1 00:00:02,520 --> 00:00:08,039 Speaker 1: Bloomberg Audio Studios, Podcasts Radio. An important conversation we want 2 00:00:08,080 --> 00:00:11,280 Speaker 1: to bring you now to in New York Bloomberg Salaams 3 00:00:11,320 --> 00:00:13,360 Speaker 1: and sitting down with the newest member of the FED 4 00:00:13,480 --> 00:00:16,680 Speaker 1: Governor Stephen Myron. This is at the Economic Club of 5 00:00:16,680 --> 00:00:19,720 Speaker 1: New York, a fireside chat live on Bloomberg, and. 6 00:00:19,720 --> 00:00:23,360 Speaker 2: That it wasn't bad. And so my initial thought was 7 00:00:23,440 --> 00:00:25,720 Speaker 2: that I was going to be given I was going 8 00:00:25,760 --> 00:00:27,479 Speaker 2: to be asked to run the buer of labor sistics 9 00:00:27,520 --> 00:00:31,680 Speaker 2: as a second job. That's what I initially expected when 10 00:00:31,720 --> 00:00:34,640 Speaker 2: I walked into the Oval office that day. But yeah, 11 00:00:34,680 --> 00:00:35,760 Speaker 2: that's that's not how it turned out. 12 00:00:35,960 --> 00:00:38,960 Speaker 3: Yeah, they couldn't find you personnel decision could be firing 13 00:00:39,240 --> 00:00:42,440 Speaker 3: or would you like to be a FED governor? 14 00:00:42,800 --> 00:00:44,800 Speaker 2: Yes, So that's that's what it turned out to be. Yeah. 15 00:00:44,880 --> 00:00:48,160 Speaker 3: Yeah, So you're on leave from working for President Trump, 16 00:00:48,280 --> 00:00:51,040 Speaker 3: where in your job you provided economic analysis for the 17 00:00:51,040 --> 00:00:55,040 Speaker 3: White House. Trump says in the White House says that 18 00:00:55,080 --> 00:00:57,680 Speaker 3: the US economy is doing great. They recently put a 19 00:00:57,720 --> 00:01:00,800 Speaker 3: post up on the website that talks about how Americans 20 00:01:00,880 --> 00:01:04,280 Speaker 3: adding like never before, they are earning more, and the 21 00:01:04,319 --> 00:01:06,160 Speaker 3: industrial renaissance is here. 22 00:01:06,840 --> 00:01:08,440 Speaker 4: Yet. As a FED governor. 23 00:01:08,600 --> 00:01:11,840 Speaker 3: Last week you wrote down a forecast for a total 24 00:01:11,880 --> 00:01:14,880 Speaker 3: of one hundred and fifty basis point cuts in three meetings, 25 00:01:15,440 --> 00:01:20,360 Speaker 3: which is usually panic territory. How can both points be 26 00:01:20,480 --> 00:01:23,240 Speaker 3: true at the same time that the economy is doing great, 27 00:01:23,880 --> 00:01:27,240 Speaker 3: but a rapid interest rate reduction is necessary. 28 00:01:27,680 --> 00:01:30,080 Speaker 2: Yeah. So, look, I mean, as I said a few 29 00:01:30,120 --> 00:01:32,600 Speaker 2: moments ago, I expect the second half of the year 30 00:01:32,600 --> 00:01:34,800 Speaker 2: and into next year to be better in terms of growth. 31 00:01:34,800 --> 00:01:37,360 Speaker 2: In the first half of this year in large part 32 00:01:37,360 --> 00:01:39,679 Speaker 2: because a lot of the effects of the tax bill 33 00:01:39,720 --> 00:01:42,680 Speaker 2: are going to be kicking in and trade uncertainty is dissipating. 34 00:01:42,840 --> 00:01:45,240 Speaker 2: But I view a lot of that as also expanding 35 00:01:45,240 --> 00:01:47,440 Speaker 2: the supply side at the same time as the as 36 00:01:47,440 --> 00:01:49,760 Speaker 2: the demand side, And so, as I said, if actual 37 00:01:49,800 --> 00:01:52,000 Speaker 2: output and potential output are moving up at the same time, 38 00:01:52,120 --> 00:01:55,680 Speaker 2: it doesn't imply a necessarily hawkish or much tigher policy 39 00:01:55,720 --> 00:01:58,880 Speaker 2: because the apple cap isn't expanding if they're both moving 40 00:01:58,880 --> 00:02:02,520 Speaker 2: at the same time. Instead, my view is that policy 41 00:02:02,640 --> 00:02:06,800 Speaker 2: is roughly two points too restrictive, which is considerably restrictive. 42 00:02:07,320 --> 00:02:09,600 Speaker 2: And even though I am expecting growth to be a 43 00:02:09,600 --> 00:02:11,760 Speaker 2: little bit better in the future, that could get derailed 44 00:02:12,720 --> 00:02:15,320 Speaker 2: unnecessarily so and create an apup of gap where one 45 00:02:15,360 --> 00:02:18,440 Speaker 2: need not exist if we don't get policy closer to neutral. 46 00:02:18,800 --> 00:02:21,520 Speaker 2: Now that said, because of the distance neutral, my view 47 00:02:21,600 --> 00:02:23,760 Speaker 2: is it's better to move there more quickly than less quickly. 48 00:02:23,880 --> 00:02:25,560 Speaker 2: It's not a panic, you know. I think a panicky 49 00:02:25,600 --> 00:02:27,679 Speaker 2: move would be something like seventy five business points or 50 00:02:27,720 --> 00:02:31,960 Speaker 2: even more. I'm not panicked. I just see that the 51 00:02:32,040 --> 00:02:35,280 Speaker 2: risks grow the longer you remain significantly above neutral. 52 00:02:35,960 --> 00:02:38,320 Speaker 3: You have company among your new colleagues at the FED 53 00:02:38,440 --> 00:02:41,079 Speaker 3: in your neutral rate forecast that nobody wants to move 54 00:02:41,200 --> 00:02:42,760 Speaker 3: quite as quickly as you do. 55 00:02:43,280 --> 00:02:45,600 Speaker 4: What is it that concerns you about the labor market? 56 00:02:46,440 --> 00:02:48,560 Speaker 2: Well, we learned that the first half of the year 57 00:02:48,639 --> 00:02:50,040 Speaker 2: was not as strong as we would have liked it 58 00:02:50,080 --> 00:02:53,360 Speaker 2: to have been. We learned that the labor marketing continued 59 00:02:53,400 --> 00:02:56,000 Speaker 2: to lose momentum throughout last year and into the first 60 00:02:56,000 --> 00:02:58,640 Speaker 2: half of this year. And that to me means that 61 00:02:58,880 --> 00:03:00,680 Speaker 2: even though I think that growth is going to pick 62 00:03:00,760 --> 00:03:04,240 Speaker 2: up for various reasons, there are concerns that, hey, things 63 00:03:04,240 --> 00:03:06,600 Speaker 2: had been moving in the wrong direction, and if you 64 00:03:06,720 --> 00:03:10,239 Speaker 2: keep policy this degree of restrictive for too long, you're 65 00:03:10,240 --> 00:03:12,239 Speaker 2: not going to allow things to move in the other direction, 66 00:03:12,320 --> 00:03:15,480 Speaker 2: and so you're going to create a situation which napokap expands. 67 00:03:15,720 --> 00:03:18,200 Speaker 2: And so in my opinion, it's imperative that we get 68 00:03:18,400 --> 00:03:21,560 Speaker 2: closer to neutral quickly. And so I thought three, you know, 69 00:03:21,560 --> 00:03:24,160 Speaker 2: sort of a series of fifties to recalibrate interest rates 70 00:03:24,200 --> 00:03:25,280 Speaker 2: was the appropriate policy. 71 00:03:25,400 --> 00:03:27,600 Speaker 4: And you don't see that as panic, No. 72 00:03:27,480 --> 00:03:28,920 Speaker 2: I don't see that as panic. I mean, if I 73 00:03:28,919 --> 00:03:30,639 Speaker 2: were panicking, I would tell people I were panicking. 74 00:03:32,280 --> 00:03:36,760 Speaker 3: All right, A lot of businesses say that you talk 75 00:03:36,800 --> 00:03:40,200 Speaker 3: in your speech and just now about how rates are 76 00:03:40,240 --> 00:03:42,720 Speaker 3: too restrictive, But a lot of businesses that I've been 77 00:03:43,120 --> 00:03:46,480 Speaker 3: hearing from reading different reports and analyzes, show that some 78 00:03:46,520 --> 00:03:51,560 Speaker 3: of the pullback and investments is not to the restrictive 79 00:03:51,800 --> 00:03:55,320 Speaker 3: rate environment, but has to do with policy related uncertainty. 80 00:03:55,360 --> 00:03:57,560 Speaker 4: How do you counter that, well. 81 00:03:57,320 --> 00:03:59,200 Speaker 2: I mean I think that you know, there's a lot 82 00:03:59,200 --> 00:04:01,520 Speaker 2: of different interest rates in the economy and a lot 83 00:04:01,520 --> 00:04:04,440 Speaker 2: of different types of investment, and so for sure, there 84 00:04:04,440 --> 00:04:06,720 Speaker 2: are parts of the economy that have been affected by that. 85 00:04:07,040 --> 00:04:09,200 Speaker 2: And as I said before, I do think that that 86 00:04:09,200 --> 00:04:11,400 Speaker 2: that type of uncertainty is not totally on, but I 87 00:04:11,400 --> 00:04:13,960 Speaker 2: think it's certainly less than it was a few months ago. However, 88 00:04:14,040 --> 00:04:16,320 Speaker 2: if you look at other sectors like housing, you know, 89 00:04:16,360 --> 00:04:18,840 Speaker 2: I think it's very clear that rates are that rates 90 00:04:18,839 --> 00:04:21,280 Speaker 2: are you know, that rates are the primary impetitive and 91 00:04:21,400 --> 00:04:26,240 Speaker 2: to investing in housing and building more housing at the moment. 92 00:04:26,760 --> 00:04:28,200 Speaker 2: You know, I don't think that that's a function of 93 00:04:28,240 --> 00:04:29,360 Speaker 2: trade policy uncertainty. 94 00:04:30,080 --> 00:04:31,159 Speaker 4: You threw a lot of numbers. 95 00:04:31,440 --> 00:04:32,960 Speaker 2: I apologize everyone. 96 00:04:33,120 --> 00:04:34,840 Speaker 3: Yes, I'm sure everyone's going to go back and look 97 00:04:34,839 --> 00:04:37,720 Speaker 3: at this speech and the table. Can you break down 98 00:04:37,880 --> 00:04:41,080 Speaker 3: just a little bit what your economic growth forecast is 99 00:04:41,080 --> 00:04:42,000 Speaker 3: for twenty twenty six. 100 00:04:42,000 --> 00:04:43,479 Speaker 4: Where do you see the economy ending the. 101 00:04:43,520 --> 00:04:49,279 Speaker 2: Year so conditional upon economy, sorry, conditional upon on getting 102 00:04:49,640 --> 00:04:52,480 Speaker 2: rates closer to neutral as I had in the SEP, 103 00:04:52,760 --> 00:04:54,440 Speaker 2: I think growth is going to be in the you know, 104 00:04:54,480 --> 00:04:56,560 Speaker 2: sort of in the mid two area. 105 00:04:56,760 --> 00:04:59,400 Speaker 4: And where do you see the federal funds rate. 106 00:05:01,040 --> 00:05:03,680 Speaker 2: Again in the mid in the in the mid two area. 107 00:05:04,360 --> 00:05:07,480 Speaker 3: So if your forecasts are right, it might be time 108 00:05:07,680 --> 00:05:11,480 Speaker 3: for rates to go up at that time. 109 00:05:12,720 --> 00:05:15,120 Speaker 2: Uh no, because some of the so so there's a 110 00:05:15,160 --> 00:05:17,279 Speaker 2: difference between So in the speech I said two to 111 00:05:17,320 --> 00:05:19,440 Speaker 2: two and a half percent was the correct rate, but 112 00:05:19,520 --> 00:05:22,200 Speaker 2: my dots actually have a slight divergence from that because 113 00:05:22,200 --> 00:05:24,800 Speaker 2: some of the effects kick in differentially over time. And 114 00:05:24,839 --> 00:05:26,960 Speaker 2: so there are some effects that you know, I think 115 00:05:27,080 --> 00:05:28,839 Speaker 2: we'll be kicking in immediately, but then sort of the 116 00:05:28,839 --> 00:05:31,680 Speaker 2: rent disinflation accelerates over time, and the apple gaps kind 117 00:05:31,680 --> 00:05:35,000 Speaker 2: of ameliorate over time as potential, sorry, as actual catches 118 00:05:35,080 --> 00:05:37,560 Speaker 2: up to potential, and so there's a so so it's 119 00:05:37,600 --> 00:05:39,520 Speaker 2: not the case that you would sort of just collapse 120 00:05:39,560 --> 00:05:41,520 Speaker 2: down immediately to two to two and a half percent 121 00:05:41,560 --> 00:05:45,160 Speaker 2: and then gradually raise back up over time. Because of that, 122 00:05:45,200 --> 00:05:48,640 Speaker 2: there's actually there's you know, my view is get relatively 123 00:05:48,680 --> 00:05:51,880 Speaker 2: close neutral quickly, and then there's a little bit more 124 00:05:51,880 --> 00:05:54,000 Speaker 2: cutting next year, and then a little bit more cutting 125 00:05:54,000 --> 00:05:55,760 Speaker 2: the year after that, and then sort of back up 126 00:05:55,760 --> 00:05:56,800 Speaker 2: to neutral thereafter. 127 00:05:57,360 --> 00:05:59,599 Speaker 3: So I want to talk to you about a paper 128 00:05:59,600 --> 00:06:02,159 Speaker 3: that you wrote for the Manhattan Institute last year. It 129 00:06:02,160 --> 00:06:05,000 Speaker 3: came out in March of twenty twenty four. You name 130 00:06:05,320 --> 00:06:09,919 Speaker 3: Lalel Brainard, specifically criticizing her for being among the Central 131 00:06:09,920 --> 00:06:12,800 Speaker 3: Bank officials who have rotated between the White House and 132 00:06:12,839 --> 00:06:16,520 Speaker 3: the Federal Reserve. Of course, that officials are most of 133 00:06:16,520 --> 00:06:18,719 Speaker 3: them are nominated by the president, and so there's a 134 00:06:18,800 --> 00:06:23,560 Speaker 3: natural link there. You named that Brainard specifically took one 135 00:06:23,720 --> 00:06:26,320 Speaker 3: single weekend between a political role at the White House 136 00:06:26,600 --> 00:06:30,279 Speaker 3: and a role as an independent member of the Federal Reserve. 137 00:06:30,920 --> 00:06:33,440 Speaker 3: A quote that jumps out from the paper is to 138 00:06:33,520 --> 00:06:36,920 Speaker 3: pretend that no one to pretend that one can easily 139 00:06:36,960 --> 00:06:41,400 Speaker 3: shift between highly political and allegedly non political roles without 140 00:06:41,480 --> 00:06:45,560 Speaker 3: letting political bias informed policy is at best naive and 141 00:06:45,640 --> 00:06:49,960 Speaker 3: at worst, sinister Governor Myron, how is your being on 142 00:06:50,120 --> 00:06:52,960 Speaker 3: leave from working directly from President Trump different? 143 00:06:53,480 --> 00:06:55,600 Speaker 2: Yeah, so first, let me let me address me let 144 00:06:55,600 --> 00:06:58,240 Speaker 2: me go backwards with that. Right, So, first, the on 145 00:06:58,440 --> 00:07:01,680 Speaker 2: leave is just because it's a four month job. And 146 00:07:01,720 --> 00:07:03,240 Speaker 2: if it were a longer than four month job, I 147 00:07:03,279 --> 00:07:05,600 Speaker 2: would of course resign, you know, immediately. If there were 148 00:07:05,640 --> 00:07:07,040 Speaker 2: some reason that I would think that I would be 149 00:07:07,120 --> 00:07:11,000 Speaker 2: in the seat past January, i'd resign. Now at the moment, 150 00:07:11,040 --> 00:07:18,240 Speaker 2: I don't have such a reason, you know. And I 151 00:07:18,280 --> 00:07:21,400 Speaker 2: think that there's no question that the FED had previously 152 00:07:23,520 --> 00:07:26,240 Speaker 2: gotten over its skis in terms of politics, and I 153 00:07:26,280 --> 00:07:30,000 Speaker 2: think my analysis is borne out by the history. The 154 00:07:30,000 --> 00:07:32,520 Speaker 2: FED decided that it was going to be the organization 155 00:07:32,800 --> 00:07:36,280 Speaker 2: to take on climate change and to join various international 156 00:07:36,320 --> 00:07:39,600 Speaker 2: networks for bringing the financial system. The FED decided that 157 00:07:39,640 --> 00:07:41,960 Speaker 2: it was going to get involved in credit allocation, deciding 158 00:07:42,000 --> 00:07:43,880 Speaker 2: that this sector of the economy is worthy of credit 159 00:07:44,120 --> 00:07:46,360 Speaker 2: and this sector that we don't politically favor is not 160 00:07:46,440 --> 00:07:48,880 Speaker 2: worthy of credit. The FED decided that it was going 161 00:07:48,920 --> 00:07:56,160 Speaker 2: to intervene in heavily political issues of racism and police, 162 00:07:56,880 --> 00:08:00,800 Speaker 2: and FED officials started giving speeches about police brutality and 163 00:08:01,000 --> 00:08:05,640 Speaker 2: arguing that we were overincarcerated the you know. The FED 164 00:08:05,720 --> 00:08:08,320 Speaker 2: decided that it was going to become more and more 165 00:08:08,360 --> 00:08:10,120 Speaker 2: political along these lines, and I viewed that as a 166 00:08:10,160 --> 00:08:13,040 Speaker 2: significant problem. That's the context in which I in which 167 00:08:13,040 --> 00:08:16,360 Speaker 2: I in which I wrote that the proposals that in 168 00:08:16,400 --> 00:08:18,880 Speaker 2: that paper are a package deal, a system of checks 169 00:08:18,920 --> 00:08:22,160 Speaker 2: and balances, and everything that I wrote in there requires 170 00:08:22,200 --> 00:08:24,320 Speaker 2: the entire system of checks and balances to be effective. 171 00:08:24,360 --> 00:08:26,680 Speaker 2: If you just took one check and you ignored all 172 00:08:26,680 --> 00:08:28,520 Speaker 2: the others, all you do is empower the one that 173 00:08:28,560 --> 00:08:32,000 Speaker 2: you're protecting. So it's a it's a it all has 174 00:08:32,040 --> 00:08:33,760 Speaker 2: to be viewed in the context of a total system, 175 00:08:33,760 --> 00:08:36,959 Speaker 2: as opposed to sort of in isolation. Now, I was 176 00:08:37,000 --> 00:08:39,839 Speaker 2: asked to take this role by the President of the 177 00:08:39,880 --> 00:08:43,520 Speaker 2: United States. I took the role. I will do the 178 00:08:43,559 --> 00:08:46,040 Speaker 2: best at it that I possibly can. That means for 179 00:08:46,559 --> 00:08:48,760 Speaker 2: forming my own views independently based on what I think 180 00:08:48,800 --> 00:08:51,400 Speaker 2: is appropriate economics, based on what I think is appropriate analysis, 181 00:08:51,679 --> 00:08:54,280 Speaker 2: and because of exactly the things that you're discussing are 182 00:08:54,400 --> 00:08:57,600 Speaker 2: why I want to be so transparent and as transparent 183 00:08:57,640 --> 00:08:59,680 Speaker 2: as I possibly can be. I didn't just make the 184 00:08:59,720 --> 00:09:02,880 Speaker 2: number up for the SAP, right, I just read everyone 185 00:09:02,960 --> 00:09:04,840 Speaker 2: the analysis. And I know I probably bored people to 186 00:09:04,880 --> 00:09:07,160 Speaker 2: death with this many numbers. But the reason why I 187 00:09:07,200 --> 00:09:09,400 Speaker 2: did so is that people know these numbers aren't just 188 00:09:09,440 --> 00:09:11,679 Speaker 2: made up. There's a reason every single line there has 189 00:09:11,720 --> 00:09:14,800 Speaker 2: a number on it, and every single line has an elasticity, 190 00:09:14,920 --> 00:09:17,720 Speaker 2: a size of the change, and then these policy outcome, 191 00:09:17,720 --> 00:09:19,559 Speaker 2: which is basically the two multiplied to each other. And 192 00:09:19,600 --> 00:09:21,560 Speaker 2: if you're going to disagree with me, I invite you 193 00:09:21,600 --> 00:09:23,160 Speaker 2: to disagree with me. Tell me, do you think the 194 00:09:23,200 --> 00:09:25,120 Speaker 2: elcicsity is wrong or do you think that the size 195 00:09:25,120 --> 00:09:29,280 Speaker 2: of the size of the changing the changing parameter is wrong? 196 00:09:29,320 --> 00:09:31,960 Speaker 2: The changing variable is wrong? Right? Because you may think 197 00:09:32,000 --> 00:09:34,840 Speaker 2: that you know that there's other estimates of the effects 198 00:09:34,880 --> 00:09:39,240 Speaker 2: of immigrants on rental prices on rents right that you 199 00:09:39,280 --> 00:09:40,679 Speaker 2: know are higher or lower, and I should be using 200 00:09:40,679 --> 00:09:43,960 Speaker 2: a higher and lower elisticity, right like, please have the conversation, right. 201 00:09:44,160 --> 00:09:46,360 Speaker 2: But I am being as transparent as I possibly can, 202 00:09:47,040 --> 00:09:49,640 Speaker 2: precisely because of the concerns that you just listed, and 203 00:09:49,720 --> 00:09:51,360 Speaker 2: I invite everyone to do so. Well. 204 00:09:51,360 --> 00:09:53,280 Speaker 3: There's nothing boring about what's coming out of the Federal 205 00:09:53,280 --> 00:09:56,959 Speaker 3: Reserve these days, I assure you, the President, Let's talk 206 00:09:56,960 --> 00:09:59,920 Speaker 3: about the context you shared, the context against which you 207 00:10:00,040 --> 00:10:02,920 Speaker 3: wrote the March twenty twenty four paper for the Manhattan Institute. 208 00:10:03,080 --> 00:10:05,800 Speaker 3: The context right now is that the President has said 209 00:10:06,040 --> 00:10:10,480 Speaker 3: many times that he will have a majority soon at 210 00:10:10,520 --> 00:10:15,000 Speaker 3: the FED, more of his appointees than anyone else. A 211 00:10:15,040 --> 00:10:17,800 Speaker 3: lot of academic studies show that a loss of central 212 00:10:17,800 --> 00:10:22,080 Speaker 3: bank independence is often associated with higher borrowing costs. Do 213 00:10:22,120 --> 00:10:24,320 Speaker 3: you think that there is a risk to the President 214 00:10:24,400 --> 00:10:28,800 Speaker 3: being so directly involved in selecting governors who have a 215 00:10:28,840 --> 00:10:32,320 Speaker 3: certain view on rates. Let's set aside DEI and climate risks, 216 00:10:32,360 --> 00:10:34,920 Speaker 3: but we're talking monetary policy where the rate path should be. 217 00:10:35,920 --> 00:10:38,520 Speaker 2: You know, again, the president is entitled to his views 218 00:10:38,520 --> 00:10:40,920 Speaker 2: on monetary policy. I think everyone's entailed to their views 219 00:10:40,920 --> 00:10:43,040 Speaker 2: on monitary policy, and I'm delighted to hear views from 220 00:10:43,080 --> 00:10:45,840 Speaker 2: all I think it's very important to avoid groupthink. That 221 00:10:45,880 --> 00:10:48,120 Speaker 2: means hearing all views from all perspectives, and I'm very 222 00:10:48,120 --> 00:10:50,120 Speaker 2: happy to hear the President's views. But at the end 223 00:10:50,120 --> 00:10:52,120 Speaker 2: of the day, I make my analysis based on my 224 00:10:52,160 --> 00:10:54,560 Speaker 2: own understanding of economics and how the economy works, and 225 00:10:54,600 --> 00:10:57,400 Speaker 2: I just read it all out loud to everybody, and 226 00:10:57,840 --> 00:11:00,120 Speaker 2: I would hope that everyone else who is appointed the 227 00:11:00,160 --> 00:11:04,760 Speaker 2: Federal Reserve does the same. You know, presidents have always 228 00:11:04,920 --> 00:11:09,200 Speaker 2: appointed people to the Federal Reserve who thought about policy 229 00:11:09,800 --> 00:11:12,000 Speaker 2: in a way that they wanted to appoint people to 230 00:11:12,120 --> 00:11:12,839 Speaker 2: the FED. 231 00:11:14,320 --> 00:11:17,320 Speaker 3: You did stay on Friday on Live TV that you 232 00:11:17,360 --> 00:11:19,440 Speaker 3: had spoken to the President the day that you were confirmed. 233 00:11:19,480 --> 00:11:21,160 Speaker 4: That was just a congratulatory call. 234 00:11:21,400 --> 00:11:24,000 Speaker 2: You said, Yes, he called me to congratulate me after 235 00:11:24,000 --> 00:11:24,760 Speaker 2: I'd been sworn in. 236 00:11:25,960 --> 00:11:28,040 Speaker 3: If I'm curious what you would do if, in a 237 00:11:28,040 --> 00:11:31,960 Speaker 3: phone call the President directly asked you to vie for 238 00:11:32,000 --> 00:11:34,160 Speaker 3: a specific decision at the FED. 239 00:11:34,240 --> 00:11:37,880 Speaker 2: I would respectfully listen to his view and his analysis 240 00:11:37,920 --> 00:11:40,120 Speaker 2: of why interest rates should be wherever they think that 241 00:11:40,360 --> 00:11:42,280 Speaker 2: they should be. And he has been very forthright in 242 00:11:42,320 --> 00:11:44,760 Speaker 2: his view, right, which is not exactly the same as 243 00:11:44,760 --> 00:11:46,920 Speaker 2: the numbers that I put out there. There is a difference, right. 244 00:11:47,480 --> 00:11:49,800 Speaker 2: I would respectfully listen to his view. I would consider 245 00:11:49,800 --> 00:11:51,800 Speaker 2: his arguments, consider whether they had any merit, and then 246 00:11:51,800 --> 00:11:53,440 Speaker 2: I would make up my own mind based on my 247 00:11:53,520 --> 00:11:55,880 Speaker 2: own analysis. And I would do that whether it's the 248 00:11:55,920 --> 00:11:59,839 Speaker 2: President or anyone or any other you know, political actor. 249 00:12:00,400 --> 00:12:03,480 Speaker 3: Would you share publicly if that conversation were to take. 250 00:12:03,360 --> 00:12:07,320 Speaker 2: Place, Well, you know, as you can imagine, I've had 251 00:12:07,360 --> 00:12:11,079 Speaker 2: a number of conversations with the President about the economy, 252 00:12:11,120 --> 00:12:14,480 Speaker 2: about economic policy over the last you know, nine months, 253 00:12:14,480 --> 00:12:17,440 Speaker 2: about the economy, economic policy. A number of those conversations 254 00:12:17,480 --> 00:12:19,640 Speaker 2: that touched in the FED. Also, he's never asked me 255 00:12:19,880 --> 00:12:22,760 Speaker 2: to set policy in a specific way. So Amy never 256 00:12:22,760 --> 00:12:24,000 Speaker 2: asked me. It's never happened. 257 00:12:24,679 --> 00:12:28,080 Speaker 3: From my understanding. On the day that you were nominated, 258 00:12:28,200 --> 00:12:31,840 Speaker 3: you were interviewed, I believe by Scott Bessen, the treasure Secretary, 259 00:12:32,320 --> 00:12:34,600 Speaker 3: Susie Wiles, the White House Chief of Staff, and the President. 260 00:12:34,720 --> 00:12:37,800 Speaker 4: Did the rate path come up in those conversations. 261 00:12:37,320 --> 00:12:39,599 Speaker 2: No, he never asked me. He never asked me to 262 00:12:39,640 --> 00:12:42,440 Speaker 2: set policy in a specific way. He shared his view 263 00:12:42,440 --> 00:12:45,559 Speaker 2: about Monterey policy, the same view he says on TV 264 00:12:46,080 --> 00:12:48,199 Speaker 2: several times a week. You know, there's nothing about his 265 00:12:48,280 --> 00:12:50,320 Speaker 2: view about Monterey policy that I know that you don't know. 266 00:12:51,600 --> 00:12:53,640 Speaker 2: But he never asked me to set policy in a 267 00:12:53,640 --> 00:12:56,160 Speaker 2: specific way in nine months. 268 00:12:56,400 --> 00:12:59,640 Speaker 3: In nine months. So last Monday night you're confirmed by this. 269 00:12:59,679 --> 00:13:01,920 Speaker 3: Then Tuesday morning you have a phone call from the 270 00:13:01,920 --> 00:13:05,040 Speaker 3: president and then you walk into your very first FOMC meeting. 271 00:13:05,160 --> 00:13:07,400 Speaker 3: Can you share just a little bit about what it 272 00:13:07,480 --> 00:13:10,200 Speaker 3: is like to walk in? It was a historic meeting 273 00:13:10,280 --> 00:13:12,320 Speaker 3: on Monday. We didn't know who was going to be 274 00:13:12,320 --> 00:13:14,480 Speaker 3: in the room. Would you be confirmed? Would Lisa Cook 275 00:13:14,559 --> 00:13:16,480 Speaker 3: still be able to participate? 276 00:13:16,600 --> 00:13:17,280 Speaker 4: What was that like? 277 00:13:18,040 --> 00:13:21,920 Speaker 2: It was? It was cordial, it was collegial, It was friendly, 278 00:13:21,960 --> 00:13:24,080 Speaker 2: it was respectful, and I was very appreciative of that. 279 00:13:24,120 --> 00:13:26,720 Speaker 2: Everybody was very welcoming, you know, and it was a 280 00:13:26,720 --> 00:13:29,120 Speaker 2: good discussion. And you know, the way that it works 281 00:13:29,240 --> 00:13:33,079 Speaker 2: is the staff make their presentation, Participants are allowed to 282 00:13:33,120 --> 00:13:36,160 Speaker 2: ask the staff questions. Participants read their views of the 283 00:13:36,160 --> 00:13:39,040 Speaker 2: economy and about appropriate monetary policy, and there was a 284 00:13:39,080 --> 00:13:43,080 Speaker 2: forthright exchange of views, and you know, lots of diversity 285 00:13:43,080 --> 00:13:45,480 Speaker 2: of views. And I appreciated that conversation and everybody was 286 00:13:45,559 --> 00:13:48,199 Speaker 2: just very kind, and you know that meant a lot 287 00:13:48,240 --> 00:13:51,240 Speaker 2: to me. And you know, in the press conference, Chairman 288 00:13:51,240 --> 00:13:54,960 Speaker 2: Powell said something which I think really resonated, which is 289 00:13:55,000 --> 00:13:57,880 Speaker 2: that the way the FMC works is by persuasion. Right. 290 00:13:58,320 --> 00:14:01,120 Speaker 2: People go there, they have their view, and they try 291 00:14:01,160 --> 00:14:03,360 Speaker 2: and convince other people of their view. Now, I don't 292 00:14:03,360 --> 00:14:06,800 Speaker 2: think that persuasion actually tends to happen at the meeting because, 293 00:14:07,160 --> 00:14:09,439 Speaker 2: let's face it, with nineteen people in just a few hours, 294 00:14:09,440 --> 00:14:11,640 Speaker 2: you're never going to really reach a consensus on a 295 00:14:11,640 --> 00:14:14,199 Speaker 2: lot of issues in that short amount of time. Conversation. 296 00:14:14,840 --> 00:14:17,600 Speaker 2: It happens in between, right, And that's what I'm trying 297 00:14:17,600 --> 00:14:19,600 Speaker 2: to do today, right, is I'm trying to tell people 298 00:14:19,640 --> 00:14:22,200 Speaker 2: there's a reason why policy rates are too high. It's 299 00:14:22,200 --> 00:14:25,840 Speaker 2: because there's been substantial changes in immigration, there's been substantial 300 00:14:25,880 --> 00:14:28,560 Speaker 2: changes in tariff revenue. And these need to be incorporated 301 00:14:28,600 --> 00:14:31,320 Speaker 2: into our economic models because they're relevant for how monetary 302 00:14:31,360 --> 00:14:35,000 Speaker 2: policy is set. And that's how I'm going to approach 303 00:14:35,120 --> 00:14:37,640 Speaker 2: my time at the Federal Reserve is to lay up 304 00:14:37,680 --> 00:14:40,240 Speaker 2: my economic arguments as clearly and transparently as I can, 305 00:14:40,400 --> 00:14:43,160 Speaker 2: and hope to persuade people by the force of the economics. 306 00:14:43,400 --> 00:14:46,720 Speaker 2: I don't think, I really don't think the idea that 307 00:14:47,000 --> 00:14:50,480 Speaker 2: population growth affects neutral interest rates as a controversial view. 308 00:14:50,760 --> 00:14:55,560 Speaker 2: This was a universally held accepted fact. Probably nearly there's 309 00:14:55,560 --> 00:14:58,840 Speaker 2: always an exception. Probably a nearly universally held accepted fact. 310 00:14:59,040 --> 00:15:01,520 Speaker 2: Five or six years ago, everyone would have almost everybody 311 00:15:01,520 --> 00:15:04,960 Speaker 2: would have agreed sure population growth effects neutral interest rates. 312 00:15:05,120 --> 00:15:08,200 Speaker 2: Countries with high population growth have high neutral interest rates. 313 00:15:08,200 --> 00:15:11,400 Speaker 2: Countries low population growth have loan neutral interest rates. Well, 314 00:15:11,440 --> 00:15:14,800 Speaker 2: we just had a major swing in population growth because 315 00:15:14,840 --> 00:15:17,280 Speaker 2: of the changes in border policy, and in my mind, 316 00:15:17,400 --> 00:15:20,320 Speaker 2: it's incumbent upon us as policy makers to think about 317 00:15:20,360 --> 00:15:22,680 Speaker 2: that when we think about where appropriate mantar policy should be. 318 00:15:24,120 --> 00:15:27,640 Speaker 3: Governor Martin, you're talking about your approach while you're at 319 00:15:27,640 --> 00:15:31,640 Speaker 3: the FED. You have a few short months, and it 320 00:15:31,720 --> 00:15:33,720 Speaker 3: seems like a little bit of a caretaker role that 321 00:15:33,760 --> 00:15:37,400 Speaker 3: should be taken seriously. You've also come out of the 322 00:15:37,400 --> 00:15:40,880 Speaker 3: gate quite strong. You had your descent last week. We 323 00:15:40,920 --> 00:15:43,400 Speaker 3: saw you on the airwaves on Friday, and now you've 324 00:15:43,480 --> 00:15:46,240 Speaker 3: laid out in detail your views to be transparent. As 325 00:15:46,280 --> 00:15:48,920 Speaker 3: you said, what should we make of your approach are 326 00:15:48,920 --> 00:15:52,720 Speaker 3: you hoping to spend these few short months persuading on 327 00:15:52,760 --> 00:15:56,680 Speaker 3: a board that is run by a chair whose ultimate 328 00:15:56,720 --> 00:15:58,920 Speaker 3: job is to forge consensus. 329 00:15:59,680 --> 00:16:02,560 Speaker 2: Yeah, I mean, look, you know, I'm I think at 330 00:16:02,560 --> 00:16:05,280 Speaker 2: the end of the day, you know, I just try 331 00:16:05,320 --> 00:16:09,160 Speaker 2: and think things through myself and ask questions to try 332 00:16:09,200 --> 00:16:12,840 Speaker 2: and figure out where consensus might be complacent and wrong. 333 00:16:13,480 --> 00:16:15,400 Speaker 2: And I've always done that and I think you sort 334 00:16:15,400 --> 00:16:17,240 Speaker 2: of see that on you know, some of my previous 335 00:16:17,240 --> 00:16:20,600 Speaker 2: writing on tariffs, for instance, right, you know, the idea 336 00:16:20,640 --> 00:16:22,640 Speaker 2: that you would be able to implement these things without 337 00:16:22,640 --> 00:16:26,400 Speaker 2: significant retaliation was once very out of consensus, and now 338 00:16:26,440 --> 00:16:28,760 Speaker 2: I think a lot of folks are coming along to 339 00:16:28,800 --> 00:16:32,240 Speaker 2: that direct, you know, sort of to that view. The 340 00:16:32,320 --> 00:16:35,000 Speaker 2: same is true of this. I will be as independent 341 00:16:35,200 --> 00:16:37,840 Speaker 2: as I can in thinking through monetary policy, and that 342 00:16:37,920 --> 00:16:40,040 Speaker 2: means not only in a political sense, but in an 343 00:16:40,040 --> 00:16:43,360 Speaker 2: intellectual sense as well. On the FMC, and I view 344 00:16:43,440 --> 00:16:48,480 Speaker 2: my job as trying to provoke an interesting discussion that 345 00:16:48,520 --> 00:16:53,080 Speaker 2: will help that will help the FOMC arrive at arrive 346 00:16:53,120 --> 00:16:56,560 Speaker 2: at arrive at clear clearer understandings of the way the 347 00:16:56,560 --> 00:16:59,360 Speaker 2: economy works and where Monterey policy should be set. It's 348 00:16:59,400 --> 00:17:02,240 Speaker 2: a few short mind. But you know, I've got I 349 00:17:02,280 --> 00:17:04,160 Speaker 2: think a lot of a lot of content to work through. 350 00:17:04,160 --> 00:17:07,600 Speaker 3: In those months, you shared that you're using CEA data 351 00:17:07,680 --> 00:17:10,440 Speaker 3: right now, but you're looking forward to working with FED 352 00:17:10,480 --> 00:17:13,960 Speaker 3: staff as well as you move forward. You talked about 353 00:17:14,000 --> 00:17:16,560 Speaker 3: population growth and other data points that you're looking at. 354 00:17:16,640 --> 00:17:18,720 Speaker 3: Can you share with us a little bit about your 355 00:17:18,800 --> 00:17:23,240 Speaker 3: views on the power of a descent. We saw governors 356 00:17:23,400 --> 00:17:27,800 Speaker 3: Mickey Bowman and Chris Waller over the summer descent against 357 00:17:27,800 --> 00:17:33,000 Speaker 3: Powell or the board. A few months prior, Governor Waller 358 00:17:33,080 --> 00:17:36,160 Speaker 3: was on Bloomberg TV actually talking about how he views 359 00:17:36,200 --> 00:17:39,880 Speaker 3: dissent as you do it once and then you've made 360 00:17:39,880 --> 00:17:43,080 Speaker 3: your point, and maybe you back off and see how 361 00:17:43,119 --> 00:17:46,920 Speaker 3: the economy develops and how the discussion goes. First, I'm 362 00:17:46,920 --> 00:17:48,760 Speaker 3: curious your views on that, and then I'm curious about 363 00:17:48,760 --> 00:17:50,160 Speaker 3: how you're going to be the October meeting. 364 00:17:50,960 --> 00:17:53,720 Speaker 2: Yeah, I mean, look, you know, I arrive at a view. 365 00:17:54,520 --> 00:17:56,439 Speaker 2: I do a lot of careful thinking. I arrive at 366 00:17:56,440 --> 00:17:59,000 Speaker 2: a view, and then I will sort of continue, you know, 367 00:17:59,160 --> 00:18:01,880 Speaker 2: until my view change. I will continue arguing for that view. 368 00:18:02,119 --> 00:18:04,199 Speaker 2: And if that means continuing to descent, that means continuing 369 00:18:04,240 --> 00:18:06,840 Speaker 2: to dissent. I don't view you know, look, I will 370 00:18:06,840 --> 00:18:10,800 Speaker 2: always be polite and collegial, but I don't view voting 371 00:18:10,840 --> 00:18:13,720 Speaker 2: with the consensus for the sake of establishing an appearance 372 00:18:13,760 --> 00:18:17,399 Speaker 2: of a consensus, even if I disagree with it, to 373 00:18:17,480 --> 00:18:19,840 Speaker 2: be more important than trying to argue for what I 374 00:18:19,920 --> 00:18:23,240 Speaker 2: consider to be the correct policy. And if that means 375 00:18:23,280 --> 00:18:27,160 Speaker 2: that I keep on being I think, you know, sort 376 00:18:27,200 --> 00:18:29,920 Speaker 2: of sticking out from the crowd and sort of being 377 00:18:29,960 --> 00:18:32,119 Speaker 2: more individual in my views and more adiosyncratic in my 378 00:18:32,160 --> 00:18:34,119 Speaker 2: views I think than maybe the rest of the pumcy, 379 00:18:34,320 --> 00:18:35,919 Speaker 2: then that's the way it's going to be. I'm not 380 00:18:36,000 --> 00:18:37,840 Speaker 2: going to I'm not going to vote for something I 381 00:18:37,840 --> 00:18:40,080 Speaker 2: don't believe in just for the sake of creating an 382 00:18:40,080 --> 00:18:42,959 Speaker 2: illusion of consensus where where there is none. 383 00:18:43,359 --> 00:18:46,040 Speaker 3: So, depending on how the economy unfolds and what data 384 00:18:46,080 --> 00:18:48,480 Speaker 3: we see between now and the end of October, you 385 00:18:48,920 --> 00:18:51,679 Speaker 3: are willing to be the loan descent again in October 386 00:18:51,720 --> 00:18:54,800 Speaker 3: with fifty basis point dot on the plot? 387 00:18:54,880 --> 00:18:56,639 Speaker 4: Or are you hoping that more people join you? 388 00:18:56,880 --> 00:19:00,000 Speaker 2: Yeah, unless something unless something changes that would lead me 389 00:19:00,040 --> 00:19:02,440 Speaker 2: to change my economic view, right, I mean something could 390 00:19:02,480 --> 00:19:04,880 Speaker 2: change that would that would make change my economic view. 391 00:19:04,920 --> 00:19:06,320 Speaker 2: You know, there's any number of things that could that 392 00:19:06,320 --> 00:19:08,320 Speaker 2: could leave that, But as long as my current view 393 00:19:08,359 --> 00:19:10,800 Speaker 2: remains my operative view, I don't see why I would 394 00:19:10,960 --> 00:19:12,160 Speaker 2: vote for anything that's not my view. 395 00:19:14,240 --> 00:19:15,760 Speaker 3: You have a way of getting the attention of the 396 00:19:15,760 --> 00:19:18,480 Speaker 3: world of finance and economics with the words and phrases 397 00:19:18,520 --> 00:19:20,480 Speaker 3: that you use. A few months ago, it was the 398 00:19:20,520 --> 00:19:23,080 Speaker 3: notion of a mar A Lago accord that had a 399 00:19:23,080 --> 00:19:25,679 Speaker 3: lot of people buzzing, especially in the Bloomberg that I 400 00:19:25,720 --> 00:19:29,000 Speaker 3: live in. And now it's this concept of a third mandate, 401 00:19:29,240 --> 00:19:32,359 Speaker 3: which is a word or phrase that you did not 402 00:19:32,480 --> 00:19:33,240 Speaker 3: actually use. 403 00:19:34,240 --> 00:19:35,000 Speaker 4: Let's talk about this. 404 00:19:35,080 --> 00:19:38,840 Speaker 3: In your testimony, you brought up a piece of the 405 00:19:38,840 --> 00:19:40,120 Speaker 3: FED legislative mandate. 406 00:19:40,480 --> 00:19:41,800 Speaker 4: You noted the moderate. 407 00:19:41,520 --> 00:19:44,359 Speaker 3: Long term interest rates that comes right after the duel 408 00:19:44,400 --> 00:19:47,040 Speaker 3: that everyone looks at. Do you see the FED using 409 00:19:47,080 --> 00:19:49,520 Speaker 3: securities purchases to reduce long term rates? 410 00:19:50,119 --> 00:19:54,640 Speaker 2: Sure? So let me let me address there. The two 411 00:19:54,640 --> 00:19:57,480 Speaker 2: things you mentioned are related, right, and so like I 412 00:19:57,640 --> 00:20:00,320 Speaker 2: just have a personality that I like thoroughness, and I 413 00:20:00,440 --> 00:20:02,720 Speaker 2: like to, you know, sort of explore all the angles, 414 00:20:02,800 --> 00:20:05,800 Speaker 2: and I like to be exhaustive if I can. And 415 00:20:06,200 --> 00:20:09,280 Speaker 2: when I wrote that paper and trade policy last year 416 00:20:09,960 --> 00:20:14,359 Speaker 2: before joining any policy role, I was attempting to be 417 00:20:14,400 --> 00:20:17,480 Speaker 2: exhaustive and list every policy I could possibly imagine as 418 00:20:17,560 --> 00:20:20,199 Speaker 2: being able to affect the as being able to reduce 419 00:20:20,320 --> 00:20:25,560 Speaker 2: narrow the national accounts. I never advocated for that mar 420 00:20:25,640 --> 00:20:27,520 Speaker 2: Lago accord. In fact, it wasn't even my idea. I 421 00:20:27,560 --> 00:20:30,359 Speaker 2: was quoting somebody else's idea and gave him due credit 422 00:20:30,440 --> 00:20:32,800 Speaker 2: in the citations and in the text as a result 423 00:20:32,840 --> 00:20:34,960 Speaker 2: of it, and I underlined that it wasn't a policyroposal. 424 00:20:35,200 --> 00:20:38,720 Speaker 2: It wasn't. Sorry, it wasn't policy advocacy, but I like 425 00:20:38,760 --> 00:20:41,200 Speaker 2: to be a thorough and so I included it. Uh, 426 00:20:41,240 --> 00:20:43,480 Speaker 2: And it was uh. You know, it continued to haunt 427 00:20:43,520 --> 00:20:47,440 Speaker 2: me for many months after that, just despite despite that, 428 00:20:47,960 --> 00:20:50,080 Speaker 2: this this third mandate stuff is the same thing, right, 429 00:20:50,160 --> 00:20:52,240 Speaker 2: Like you know, like I take a job seriously, and 430 00:20:52,520 --> 00:20:54,919 Speaker 2: if I get asked to go to the Federal Reserve Board, 431 00:20:55,000 --> 00:20:57,280 Speaker 2: I will look up the statutes that and I'm a lawyer, 432 00:20:57,320 --> 00:20:59,600 Speaker 2: but you know I can read. And so I'll look 433 00:20:59,640 --> 00:21:02,000 Speaker 2: up the statutes that govern the Federal Reserve Board, and 434 00:21:02,040 --> 00:21:05,320 Speaker 2: I see that the Congress assigned the FED stable prices, 435 00:21:05,359 --> 00:21:07,920 Speaker 2: maximumployment and moderate long term interest rates. So when I'm 436 00:21:07,960 --> 00:21:10,320 Speaker 2: testifying in front of the Congress, I will just repeat 437 00:21:10,320 --> 00:21:14,639 Speaker 2: their own words back to them. There's nothing more to 438 00:21:14,720 --> 00:21:19,359 Speaker 2: it than that, you know. I think most people generally 439 00:21:20,119 --> 00:21:23,119 Speaker 2: leave the third part out because they think that it's 440 00:21:23,160 --> 00:21:25,280 Speaker 2: implied by the first two, like that if you are 441 00:21:25,320 --> 00:21:27,600 Speaker 2: going to achieve stable prices and you're going to achieve 442 00:21:27,920 --> 00:21:31,600 Speaker 2: maximum employment, then moderate long term interstrates will necessarily fall 443 00:21:31,600 --> 00:21:34,479 Speaker 2: out of that. I think that's what most people typically do. 444 00:21:34,520 --> 00:21:37,320 Speaker 2: They leave it unsaid for that reason. But just because 445 00:21:37,320 --> 00:21:40,200 Speaker 2: I'm a thorough person and because I was in front 446 00:21:40,200 --> 00:21:42,120 Speaker 2: of the Congress, I wanted to be respectful of their 447 00:21:42,119 --> 00:21:44,200 Speaker 2: words and not my interpretation of their words. 448 00:21:44,600 --> 00:21:46,440 Speaker 3: There's been a lot of talk about the balance sheet. 449 00:21:46,840 --> 00:21:51,000 Speaker 3: Treasure Secretary Scott Bessant has laid out in detail in 450 00:21:51,320 --> 00:21:53,879 Speaker 3: a lengthy essay about the Federal Reserve and his views 451 00:21:53,880 --> 00:21:56,199 Speaker 3: on it. We've heard about it from Kevin Worrish, a 452 00:21:56,200 --> 00:21:58,800 Speaker 3: former FED official who is in the running to possibly 453 00:21:58,800 --> 00:22:02,119 Speaker 3: be nominated FED chair. I'm curious what you make of 454 00:22:02,200 --> 00:22:06,560 Speaker 3: Beson's criticism of the Fed's large balance sheets and mission 455 00:22:06,560 --> 00:22:07,960 Speaker 3: creep that he points to. 456 00:22:08,440 --> 00:22:12,080 Speaker 2: So you know, I've also been very critical of mission creep. 457 00:22:12,359 --> 00:22:14,320 Speaker 2: We talked a little bit about it before in the 458 00:22:14,600 --> 00:22:21,639 Speaker 2: discussion about FED independence. The balance sheet. I believe the 459 00:22:21,640 --> 00:22:24,760 Speaker 2: balance sheet became as big as it is in part 460 00:22:24,880 --> 00:22:30,639 Speaker 2: because of previous asset purchases that weren't strictly necessary. You know, 461 00:22:30,720 --> 00:22:32,960 Speaker 2: I think that if you look at you know, the 462 00:22:33,000 --> 00:22:36,560 Speaker 2: FED was still buying mortgage securities when housing prices were 463 00:22:36,600 --> 00:22:38,879 Speaker 2: up double digits or twenty percent, I think twenty percent 464 00:22:39,080 --> 00:22:42,639 Speaker 2: year year in the way of the pandemic. So I 465 00:22:42,640 --> 00:22:44,080 Speaker 2: don't think there was a need for the balance sheet 466 00:22:44,119 --> 00:22:46,280 Speaker 2: to get as large as it has. I think the 467 00:22:46,320 --> 00:22:48,879 Speaker 2: FED has been doing a good job of bringing it, 468 00:22:49,000 --> 00:22:53,960 Speaker 2: of reducing it. In my mind, though, focusing excessively on 469 00:22:54,000 --> 00:22:57,080 Speaker 2: the size of the balance sheet is more like focusing 470 00:22:57,119 --> 00:23:01,280 Speaker 2: on on on the symptom rather than cause. And like 471 00:23:01,280 --> 00:23:03,400 Speaker 2: I said a few days ago, you know, my view 472 00:23:03,480 --> 00:23:06,359 Speaker 2: is that the balance sheet size that you ultimately need 473 00:23:06,960 --> 00:23:09,960 Speaker 2: is ultimately falls out of the regulatory framework, because if 474 00:23:09,960 --> 00:23:12,639 Speaker 2: the regulatory framework requires a certain amount of reserves in 475 00:23:12,680 --> 00:23:16,560 Speaker 2: the system, the FED needs to provide that size of 476 00:23:16,600 --> 00:23:19,480 Speaker 2: a balance sheet in order to in order to allow 477 00:23:19,520 --> 00:23:21,120 Speaker 2: the banking system to have the capital and needs under 478 00:23:21,160 --> 00:23:25,080 Speaker 2: the regulatory framework, and so my view is that sort 479 00:23:25,080 --> 00:23:29,359 Speaker 2: of focusing on the on the balance sheet size is 480 00:23:29,359 --> 00:23:31,240 Speaker 2: focusing on the wrong on the wrong thing, and that 481 00:23:31,359 --> 00:23:33,160 Speaker 2: it's better to focus on the regulation and to get 482 00:23:33,160 --> 00:23:36,480 Speaker 2: the regulatory framework that you want correct, and then the 483 00:23:36,560 --> 00:23:38,080 Speaker 2: right size the balance sheet will kind of fall out 484 00:23:38,080 --> 00:23:38,240 Speaker 2: of that. 485 00:23:39,480 --> 00:23:41,880 Speaker 3: Do you think that the there should be more done 486 00:23:41,880 --> 00:23:43,880 Speaker 3: to focus on long term rates the way the President 487 00:23:43,920 --> 00:23:45,880 Speaker 3: says using the balance sheet? 488 00:23:45,880 --> 00:23:46,280 Speaker 4: Perhaps? 489 00:23:47,160 --> 00:23:49,520 Speaker 2: Uh? No, I mean I think that that you know 490 00:23:49,640 --> 00:23:53,120 Speaker 2: is historically the FED sets short term interest rates, right, 491 00:23:53,560 --> 00:23:56,720 Speaker 2: and then that affects financial a broad array of financial conditions, 492 00:23:56,720 --> 00:23:59,760 Speaker 2: including long term financial sort including long term interest rates. 493 00:24:00,520 --> 00:24:02,719 Speaker 2: And as long as you are, you know, sort of 494 00:24:02,760 --> 00:24:06,320 Speaker 2: not near the zero lower bound, you know, I think 495 00:24:06,359 --> 00:24:08,600 Speaker 2: that there's no need to sort of move towards trying 496 00:24:08,640 --> 00:24:10,080 Speaker 2: to capture additional instruments. 497 00:24:10,480 --> 00:24:12,840 Speaker 3: So you agree with that the FED has a dual mandate. 498 00:24:13,000 --> 00:24:16,000 Speaker 3: There's confusion out there after you listed, like you said, 499 00:24:16,040 --> 00:24:18,320 Speaker 3: read back the law of Congress that there's now a 500 00:24:18,359 --> 00:24:22,080 Speaker 3: third mandate policy, especially with the President talking about lowering 501 00:24:22,119 --> 00:24:23,159 Speaker 3: long term interest right. 502 00:24:23,320 --> 00:24:26,119 Speaker 2: Yeah, Well, look, Congress gave the Congress gave the Fed 503 00:24:27,160 --> 00:24:28,800 Speaker 2: those words that I read that I read in front 504 00:24:28,840 --> 00:24:30,720 Speaker 2: of them, and that you quoted before. Now, as I 505 00:24:30,760 --> 00:24:33,000 Speaker 2: said before, I don't think moderate long term interest rates 506 00:24:33,040 --> 00:24:36,080 Speaker 2: are necessarily you know, in action item at the present, right, 507 00:24:36,080 --> 00:24:38,920 Speaker 2: Like I'm focused on bringing inflation down sustainably to two percent, 508 00:24:39,119 --> 00:24:42,960 Speaker 2: I'm focused on preventing deterioration the labor market that would 509 00:24:42,960 --> 00:24:45,919 Speaker 2: expand an apple gap, And I think those are the 510 00:24:45,960 --> 00:24:48,640 Speaker 2: primary focus the listing. The third thing is just an 511 00:24:48,680 --> 00:24:50,760 Speaker 2: you know, an item of completeness. But it's not for 512 00:24:50,800 --> 00:24:53,240 Speaker 2: me to tell Congress they didn't say something. They've said, sorry, 513 00:24:53,280 --> 00:24:55,040 Speaker 2: they didn't enact something. They enacted. 514 00:24:55,760 --> 00:24:58,280 Speaker 3: One thing that the President is acutely focused on is 515 00:24:59,200 --> 00:25:02,680 Speaker 3: housing costs for the average American. Is there anything more 516 00:25:02,720 --> 00:25:06,560 Speaker 3: that the FED could do to influence mortgage rates or 517 00:25:06,720 --> 00:25:09,280 Speaker 3: just alleviate some of that pressure in the economy. 518 00:25:09,880 --> 00:25:11,960 Speaker 2: Yeah, So, as I said a moment ago, you know, 519 00:25:12,040 --> 00:25:14,359 Speaker 2: the FED controls the short term interust rate, the overnight 520 00:25:14,359 --> 00:25:17,520 Speaker 2: industrate in the economy, right, and financial conditions more broadly 521 00:25:17,560 --> 00:25:20,680 Speaker 2: across a range of items, including longer term interist rates, 522 00:25:20,720 --> 00:25:24,240 Speaker 2: credit spreads, the dollar, mortgage rates. Right, they all sort 523 00:25:24,280 --> 00:25:27,920 Speaker 2: of can be responsive to changes in short term interest rates. 524 00:25:28,240 --> 00:25:32,080 Speaker 2: And so if the FED continues to ease policy. Presumably 525 00:25:32,320 --> 00:25:36,240 Speaker 2: that will bring mortgage rates down to an extent. Right, 526 00:25:36,440 --> 00:25:40,680 Speaker 2: bringing mortgage rates down will help, you know, unlock additional 527 00:25:40,720 --> 00:25:44,760 Speaker 2: home building, will help unlock additional investment in housing. However, 528 00:25:45,440 --> 00:25:47,399 Speaker 2: you know the degree to which mortgage rates come down 529 00:25:47,480 --> 00:25:50,760 Speaker 2: versus other financial conditions. Listening, you know, I don't. I 530 00:25:50,800 --> 00:25:53,800 Speaker 2: don't have a firm sense of exactly which which one 531 00:25:53,840 --> 00:25:55,480 Speaker 2: is being pulled at this given moment. 532 00:25:56,720 --> 00:25:59,760 Speaker 3: Talk to us a little bit about the Fed's inflation. 533 00:26:00,440 --> 00:26:03,000 Speaker 3: Do you think that the two percent range is the 534 00:26:03,040 --> 00:26:04,920 Speaker 3: appropriate goal? 535 00:26:05,760 --> 00:26:10,160 Speaker 2: Sure? So, first, let me reiterate my commitment to bring 536 00:26:10,160 --> 00:26:17,320 Speaker 2: inflation sustainably down. Second, let me say that any perspective 537 00:26:17,400 --> 00:26:22,000 Speaker 2: changes to an inflation target should only ever be entertained 538 00:26:22,560 --> 00:26:27,720 Speaker 2: after after a material period of the FED achieving its 539 00:26:27,720 --> 00:26:31,199 Speaker 2: inflation target. To avoid any appearance of moving the goalposts, 540 00:26:31,920 --> 00:26:35,240 Speaker 2: you should never even entertain that idea after after being 541 00:26:35,280 --> 00:26:40,960 Speaker 2: off target for a period of time. That said, you know, 542 00:26:41,160 --> 00:26:45,919 Speaker 2: my view is that measuring inflation is incredibly difficult. And 543 00:26:46,680 --> 00:26:48,040 Speaker 2: you know, when you look at when you when you 544 00:26:48,080 --> 00:26:51,080 Speaker 2: get into the guts of how inflation is measured, there's 545 00:26:51,119 --> 00:26:56,679 Speaker 2: all sorts of things that you know are strange, Right, So, 546 00:26:56,720 --> 00:26:58,119 Speaker 2: for instance, you know, probably a lot of people in 547 00:26:58,119 --> 00:27:00,920 Speaker 2: this room in finished services. Right. So when the stock 548 00:27:01,000 --> 00:27:06,760 Speaker 2: market moves higher, financial managers, advisors, asset managers, they get 549 00:27:06,760 --> 00:27:09,280 Speaker 2: more income because the base is higher, right, and sort 550 00:27:09,320 --> 00:27:13,000 Speaker 2: of a constant fee times a higher base. Right. The 551 00:27:13,040 --> 00:27:17,679 Speaker 2: way that inflation is calculated then generates inflation in the 552 00:27:17,720 --> 00:27:21,520 Speaker 2: portfolio management section of the personal consumption expenditures index. Right. 553 00:27:21,920 --> 00:27:25,679 Speaker 2: So the fact that the stock market goes up mechanically 554 00:27:25,760 --> 00:27:29,520 Speaker 2: leads to higher inflation the way it's measured. Right. So 555 00:27:29,800 --> 00:27:32,679 Speaker 2: you know, obviously if you'd if you'd took that literally, 556 00:27:32,760 --> 00:27:35,840 Speaker 2: the FED would hiking response to that, right. So my 557 00:27:36,000 --> 00:27:38,080 Speaker 2: view is that that's sort of like a weird that's 558 00:27:38,080 --> 00:27:40,399 Speaker 2: a weird thing, right, And I just think that inflation 559 00:27:40,440 --> 00:27:42,240 Speaker 2: is very, very difficult to measure, and so having a 560 00:27:42,359 --> 00:27:47,840 Speaker 2: very precise inflation target like that can lead to excessive micromanagement. Instead, 561 00:27:47,840 --> 00:27:50,240 Speaker 2: if you look before twenty twelve, the FED didn't have 562 00:27:50,240 --> 00:27:53,880 Speaker 2: a formal target at all. They pursued low and stable prices. 563 00:27:54,080 --> 00:27:57,960 Speaker 2: Right to me, that's an interesting way of doing things. Also, 564 00:27:59,320 --> 00:28:02,080 Speaker 2: you know, the target was really introduced in twenty twelve 565 00:28:02,359 --> 00:28:04,879 Speaker 2: as a bulwark against deflationary risk in the wake of 566 00:28:04,880 --> 00:28:07,399 Speaker 2: the Great Financial Crisis, when the FED was at the 567 00:28:07,480 --> 00:28:10,720 Speaker 2: zero lower bound and felt the need to further credibly 568 00:28:10,800 --> 00:28:15,840 Speaker 2: enforce a commitment to positive inflation. And so, you know, 569 00:28:16,000 --> 00:28:20,280 Speaker 2: I think there's sort of very interesting questions about how 570 00:28:20,320 --> 00:28:22,639 Speaker 2: would you actually want to set MANTA policy over the 571 00:28:22,680 --> 00:28:26,080 Speaker 2: longer term. But I do want to emphasize that these 572 00:28:26,160 --> 00:28:29,040 Speaker 2: questions should only ever be entertained in terms of changing 573 00:28:29,119 --> 00:28:33,040 Speaker 2: the framework after the FED has successfully achieved its target 574 00:28:33,119 --> 00:28:35,440 Speaker 2: for a sustained period of time, to make sure that 575 00:28:35,480 --> 00:28:37,440 Speaker 2: there's no appearance whatsoever moving goalposts. 576 00:28:37,960 --> 00:28:42,760 Speaker 3: Governor Marion, thank you so much for taking my questions great. 577 00:28:42,920 --> 00:28:45,520 Speaker 2: Thank you all very much. And let's scrawling around with callus. 578 00:28:52,640 --> 00:28:53,720 Speaker 2: Thank you both. So you have it. 579 00:28:53,760 --> 00:28:56,720 Speaker 1: Live from the Economic Club of New York, Stephen Myron, 580 00:28:56,960 --> 00:28:59,200 Speaker 1: the FED Governor, the newest member of the FED, sitting 581 00:28:59,200 --> 00:29:02,640 Speaker 1: down with Bloomberg's Saliah Mosen for a conversation that you 582 00:29:02,640 --> 00:29:05,200 Speaker 1: will not hear anywhere else other than here on Bloomberg 583 00:29:05,240 --> 00:29:06,200 Speaker 1: TV and Radio.