: That's different from, here is how I see the economy 495 00:30:36,290 --> 00:30:40,650 Speaker 1: right now. What am I looking at? I'm looking at inflation. 496 00:30:41,110 --> 00:30:44,370 Speaker 1: I really want to see that inflation is not persistent, 497 00:30:44,410 --> 00:30:48,940 Speaker 1: that we are coming into that. They're related, of course, 498 00:30:49,120 --> 00:30:49,740 Speaker 1: but they're different. 499 00:30:49,780 --> 00:30:52,620 Speaker 3: But I think, so for example, in the 2010s, or 500 00:30:52,740 --> 00:30:55,160 Speaker 3: coming out of the GFC, it was important for the 501 00:30:55,200 --> 00:30:57,990 Speaker 3: Fed to communicate that if you get a hot inflation 502 00:30:58,030 --> 00:31:00,310 Speaker 3: print here or there, we're not going to react too much. 503 00:31:00,330 --> 00:31:03,770 Speaker 3: Because right now, we're focused on the employment. It's important 504 00:31:03,790 --> 00:31:06,130 Speaker 3: for us to get the employment right down. Then comes 505 00:31:06,130 --> 00:31:09,070 Speaker 3: 2022 or 23, and the Fed needs to communicate, you 506 00:31:09,090 --> 00:31:11,150 Speaker 3: know what? We might get a little labor market softness, 507 00:31:11,450 --> 00:31:13,910 Speaker 3: but we got to smash that inflation down. And that 508 00:31:13,950 --> 00:31:16,190 Speaker 3: is our thing. To my mind, that's reaction-free. 509 00:31:17,440 --> 00:31:18,040 Speaker 1: I agree with you. 510 00:31:18,140 --> 00:31:19,440 Speaker 3: And I'm curious. 511 00:31:19,560 --> 00:31:22,460 Speaker 1: I'll give you a tiny microcosm. When I first got 512 00:31:22,480 --> 00:31:25,350 Speaker 1: to the Fed at the beginning of 2023, there was 513 00:31:25,370 --> 00:31:30,630 Speaker 1: a lot of public discussion about the, can inflation come down? 514 00:31:31,410 --> 00:31:34,430 Speaker 1: And people said, no, it can't come down because look 515 00:31:34,450 --> 00:31:40,190 Speaker 1: at how fast wage growth is. And wages are the 516 00:31:40,410 --> 00:31:44,510 Speaker 1: lion's share of costs and services. So inflation can't come 517 00:31:44,550 --> 00:31:48,740 Speaker 1: down until you see wages come down. I don't think 518 00:31:48,780 --> 00:31:51,740 Speaker 1: that's correct, but I think that gets the dynamics wrong. 519 00:31:52,000 --> 00:31:55,930 Speaker 1: They're forgetting that wages are stickier than prices. So when 520 00:31:56,070 --> 00:31:59,850 Speaker 1: shocks hit, it tends to be prices go up first. 521 00:31:59,930 --> 00:32:03,730 Speaker 1: You see the price inflation, then the wage inflation, and 522 00:32:03,790 --> 00:32:06,710 Speaker 1: then it comes down, and then the wages come down. 523 00:32:06,790 --> 00:32:10,970 Speaker 1: So in the short run, this is a reaction function. 524 00:32:12,230 --> 00:32:15,890 Speaker 1: Call it reaction function, but it's just... Here's my worldview 525 00:32:16,050 --> 00:32:19,590 Speaker 1: of what I'm watching in the economy and why I don't, 526 00:32:20,030 --> 00:32:23,430 Speaker 1: if I see wage growth as high, that doesn't make 527 00:32:23,530 --> 00:32:25,950 Speaker 1: me nervous that inflation can't come down. 528 00:32:26,110 --> 00:32:29,830 Speaker 3: So just the last part of this question, Chairman Warsh's 529 00:32:29,850 --> 00:32:32,350 Speaker 3: press conference have been different so far, have been different 530 00:32:32,370 --> 00:32:35,250 Speaker 3: from his predecessors. They say, oh, the Ford guidance here 531 00:32:35,270 --> 00:32:37,890 Speaker 3: is coming to an end fine. I don't feel like 532 00:32:37,990 --> 00:32:40,239 Speaker 3: I have yet to establish a handle on what his 533 00:32:40,320 --> 00:32:43,430 Speaker 3: reaction function is right now. And I'm curious if you 534 00:32:43,530 --> 00:32:46,770 Speaker 3: in the committee feel like you have a fear. 535 00:32:46,830 --> 00:32:48,980 Speaker 1: You constantly try to get me in trouble. 536 00:32:49,000 --> 00:32:49,480 Speaker 2: Yeah, of course. 537 00:32:49,540 --> 00:32:54,320 Speaker 1: I'm not allowed to talk about somebody else's reaction function. 538 00:32:54,400 --> 00:32:57,120 Speaker 1: And you're like, no, no, okay. Don't ask me. What 539 00:32:57,140 --> 00:33:00,150 Speaker 1: do you think his reaction function is? I'm not going 540 00:33:00,190 --> 00:33:03,880 Speaker 1: to tell you what the chairman's reaction function is. 541 00:33:03,890 --> 00:33:06,450 Speaker 2: Go ask him. what his reaction function is. 542 00:33:06,590 --> 00:33:08,030 Speaker 1: I'm telling you mine. 543 00:33:08,250 --> 00:33:11,880 Speaker 4: Every sell-side analyst note that has come into our inbox 544 00:33:11,900 --> 00:33:13,900 Speaker 4: for the past five or six weeks has been talking 545 00:33:13,960 --> 00:33:16,720 Speaker 4: about the need for clarity on the Fed's reaction function 546 00:33:16,760 --> 00:33:18,980 Speaker 4: or something about the reaction function. 547 00:33:19,760 --> 00:33:22,380 Speaker 1: How would you... You want me to speak for the committee? 548 00:33:22,760 --> 00:33:23,980 Speaker 1: I'm not allowed to. 549 00:33:24,000 --> 00:33:25,160 Speaker 2: I can tell you. 550 00:33:25,340 --> 00:33:28,630 Speaker 1: Here's what's the Goolsbee reaction function. 551 00:33:28,750 --> 00:33:29,450 Speaker 2: We'll settle for that. 552 00:33:29,490 --> 00:33:34,670 Speaker 1: What I'm looking at is a specially tuned to the 553 00:33:34,750 --> 00:33:39,360 Speaker 1: inflation side. I thought front loading of rate cuts, the 554 00:33:39,390 --> 00:33:41,960 Speaker 1: reason I dissented, I'm not a voter this year, I 555 00:33:42,000 --> 00:33:45,380 Speaker 1: was last year. The reason I dissented in the last 556 00:33:45,480 --> 00:33:49,560 Speaker 1: meeting of the year when they cut rates was I'm 557 00:33:49,620 --> 00:33:54,100 Speaker 1: not comfortable front loading the rate cuts, counting on this 558 00:33:54,200 --> 00:33:58,150 Speaker 1: inflation to be transitory and go away. I want some 559 00:33:58,250 --> 00:34:01,750 Speaker 1: evidence that it is going away, that we are headed 560 00:34:01,810 --> 00:34:05,110 Speaker 1: back to 2%. And if we get that, then I'm 561 00:34:05,210 --> 00:34:09,800 Speaker 1: totally fine. The strap put on the seat belts, we're 562 00:34:09,969 --> 00:34:12,990 Speaker 1: headed back to the three, two, one that we talked 563 00:34:13,030 --> 00:34:20,400 Speaker 1: about before. Not only did our progress, we were making 564 00:34:20,520 --> 00:34:25,440 Speaker 1: substantial progress on inflation, then it stalled out, then it 565 00:34:25,460 --> 00:34:29,520 Speaker 1: started going the wrong way. And now we've had a, 566 00:34:31,980 --> 00:34:34,440 Speaker 1: not a blip, but a bit, we've had a bit, 567 00:34:35,160 --> 00:34:41,290 Speaker 1: of easing of inflation, but it's still iffy. And so 568 00:34:41,370 --> 00:34:47,790 Speaker 1: my reaction function is heavily geared toward, I need evidence 569 00:34:48,310 --> 00:34:56,100 Speaker 1: that this inflation shock is not gonna be persistent. And 570 00:34:57,500 --> 00:35:01,100 Speaker 1: I'm okay with waiting as we're getting that, but if 571 00:35:01,160 --> 00:35:07,050 Speaker 1: the evidence starts coming back, especially on services, that it's high, 572 00:35:07,250 --> 00:35:09,989 Speaker 1: it's going the wrong way, we're not making progress, then 573 00:35:10,030 --> 00:35:10,790 Speaker 1: I'm going to be nervous. 574 00:35:11,290 --> 00:35:12,810 Speaker 4: Wait, can I ask a personal question? 575 00:35:13,290 --> 00:35:17,549 Speaker 1: I might not answer it. That's fine. 576 00:35:17,790 --> 00:35:18,770 Speaker 3: That's your right. 577 00:35:18,950 --> 00:35:22,450 Speaker 4: But what's it like when you dissent? Does it make 578 00:35:22,469 --> 00:35:23,069 Speaker 4: you nervous to dissent? 579 00:35:23,090 --> 00:35:25,730 Speaker 1: I was afraid, like, uh-oh, are they going to come, 580 00:35:25,750 --> 00:35:27,130 Speaker 1: like the goons are going. 581 00:35:27,010 --> 00:35:30,049 Speaker 2: To come punch me? They didn't really. It was. 582 00:35:34,290 --> 00:35:41,839 Speaker 1: I wasn't alone. And people are, I found them respectable. 583 00:35:42,450 --> 00:35:50,880 Speaker 1: I had laid out my criteria. I was expressing multiple times, hey, okay, 584 00:35:50,920 --> 00:35:54,380 Speaker 1: we're doing this, but I'm really uncomfortable with front-loading too 585 00:35:54,400 --> 00:35:56,779 Speaker 1: many rate cuts. And if you remember, that was the 586 00:35:56,800 --> 00:35:59,850 Speaker 1: meeting where the government was literally shut down and we 587 00:35:59,930 --> 00:36:05,660 Speaker 1: didn't even have the data. So my thing was, let's 588 00:36:05,739 --> 00:36:08,219 Speaker 1: not just keep cutting. We don't even know what's in 589 00:36:08,239 --> 00:36:12,080 Speaker 1: the data. Let's at least get some data before we act. 590 00:36:12,560 --> 00:36:15,600 Speaker 1: So there wasn't, I didn't get any mean and nasty 591 00:36:16,380 --> 00:36:19,380 Speaker 1: calls from the chairman or the other committee members. There 592 00:36:19,400 --> 00:36:25,629 Speaker 1: was plenty of in the public, you jerk. But it's 593 00:36:25,710 --> 00:36:29,870 Speaker 1: a deliberative body. as we've talked about many times, and 594 00:36:30,310 --> 00:36:34,109 Speaker 1: people take the job real seriously, and everybody comes there 595 00:36:34,180 --> 00:36:38,420 Speaker 1: with a worldview, and it's okay. We've seen a little 596 00:36:38,460 --> 00:36:43,200 Speaker 1: more dissents lately than in the immediately preceding period, but 597 00:36:43,239 --> 00:36:47,960 Speaker 1: by historical standards, there's still way fewer dissents nowadays. 598 00:36:47,540 --> 00:36:48,520 Speaker 2: Than there were in the old days. 599 00:37:05,370 --> 00:37:08,070 Speaker 4: I'm going to ask a weird question, but are silent 600 00:37:08,130 --> 00:37:10,810 Speaker 4: dissents a thing? And the reason I ask is because 601 00:37:10,890 --> 00:37:12,720 Speaker 4: I saw a Goldman Sachs analyst note where they were 602 00:37:12,760 --> 00:37:15,860 Speaker 4: talking about like, oh, sure, there were three official dissents 603 00:37:16,020 --> 00:37:18,840 Speaker 4: at the last meeting, but what about all the silent dissents? 604 00:37:18,880 --> 00:37:21,020 Speaker 4: And we don't know what number those are at. And 605 00:37:21,060 --> 00:37:23,140 Speaker 4: it's kind of funny to think about, you know, there's 606 00:37:23,160 --> 00:37:27,500 Speaker 4: economists out there trying to count up something that's not happening. 607 00:37:28,100 --> 00:37:33,320 Speaker 1: The thing is, There's not happening and then there's not happening, 608 00:37:33,719 --> 00:37:37,400 Speaker 1: which is to say not everybody gets to vote at 609 00:37:37,440 --> 00:37:42,080 Speaker 1: every meeting. So to that extent, there are silent dissents 610 00:37:42,320 --> 00:37:45,150 Speaker 1: if there are people sitting around the table who, if 611 00:37:45,210 --> 00:37:47,830 Speaker 1: they were a voter, they would be dissenting. They just 612 00:37:47,870 --> 00:37:51,989 Speaker 1: have no way to express dissent except to go out 613 00:37:52,050 --> 00:37:54,790 Speaker 1: and say in public, here's what I think about the economy. 614 00:37:56,140 --> 00:37:59,400 Speaker 1: So to that extent, of course, there are silent dissents. 615 00:38:00,170 --> 00:38:03,350 Speaker 1: It sounded like a little bit they're making an argument, though, 616 00:38:03,950 --> 00:38:08,009 Speaker 1: there's people voting differently than what they think. Like, that'd 617 00:38:08,030 --> 00:38:09,720 Speaker 1: be a different type of silent dissent. 618 00:38:10,510 --> 00:38:13,480 Speaker 2: I don't know. That hasn't been my experience. 619 00:38:14,600 --> 00:38:17,480 Speaker 1: But look, the minutes come out and you see, you know, 620 00:38:17,520 --> 00:38:20,720 Speaker 1: basically what everyone says. And in a couple of years, 621 00:38:20,780 --> 00:38:23,719 Speaker 1: you'll start getting the word for word transcripts. 622 00:38:24,620 --> 00:38:24,839 Speaker 2: I know. 623 00:38:24,860 --> 00:38:26,570 Speaker 3: We just have to wait five years. I can't wait. 624 00:38:26,590 --> 00:38:29,109 Speaker 3: Then we'll actually see. Well, this actually leads to my 625 00:38:29,150 --> 00:38:29,609 Speaker 3: final question. 626 00:38:29,630 --> 00:38:31,170 Speaker 2: Now it's four years, nine months. Oh, OK. 627 00:38:31,190 --> 00:38:34,390 Speaker 3: That's right. But this is actually good for my final question, 628 00:38:34,930 --> 00:38:37,310 Speaker 3: which is that I think last year here at Jackson Hole, 629 00:38:37,390 --> 00:38:38,630 Speaker 3: one of the questions I asked you, and it had 630 00:38:38,650 --> 00:38:41,200 Speaker 3: to do with dissent, was this sort of like, why 631 00:38:41,260 --> 00:38:45,180 Speaker 3: are dissents generally rare? And is it because you generally 632 00:38:45,260 --> 00:38:48,759 Speaker 3: see the view? Did you see the thing similarly? Or 633 00:38:48,820 --> 00:38:52,109 Speaker 3: is the chairman particularly good at more or less corralling 634 00:38:52,510 --> 00:38:55,440 Speaker 3: the FOMC? Does it seem like right now? 635 00:38:55,450 --> 00:38:56,190 Speaker 2: And I said both. 636 00:38:56,489 --> 00:38:56,770 Speaker 1: Okay. 637 00:38:56,830 --> 00:39:00,450 Speaker 3: But I think you primarily said that you credited Powell. 638 00:39:00,469 --> 00:39:02,160 Speaker 1: Chair Powell was quite good at that. 639 00:39:02,180 --> 00:39:06,200 Speaker 3: So we'll read these transcripts in four years and nine months. 640 00:39:06,300 --> 00:39:09,819 Speaker 3: But in the FOMC, does it feel any different than 641 00:39:10,000 --> 00:39:11,160 Speaker 3: it did under the Powell era? 642 00:39:12,480 --> 00:39:14,919 Speaker 1: It feels very different. I mean, just personally, it feels 643 00:39:14,960 --> 00:39:19,290 Speaker 1: very different. Of course, when there's a different chair who 644 00:39:19,330 --> 00:39:23,450 Speaker 1: kind of does the, The chair always gives us kind 645 00:39:23,450 --> 00:39:26,509 Speaker 1: of a summary at the end or or, you know, 646 00:39:26,550 --> 00:39:30,549 Speaker 1: where the chair's head is. It's always different. I only 647 00:39:30,590 --> 00:39:33,840 Speaker 1: was there for one chair. It is kind of unusual 648 00:39:33,920 --> 00:39:37,100 Speaker 1: that the former chair is now just kind of moved 649 00:39:37,140 --> 00:39:40,100 Speaker 1: his seat over a couple of spaces. So he's still there, 650 00:39:40,520 --> 00:39:44,799 Speaker 1: but I think it feels different. Uh, and it's the 651 00:39:45,100 --> 00:39:48,190 Speaker 1: chair's new. I mean, he, you can see in the 652 00:39:48,250 --> 00:39:53,050 Speaker 1: press conference. Yeah. There's no stacks. The stacks are outside 653 00:39:53,110 --> 00:39:53,799 Speaker 1: with the phones. 654 00:39:53,840 --> 00:39:54,950 Speaker 2: You can't bring it. 655 00:39:54,980 --> 00:39:55,920 Speaker 1: You're not supposed to bring. 656 00:39:55,780 --> 00:39:57,400 Speaker 2: The snacks in there. 657 00:39:58,820 --> 00:40:01,259 Speaker 1: He just has a different worldview. I mean, you could 658 00:40:01,280 --> 00:40:02,900 Speaker 1: see it in the press conferences. You could see it 659 00:40:02,980 --> 00:40:05,279 Speaker 1: in the, in, in the talks. He just has a 660 00:40:05,320 --> 00:40:06,600 Speaker 1: different worldview. 661 00:40:06,680 --> 00:40:08,049 Speaker 2: And put it. 662 00:40:08,070 --> 00:40:11,510 Speaker 1: He's wanting to rethink a bunch of the, a bunch 663 00:40:11,570 --> 00:40:15,370 Speaker 1: of the issues he's publicly said he would like to 664 00:40:15,510 --> 00:40:18,820 Speaker 1: get a little more stir up a little more debate 665 00:40:18,920 --> 00:40:26,529 Speaker 1: yeah um i think there was debate before um and 666 00:40:27,050 --> 00:40:30,049 Speaker 1: if we're gonna have more change the format of the 667 00:40:30,090 --> 00:40:33,550 Speaker 1: meetings or or stuff like that i'm open to thinking those. 668 00:40:33,450 --> 00:40:36,299 Speaker 3: Through paul's still there and you sort of like two 669 00:40:36,340 --> 00:40:38,900 Speaker 3: popes tension like you know. 670 00:40:39,300 --> 00:40:42,219 Speaker 2: I don't know. Again, now you're trying to get me 671 00:40:42,280 --> 00:40:43,660 Speaker 2: in trouble on a different road. 672 00:40:43,920 --> 00:40:46,680 Speaker 1: I'm not allowed to say. 673 00:40:45,860 --> 00:40:47,719 Speaker 2: What happens at the mines. We'll read about it in 674 00:40:47,739 --> 00:40:48,100 Speaker 2: the transcript. 675 00:40:48,120 --> 00:40:51,980 Speaker 1: I just feel like the tone is there's a new person, 676 00:40:52,000 --> 00:40:56,500 Speaker 1: there's a new leadership. He's trying to do it different ways. 677 00:40:56,860 --> 00:41:02,460 Speaker 1: He's clearly bringing it into his own of how he 678 00:41:02,520 --> 00:41:03,960 Speaker 1: wants to run this stuff. 679 00:41:04,390 --> 00:41:06,510 Speaker 4: We're going to stop trying to get you into trouble. 680 00:41:06,690 --> 00:41:08,510 Speaker 4: And I'm not going to ask what you think Warsh 681 00:41:08,530 --> 00:41:10,989 Speaker 4: is going to say tomorrow. And again, we're recording this 682 00:41:11,030 --> 00:41:13,310 Speaker 4: ahead of the speech. But like, what should we be 683 00:41:13,450 --> 00:41:15,170 Speaker 4: looking out for? What would make you sit up in 684 00:41:15,190 --> 00:41:16,890 Speaker 4: your seat and go like, oh, wait a second, this 685 00:41:16,930 --> 00:41:17,350 Speaker 4: is different? 686 00:41:18,180 --> 00:41:21,379 Speaker 2: Well, this is different than what? 687 00:41:22,400 --> 00:41:26,739 Speaker 4: Than previous Jackson holes, previous Fed shares, something to take 688 00:41:26,760 --> 00:41:27,600 Speaker 4: notice of. 689 00:41:28,560 --> 00:41:33,450 Speaker 1: I'm going to be paying attention to broadly defined things. 690 00:41:33,780 --> 00:41:37,920 Speaker 1: reaction function. You know, how do you see the economy 691 00:41:38,660 --> 00:41:44,460 Speaker 1: as the chairman? And I'm hyper focused on this question of, 692 00:41:45,300 --> 00:41:50,060 Speaker 1: is inflation going to be transitory or is it going 693 00:41:50,080 --> 00:41:53,880 Speaker 1: to be persistent? Because if inflation is going to be persistent, 694 00:41:54,500 --> 00:41:58,860 Speaker 1: then it's going to force action by the Fed or 695 00:41:58,880 --> 00:42:02,600 Speaker 1: by any center. If it's going away on its own, 696 00:42:03,760 --> 00:42:07,120 Speaker 1: or if you even feel like it could go away 697 00:42:07,219 --> 00:42:09,140 Speaker 1: on its own, then. 698 00:42:09,120 --> 00:42:11,840 Speaker 2: It puts us in a very different circumstance. So I 699 00:42:11,900 --> 00:42:13,960 Speaker 2: think we're all going to be looking out for that. 700 00:42:14,260 --> 00:42:18,480 Speaker 3: All right, Austin Glosby, thanks for playing ball with us. 701 00:42:18,520 --> 00:42:20,739 Speaker 3: Thanks for letting us try to get you into trouble. 702 00:42:20,840 --> 00:42:35,660 Speaker 3: Really appreciate you coming back on the Outlaw. Tracy, that 703 00:42:35,680 --> 00:42:37,580 Speaker 3: was a lot of fun. I always love talking to Austin. 704 00:42:38,180 --> 00:42:42,190 Speaker 3: I appreciate that he doesn't mind our efforts to get 705 00:42:42,210 --> 00:42:43,969 Speaker 3: him into trouble, to try and cause a little bit 706 00:42:44,030 --> 00:42:44,350 Speaker 3: of tension. 707 00:42:44,370 --> 00:42:44,650 Speaker 2: He plays along. 708 00:42:44,670 --> 00:42:45,890 Speaker 3: He plays along. I appreciate it. 709 00:42:46,290 --> 00:42:47,810 Speaker 4: I got to say, I know this episode is going 710 00:42:47,830 --> 00:42:51,259 Speaker 4: to come out after Warsh's speech on Friday, but I'm 711 00:42:51,540 --> 00:42:53,960 Speaker 4: so intrigued to see what he actually says. And now 712 00:42:54,000 --> 00:42:57,000 Speaker 4: I'm kind of thinking... Wouldn't it be funny, but not really, 713 00:42:57,440 --> 00:43:00,640 Speaker 4: if you just spoke about financial innovation and payments. 714 00:43:00,260 --> 00:43:03,469 Speaker 3: For 40 minutes? Everyone is waiting for the chairman to 715 00:43:03,530 --> 00:43:05,529 Speaker 3: say something about the state of the economy, where the 716 00:43:05,590 --> 00:43:08,009 Speaker 3: rate hikes are necessary. And you're like, oh, I'm going 717 00:43:08,030 --> 00:43:10,589 Speaker 3: to talk on theme. And I'm going to talk about 718 00:43:10,630 --> 00:43:11,370 Speaker 3: the state of. 719 00:43:11,290 --> 00:43:13,430 Speaker 4: A- Stablecoins and FedNow for 40 minutes. 720 00:43:13,489 --> 00:43:13,890 Speaker 1: Exactly. 721 00:43:13,950 --> 00:43:17,410 Speaker 3: That would be extremely funny. Although, I guess we'll see. 722 00:43:17,750 --> 00:43:20,250 Speaker 3: I'm glad we got into this point with Austin about 723 00:43:20,330 --> 00:43:23,330 Speaker 3: the distinction between reaction function and forward guidance. 724 00:43:23,350 --> 00:43:23,450 Speaker 1: Yeah. 725 00:43:23,760 --> 00:43:25,380 Speaker 3: Because I actually do think there's a lot of sloppy 726 00:43:25,400 --> 00:43:30,399 Speaker 3: discourse about it. And people lied to. And I think 727 00:43:30,460 --> 00:43:32,360 Speaker 3: it makes it, you know, if you go back to 728 00:43:32,780 --> 00:43:35,640 Speaker 3: the green span, there weren't dots in those days. There 729 00:43:35,660 --> 00:43:38,230 Speaker 3: weren't press conferences, et cetera. Statements were a lot shorter. 730 00:43:38,270 --> 00:43:41,750 Speaker 3: There were statements. It's very clear that the Fed is 731 00:43:41,830 --> 00:43:45,890 Speaker 3: capable of operating with far less sort of like both 732 00:43:45,930 --> 00:43:48,859 Speaker 3: literal communication and quote hand-holding about what it's going to do. 733 00:43:49,550 --> 00:43:52,819 Speaker 3: I do think the deeper question is still what we 734 00:43:52,840 --> 00:43:55,900 Speaker 3: got even with Austin, which is, OK, right now, as 735 00:43:55,960 --> 00:43:58,739 Speaker 3: Austin said, he's more anxious about inflation. That's the sort 736 00:43:58,760 --> 00:44:01,560 Speaker 3: of the burden is on the inflation side to improve. 737 00:44:01,620 --> 00:44:04,860 Speaker 3: And otherwise, that would probably call for higher rates. And 738 00:44:04,900 --> 00:44:07,980 Speaker 3: that is the reaction function question. And that is what 739 00:44:08,020 --> 00:44:11,540 Speaker 3: we really haven't got yet from the chairman, at least 740 00:44:11,719 --> 00:44:12,410 Speaker 3: as of the 27th. 741 00:44:13,410 --> 00:44:15,930 Speaker 4: Well, I also think it's funny. I remember under Powell, 742 00:44:16,110 --> 00:44:18,970 Speaker 4: when the Fed deviated from some of its forward guidance, 743 00:44:19,030 --> 00:44:21,210 Speaker 4: and people were writing, this is the death of forward 744 00:44:21,270 --> 00:44:24,450 Speaker 4: guidance back then. And now suddenly everyone's like, oh, it's 745 00:44:24,489 --> 00:44:25,089 Speaker 4: dying again. 746 00:44:25,110 --> 00:44:28,880 Speaker 3: I think this phrase was always kind of bad. And 747 00:44:29,060 --> 00:44:33,799 Speaker 3: I think this actually gets to the point that maybe 748 00:44:33,820 --> 00:44:37,520 Speaker 3: we didn't need those dots forever. They served a purpose. 749 00:44:37,800 --> 00:44:40,239 Speaker 3: Or the press conference or any of it. And it 750 00:44:40,260 --> 00:44:43,410 Speaker 3: was helpful to hear Austin describe it like, yes, You 751 00:44:43,450 --> 00:44:46,840 Speaker 3: plug the conditions of the time post-GFC into a Taylor 752 00:44:46,860 --> 00:44:49,739 Speaker 3: rule and it gets you to negative 6%. That's impossible. 753 00:44:49,760 --> 00:44:52,460 Speaker 3: The Fed can't do that. So then layers on all 754 00:44:52,500 --> 00:44:54,739 Speaker 3: these other things. We got to talk about it. We 755 00:44:54,780 --> 00:44:58,660 Speaker 3: got to do whatever. Maybe these things really did not 756 00:44:58,980 --> 00:45:02,469 Speaker 3: need to exist for as long as they did. And again, 757 00:45:02,670 --> 00:45:05,469 Speaker 3: if maybe the task force says we really don't need 758 00:45:05,489 --> 00:45:07,600 Speaker 3: all this talk and dots and all this stuff. That 759 00:45:07,620 --> 00:45:09,259 Speaker 3: might be totally wise. 760 00:45:09,300 --> 00:45:11,420 Speaker 4: This is the other question about tomorrow, because Warsh could 761 00:45:11,460 --> 00:45:13,940 Speaker 4: talk about findings from the task forces, right? It's an 762 00:45:14,020 --> 00:45:17,609 Speaker 4: early indication. So I guess anything and everything from stable 763 00:45:17,660 --> 00:45:20,810 Speaker 4: coins to Fedcoms is up for grabs. But shall we 764 00:45:20,830 --> 00:45:21,549 Speaker 4: leave it there for now? 765 00:45:21,650 --> 00:45:22,130 Speaker 2: Let's leave it there. 766 00:45:22,450 --> 00:45:22,630 Speaker 5: All right. 767 00:45:22,830 --> 00:45:25,010 Speaker 4: This has been another episode of the All Thoughts Podcast. 768 00:45:25,170 --> 00:45:28,070 Speaker 4: I'm Tracy Allaway. You can follow me at Tracy Allaway. 769 00:45:28,270 --> 00:45:31,170 Speaker 3: And I'm Jill Wiesenthal. You can follow me at The Stalwart. 770 00:45:31,450 --> 00:45:34,660 Speaker 3: Follow our producers, Carmen Rodriguez at Carmen Ehrman, Dashiell Bennett 771 00:45:34,760 --> 00:45:38,060 Speaker 3: at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano 772 00:45:38,260 --> 00:45:39,400 Speaker 3: at Kevin Lloyd Lozano. 773 00:45:39,719 --> 00:45:41,520 Speaker 4: And for more All Thoughts content, you should check out 774 00:45:41,640 --> 00:45:44,560 Speaker 4: our daily newsletter. You can find that at Bloomberg.com forward 775 00:45:44,580 --> 00:45:45,320 Speaker 4: slash All Thoughts. 776 00:45:45,700 --> 00:45:47,550 Speaker 3: You can chat about all of these topics 24-7 in 777 00:45:47,640 --> 00:45:50,250 Speaker 3: our Discord, discord.gg slash All Thoughts. 778 00:45:51,640 --> 00:45:54,340 Speaker 4: And if you like this conversation, if you enjoyed the video, 779 00:45:54,440 --> 00:45:58,080 Speaker 4: then please like or leave a comment or better yet, subscribe. 780 00:45:58,580 --> 00:45:59,800 Speaker 3: Thanks for watching or listening. 781 00:46:16,550 --> 00:46:17,000 Speaker 2: Thank you.