WEBVTT - 33: How ``Fed Watching'' Became a Thing 0:00:06.160 --> 0:00:09.360 Hello, and welcome to Odd Lots. I'm Tracy Alloway, Executive 0:00:09.440 --> 0:00:13.319 editor at Bloomberg Markets, and I'm Joe Wisenthal, Managing editor 0:00:13.360 --> 0:00:17.639 at Bloomberg Markets. So, Joe, um, you know, eight times 0:00:17.640 --> 0:00:20.760 a year, markets kind of go through this ritual where 0:00:20.800 --> 0:00:25.040 we have policymakers from the Federal Reserve meeting to discuss 0:00:25.280 --> 0:00:29.880 US monetary policy. And today is actually one of those days. Yeah, 0:00:30.040 --> 0:00:33.560 so I'm partial to Jobs Day every month, non farm 0:00:33.560 --> 0:00:36.720 pay Day, first Friday every month is my favorite day. 0:00:36.920 --> 0:00:39.720 You know, It's like the Super Bowl twelve times a year. 0:00:39.760 --> 0:00:42.640 It's my favorite day. But in terms of excitement, the 0:00:43.120 --> 0:00:46.680 next closest day for me has to be obviously the 0:00:46.760 --> 0:00:49.680 eight times a year that the FED meets and decides 0:00:49.760 --> 0:00:53.960 what it's gonna do with monetary policy. And we're recording 0:00:54.080 --> 0:00:58.720 this on UM. Today is June fifteenth, so it's a 0:00:58.760 --> 0:01:01.360 Federal Reserved day. We were or to get before the decision, 0:01:01.400 --> 0:01:04.319 so we don't know what's gonna come after, but today 0:01:04.360 --> 0:01:08.520 we're going to talk about Federal Reserve and monetary policy. 0:01:08.520 --> 0:01:13.440 A book from a slightly broader perspective, right, so you 0:01:13.440 --> 0:01:16.680 know what happens on FED days, Right, Everyone goes kind 0:01:16.720 --> 0:01:19.360 of nuts. We have all the economists piling in making 0:01:19.400 --> 0:01:22.560 their predictions and then analyzing what actually happens. We have 0:01:22.640 --> 0:01:28.600 investors who are potentially repositioning their portfolios, analysts, the media. 0:01:28.840 --> 0:01:32.640 It's all anyone can ever talk about. But was this 0:01:32.840 --> 0:01:36.640 always the case, or was this degree of FED watching? 0:01:36.920 --> 0:01:39.840 You know, something relatively new that happened only in the 0:01:39.840 --> 0:01:42.479 past few years. We are going to speak with one 0:01:42.520 --> 0:01:54.600 of our all time favorite FED watchers to discuss We 0:01:54.680 --> 0:01:59.040 are here with Tim Dewey. He's professor at the University 0:01:59.080 --> 0:02:04.200 of Oregon, writes a fantastic blog basically devoted to watching 0:02:04.200 --> 0:02:06.360 the FED, and Tim is in studio with us. So 0:02:07.320 --> 0:02:09.600 welcome Tim, doing well, Thank you very much for having 0:02:09.639 --> 0:02:11.240 me today. It's a great day in New York and 0:02:11.320 --> 0:02:13.519 I have been having a great time. Thank you. So 0:02:13.760 --> 0:02:15.919 let's talk about the beginning right now, or let's take 0:02:15.919 --> 0:02:18.359 it from the beginning, because we know that FED Day 0:02:18.440 --> 0:02:22.440 is this huge, essentially market holiday, and there's everyone tries 0:02:22.520 --> 0:02:25.560 to pick a part the FED statement and look at 0:02:25.600 --> 0:02:27.720 every word and try to figure out what it means 0:02:27.760 --> 0:02:30.240 and the dots in the press conference. But was it 0:02:30.280 --> 0:02:34.960 always like that? It has become more involved over time. 0:02:35.160 --> 0:02:38.120 I started doing this back in the late ninety nineties, 0:02:38.680 --> 0:02:41.160 and at that point in time, it was it was 0:02:41.160 --> 0:02:44.720 still a big deal, but it wasn't the circus that 0:02:45.000 --> 0:02:48.720 is today, especially because we didn't have statements that were 0:02:48.800 --> 0:02:52.280 usually as as extensive, we didn't have a press conference 0:02:52.320 --> 0:02:57.560 to work with h And I think that over the 0:02:57.560 --> 0:03:00.440 period that I've been looking at it, well, another issue 0:03:00.520 --> 0:03:02.680 is that the monetary policy has become such a more 0:03:02.720 --> 0:03:06.639 important part of the economy. As we've transitioned away from, 0:03:06.680 --> 0:03:10.160 you know, less and less using fiscal policy as a 0:03:10.160 --> 0:03:12.960 as a stabilization tool, a lot of more emphasis has 0:03:12.960 --> 0:03:15.880 been put on the federals serve as as a stabilizer 0:03:16.440 --> 0:03:19.919 for for economic activity. So over that period of time, 0:03:19.960 --> 0:03:22.079 I think definitely, yes, we have seen much much more 0:03:22.120 --> 0:03:26.600 interest in the subject. And was there a moment where 0:03:26.639 --> 0:03:30.000 you kind of realized to yourself that fed watching had 0:03:30.400 --> 0:03:35.440 become a thing? Uh? Maybe when I started doing it 0:03:35.480 --> 0:03:38.720 as a job, was the was the time I thought 0:03:38.720 --> 0:03:41.800 it became a thing? You know? Uh? Again, because I've 0:03:41.800 --> 0:03:44.520 been doing it for for quite a while, I've been 0:03:44.560 --> 0:03:48.360 able to see it build and evolve over time, And 0:03:48.400 --> 0:03:51.960 so for me, there was no one sharp break that 0:03:52.080 --> 0:03:56.160 it became much more interesting. Although I would say that 0:03:56.240 --> 0:04:00.000 during the financial crisis, uh, it certainly rose in prominent. 0:04:00.040 --> 0:04:02.680 It's a great deal because it wasn't then just about 0:04:02.720 --> 0:04:06.080 interest rates. That's when you went down the road of 0:04:06.120 --> 0:04:09.520 the alphabet soup of of lending facilities to help ease 0:04:09.560 --> 0:04:12.120 the financial crisis, for example, you went down the realm 0:04:12.120 --> 0:04:15.680 of quantitative easing. Uh So, so the nature of the 0:04:15.720 --> 0:04:19.040 game did change, I think dramatically at that point. Became 0:04:19.120 --> 0:04:21.920 somewhat more complex too, and you did more direct forward 0:04:21.920 --> 0:04:26.080 guidance uh to the markets. And so sometime within the 0:04:26.160 --> 0:04:29.240 last since the financial crisis, I do think there has 0:04:29.279 --> 0:04:33.040 been a market increase in the attention that we give 0:04:33.040 --> 0:04:35.360 to the Federal Reserve, and and a lot of that's 0:04:35.400 --> 0:04:37.640 just due to the broader scope of the activities that 0:04:37.720 --> 0:04:42.840 it's engaged in. So let's get down to specifics you mentioned. Uh. 0:04:42.880 --> 0:04:46.560 You know, the actual Fed statements are longer today than 0:04:46.600 --> 0:04:48.280 they used to be. There's more words in them. Then 0:04:48.279 --> 0:04:51.120 they're all these following things. When you first started off, 0:04:51.160 --> 0:04:55.360 obviously there weren't press conferences. What do you see as 0:04:55.560 --> 0:05:00.159 having been the most significant changes to the job of 0:05:00.240 --> 0:05:03.320 watching the Fed over the time, and what do you 0:05:03.360 --> 0:05:05.160 make of those changes? Have they been for the better 0:05:05.200 --> 0:05:09.120 or worse? Generally? I think they've been for the better, 0:05:09.920 --> 0:05:12.280 a couple of big changes. When I started doing this, 0:05:12.440 --> 0:05:16.159 Alan Greenspan was was the chair, and it was I 0:05:16.200 --> 0:05:18.720 felt that was a very different environment in a number 0:05:18.720 --> 0:05:21.080 of respects, one of which is I thought really had 0:05:21.120 --> 0:05:23.120 to pay much more attention to the governors which were 0:05:23.120 --> 0:05:25.840 speaking more frequently. Plus you had to recognize that that 0:05:25.880 --> 0:05:30.200 Alan Greenspan was having a very large driving influence on 0:05:30.240 --> 0:05:33.839 the direction of policy. So in some sense that made 0:05:34.040 --> 0:05:35.960 made a little bit easier. I know that there's this 0:05:36.040 --> 0:05:40.560 view that Alan Greenspan is fairly opaque to understand, but 0:05:40.839 --> 0:05:43.039 it made it easier in the fact in the in 0:05:43.080 --> 0:05:44.800 the idea that you only had one person you had 0:05:44.839 --> 0:05:48.960 to understand UH. And so so that was something we 0:05:49.000 --> 0:05:51.360 lived with for quite a while. And that's something that 0:05:51.440 --> 0:05:55.120 I think has changed quite dramatically since the bernanke fed 0:05:55.440 --> 0:05:57.800 UH and the Yelling fed is that we do have 0:05:58.000 --> 0:06:01.720 a lot more speaking on the part of the president's UH. 0:06:01.760 --> 0:06:03.960 There seems to be a lot more influence from some 0:06:04.040 --> 0:06:06.920 presidents than that maybe I had since in the past. UH. 0:06:06.960 --> 0:06:08.560 And you know, Another issue is that we don't have 0:06:08.600 --> 0:06:11.440 as many governors talking as as part of that because 0:06:11.480 --> 0:06:13.839 we haven't had as many governors has been understaff for 0:06:13.839 --> 0:06:16.000 for for quite some time, we don't seem to have 0:06:16.040 --> 0:06:19.839 the the the governor speaking as much as they used 0:06:19.880 --> 0:06:23.320 to about policy, and that I think is something that 0:06:23.440 --> 0:06:27.600 is um that's something that's lost. I very much value 0:06:27.640 --> 0:06:31.599 that that core of the committee coming public on a 0:06:31.680 --> 0:06:36.080 frequent basis with their views as a guiding direction for 0:06:36.120 --> 0:06:38.400 the for for policy. And so what to what do 0:06:38.400 --> 0:06:42.000 you attribute that flip? So, just for those who aren't 0:06:42.000 --> 0:06:44.599 familiar with that, the presidents are the presidents of the 0:06:44.640 --> 0:06:47.760 regional federal reserve banks. The governors are in d C. 0:06:48.360 --> 0:06:50.600 And you said it used to be the governors talked more. 0:06:50.960 --> 0:06:53.159 Now we hear a lot more from the president. When 0:06:53.200 --> 0:06:55.960 did that change? And why is that? It seemed that 0:06:56.000 --> 0:07:00.160 it changed? For me, what I started to recognize it 0:07:00.200 --> 0:07:03.840 was sometime between that transition between the Greenspans FED and 0:07:04.040 --> 0:07:06.800 the Bernankee FED, where I thought that really that the 0:07:06.960 --> 0:07:11.240 voice from from the um the governors was becoming much 0:07:11.360 --> 0:07:15.560 much more distant. And why did that happen? I think 0:07:15.600 --> 0:07:19.800 that the governors now do not necessarily view that as 0:07:19.960 --> 0:07:23.080 as important part of their job as maybe the governors 0:07:23.120 --> 0:07:27.440 did in the past, that that public outreach aspect of 0:07:27.480 --> 0:07:30.680 it is something in some sense they seem to be 0:07:30.720 --> 0:07:32.920 leaving to many of the FED presidents rather than taking 0:07:32.960 --> 0:07:35.960 them on on themselves. It might also be because they 0:07:35.960 --> 0:07:39.840 don't want to seem as to be guiding policy, as 0:07:40.280 --> 0:07:42.400 you know, in the open as much as maybe they 0:07:42.400 --> 0:07:44.960 are in the background. So it sounds like you have 0:07:45.120 --> 0:07:49.040 this cacophony of FED voices. Now you also have a 0:07:49.200 --> 0:07:52.680 sort of a balance of power lacking in the form 0:07:52.720 --> 0:07:56.160 of the governors. You have all these new monetary stimulus 0:07:56.200 --> 0:07:59.360 measures that were announced since the crisis. F MC statements 0:07:59.360 --> 0:08:02.240 are getting long or does that make the job of 0:08:02.360 --> 0:08:05.600 FED watching more difficult? And what can you do to 0:08:05.720 --> 0:08:10.040 try to cut through all that noise nowadays? I do 0:08:10.120 --> 0:08:13.080 think it makes the job more difficult. Like I said earlier, 0:08:13.080 --> 0:08:15.360 when we just had Alan Greenspan to worry about, that 0:08:15.720 --> 0:08:18.640 made it I think much easier. But now you really 0:08:18.640 --> 0:08:21.800 do have to look at each speech, look at each 0:08:21.840 --> 0:08:25.880 president and see if they are making statements that are 0:08:25.920 --> 0:08:28.680 reasonably consistent with the rest of the group, and if 0:08:28.720 --> 0:08:32.040 they're not reasonably consistent. You have to then decide is 0:08:32.080 --> 0:08:33.960 this something we should just throw out or is this 0:08:34.040 --> 0:08:37.240 something that's going to be a you know, the way 0:08:37.240 --> 0:08:40.240 of the future, a change in policy. And it takes 0:08:40.280 --> 0:08:42.600 a lot of work to go through these speeches on 0:08:42.640 --> 0:08:46.880 a regular basis and understand where everybody is positioned. And 0:08:46.960 --> 0:08:50.960 that's you know, I think an increasingly large challenge for 0:08:50.960 --> 0:08:55.360 for for FED watching in general, and may involve that 0:08:55.480 --> 0:08:58.920 may reflect some of the confusion that that market participants 0:08:58.920 --> 0:09:01.520 seem to have about what is the FED really think? 0:09:01.640 --> 0:09:05.360 What is the Fed's fundamental reaction function? Because we're having 0:09:05.400 --> 0:09:08.959 a hard time piecing it together from all the individual talks, right, 0:09:09.000 --> 0:09:11.400 I mean, that's sort of like this big picture question 0:09:11.400 --> 0:09:14.120 because obviously the FED communicates in all these new ways. 0:09:14.160 --> 0:09:17.400 So there's a press conference and there wasn't one before, 0:09:17.480 --> 0:09:21.920 and there's the dot plot and that's an innovation, and um, 0:09:22.000 --> 0:09:25.680 then there's all this talk, but it still doesn't feel 0:09:25.880 --> 0:09:30.440 as though the market or anybody really knows what the 0:09:30.480 --> 0:09:33.920 FED cares about, what its target, what what as as 0:09:34.120 --> 0:09:37.560 people put it, its reaction function. So does that mean 0:09:37.600 --> 0:09:41.719 that it's not accomplishing all this extra communication, that it's 0:09:41.760 --> 0:09:44.280 not accomplishing what it's supposed to. I think Joe is 0:09:44.320 --> 0:09:46.840 trying to ask nicely, if you think the FEDS communication 0:09:46.960 --> 0:09:51.120 is effective? No, that's right, Um, I think it's or 0:09:51.240 --> 0:09:54.800 counter effective and like that, not just not effective, but 0:09:55.000 --> 0:09:59.959 that all all these things explicitly designed to prove clear 0:10:00.120 --> 0:10:04.720 they are having the opposite effect. Well, that's the problem 0:10:04.760 --> 0:10:07.040 is the more you try to clarify what you don't know, 0:10:07.280 --> 0:10:09.280 the more it's revealed that you don't really know what 0:10:09.320 --> 0:10:11.719 the future is. And they think that's what we've been 0:10:11.760 --> 0:10:18.000 falling into is these intense efforts of clarification, really, um, 0:10:18.920 --> 0:10:21.560 are revealing that the FED doesn't have as much better 0:10:21.600 --> 0:10:25.079 idea about the future as any of us. And I 0:10:25.280 --> 0:10:28.600 like to think that creates a more real environment in 0:10:28.640 --> 0:10:33.880 some sense where we recognize that what what what the 0:10:33.880 --> 0:10:36.079 FED things are going to do and what they actually 0:10:36.120 --> 0:10:38.320 do are very different things because they don't really know 0:10:38.400 --> 0:10:40.559 what the economy is going to do. And it's very 0:10:40.600 --> 0:10:43.920 difficult to uh in that environment when they're actually being 0:10:43.960 --> 0:10:46.400 much more open about that, to say, Okay, here's what 0:10:46.440 --> 0:10:48.720 they said. Why aren't they doing what they said? Well, 0:10:48.760 --> 0:10:51.880 you really have to go backwards and say what's going on? 0:10:51.920 --> 0:10:53.880 In the in the economy that that pulls it together. 0:10:54.160 --> 0:10:57.760 So um has this made it less effective of a 0:10:57.800 --> 0:11:01.880 communication strategy? It depends what their ultimate goal is. Right, 0:11:02.080 --> 0:11:05.319 If the ultimate goal of the communication strategy was to 0:11:05.559 --> 0:11:07.960 make it clear where interest rates are going to be, 0:11:08.880 --> 0:11:11.920 it's not particularly effective because they can't know it that 0:11:11.960 --> 0:11:15.760 in advance, and efforts to try to pretend like they 0:11:15.800 --> 0:11:18.600 know it in advance have not been very effective. And 0:11:18.640 --> 0:11:20.719 so that's where I think the communication strategy really kinds 0:11:20.720 --> 0:11:24.000 of falls apart, is when they started insinuate that they 0:11:24.040 --> 0:11:26.200 have a very good idea of where interest rates are 0:11:26.240 --> 0:11:29.520 going to be and and they can't get there. But 0:11:29.840 --> 0:11:34.800 and so another possible goal are actually arguably the real 0:11:34.840 --> 0:11:37.839 goal of the FED is to have full employment and 0:11:38.160 --> 0:11:43.440 stable prices. And so sure, sometimes market participants might complain 0:11:43.480 --> 0:11:44.680 it's like, oh, we don't know what the FED is 0:11:44.679 --> 0:11:47.760 gonna do, but perhaps that shouldn't be the measure by 0:11:47.760 --> 0:11:50.040 which we judge the FED, and we should measure them. 0:11:50.200 --> 0:11:52.880 And you know, unemployment rate has come down a lot 0:11:52.880 --> 0:11:56.440 since the financial crisis, and arguably inflate prices have been 0:11:56.520 --> 0:12:00.439 quite stable, so judged by those metrics, maybe it's all working. 0:12:00.600 --> 0:12:04.200 That's that's I think an excellent point is what do 0:12:04.240 --> 0:12:05.960 we expect the Federal Reserve to do? Well? It's not 0:12:05.960 --> 0:12:09.679 necessary to hold our hands through every FED meeting. We 0:12:09.720 --> 0:12:12.400 expect the Federal Reserve to deliver on its mandates of 0:12:12.559 --> 0:12:16.040 stable prices and full employment. And the extent that we're 0:12:16.080 --> 0:12:20.600 moving in that direction, UM quite well in many metrics, 0:12:20.800 --> 0:12:24.160 by many metrics. Is it really a siinus success for 0:12:24.200 --> 0:12:27.720 the institution? And the fact that maybe we don't always 0:12:27.800 --> 0:12:31.560 get what the next interest rate UM call is going 0:12:31.600 --> 0:12:34.240 to be, we don't always get that right. That's not 0:12:34.480 --> 0:12:38.320 necessarily a problem for the FED UM or for the 0:12:38.360 --> 0:12:41.240 economy as a whole. It's certainly a problem for you know, 0:12:41.280 --> 0:12:44.600 maybe market participants that that that have to worry about that, 0:12:44.840 --> 0:12:47.480 But that's not what we should be caring about as 0:12:47.480 --> 0:12:51.360 an eventual outcome of the FED tim We haven't actually 0:12:51.720 --> 0:12:54.920 talked about this much. But you are based in Oregon, 0:12:55.160 --> 0:12:59.760 whereas the vast majority of FED watchers are usually on 0:12:59.800 --> 0:13:03.280 the East coast. Um does that influence the way you 0:13:03.320 --> 0:13:07.040 work at all or how you analyze the Central Bank? Well? 0:13:07.080 --> 0:13:12.480 I think it has to two advantages. One is most 0:13:12.559 --> 0:13:14.200 of the news or a lot of news will come 0:13:14.240 --> 0:13:16.080 out at eight thirty in the morning when these data 0:13:16.120 --> 0:13:18.120 points are released, and maybe I'm just rolling out of 0:13:18.120 --> 0:13:20.320 bed at that point because it's five thirty on the 0:13:20.320 --> 0:13:23.920 West coast. UH. And the advantage there is that I'm 0:13:23.920 --> 0:13:26.480 not forced to be instant pundent quite as much. I 0:13:26.520 --> 0:13:30.560 get to digest maybe the information for a little bit 0:13:30.600 --> 0:13:33.280 longer before I'm able to comment or think about it. 0:13:34.000 --> 0:13:37.760 Another advantage is being outside the fray a little bit 0:13:37.960 --> 0:13:42.840 where I can take maybe a different perspective than UH. 0:13:43.440 --> 0:13:46.280 Then I'm not getting this sort of I'm not fed 0:13:46.360 --> 0:13:49.040 with the chatter, constant chatter in the background that might 0:13:49.080 --> 0:13:52.959 be influencing the way we sort of turned into group think, right, 0:13:53.000 --> 0:13:55.960 we start to develop a group thank if we're all 0:13:56.400 --> 0:13:58.480 talking about the same thing a lot, and I get 0:13:58.520 --> 0:14:02.680 pulled away from that because I'm as um engaged or 0:14:02.760 --> 0:14:06.960 exposed to you know that that that aspect of the job. 0:14:07.200 --> 0:14:10.120 So I think those are two advantages that the disadvantages 0:14:10.440 --> 0:14:12.920 just being a little bit further away from from the 0:14:13.640 --> 0:14:16.120 from the action, UH and not having quite as much 0:14:16.120 --> 0:14:20.720 of that um constant dated day UH chatter in the background. 0:14:20.960 --> 0:14:24.160 Here's another question, Tracy, and I as anyone who's listened 0:14:24.160 --> 0:14:26.600 to this podcast for a long time. Have a real 0:14:26.680 --> 0:14:31.440 soft spot for bloggers, uh and people who have made 0:14:31.440 --> 0:14:34.240 a name for themselves in a different route. I started 0:14:34.240 --> 0:14:37.040 following you because of your blog and you know, this 0:14:37.280 --> 0:14:42.200 um resource that exists outside of most media institutions that 0:14:42.640 --> 0:14:46.600 produced is such a top knowledge work. How significant has 0:14:46.640 --> 0:14:50.320 that been for you in your career? Uh, to have 0:14:50.640 --> 0:14:53.240 built this outlet that people come to and you know, 0:14:53.240 --> 0:14:54.880 in terms of making a name for yourself. For me, 0:14:54.960 --> 0:14:59.480 it's been very significant. I was very very lucky to 0:14:59.600 --> 0:15:03.280 be able to really re engage in this this policy 0:15:03.280 --> 0:15:06.760 debate after moving back to Oregon. I think we've been 0:15:06.880 --> 0:15:09.400 very very difficult to to end up back in this 0:15:09.440 --> 0:15:11.800 position had I not had the outlet of the blog. 0:15:12.160 --> 0:15:14.080 And for that I think, uh, you know my fellow 0:15:14.080 --> 0:15:17.960 blogger Mark Toma for starting his Economist Few blog and 0:15:18.280 --> 0:15:21.960 me being able to write on that. So I have 0:15:21.960 --> 0:15:24.680 a question. The more we talk about FED watching, the 0:15:24.680 --> 0:15:27.080 more I kind of get this vision of a bunch 0:15:27.120 --> 0:15:31.120 of economists with binoculars like looking at the Central Bank, 0:15:31.200 --> 0:15:33.480 like the way bird watchers kind of look at birds. 0:15:34.040 --> 0:15:38.880 What's been the most exciting bit of FED watching? What 0:15:38.960 --> 0:15:41.240 was the most exciting day for you. You've done this 0:15:41.280 --> 0:15:43.240 for many, many years now, there has to be one 0:15:43.280 --> 0:15:47.160 that kind of sticks out in your mind. Wow, there's 0:15:47.320 --> 0:15:50.720 so many that stick out over the years, like then 0:15:50.800 --> 0:15:53.800 the the financial crisis, there are so many days in 0:15:53.840 --> 0:15:56.400 there where we just had no idea what the FED 0:15:56.520 --> 0:15:59.600 was going to do next. UM And and so that 0:15:59.680 --> 0:16:02.720 was the was certainly a very exciting part point of time. 0:16:03.160 --> 0:16:08.280 UM last last fall when Governor Lyle Brainerd started coming 0:16:08.360 --> 0:16:13.000 on the scene much more aggressively worrying about the international aspects. 0:16:13.040 --> 0:16:14.760 Though it was a very exciting time for me in 0:16:15.280 --> 0:16:19.720 recent history of just something very different going on at 0:16:19.720 --> 0:16:23.320 the FED that people weren't paying attention to. Uh So, 0:16:23.320 --> 0:16:26.640 so in recent history that's that UM. In in past 0:16:26.720 --> 0:16:29.400 history or in in during the financial crisis, there are 0:16:29.400 --> 0:16:31.160 so many days of you know, we're going to cut 0:16:31.240 --> 0:16:35.280 rates fifty basis points out of nowhere that really resonate 0:16:35.520 --> 0:16:38.480 UM in my mind. So it's a hard question for me, Tracy, 0:16:38.560 --> 0:16:41.040 because there's so many of these things that that really 0:16:41.080 --> 0:16:43.720 stick in my memory now as being really prominent days. 0:16:43.720 --> 0:16:48.200 And I don't want to say my life, but let's 0:16:48.320 --> 0:16:51.400 bring it forward to the current era of sort of 0:16:51.440 --> 0:16:54.000 the FED and central banking. I feel we're at this point. 0:16:54.040 --> 0:16:57.960 I mean, people have been critical of world central banks 0:16:58.480 --> 0:17:01.600 quite a bit since the financial crisis, but of late, 0:17:01.800 --> 0:17:06.600 we're seeing negative interest rates the sort of novel policy tool, 0:17:07.240 --> 0:17:10.320 more and more central banks around the world. We're seeing 0:17:11.080 --> 0:17:14.040 more and more people call for the FED to assume 0:17:14.240 --> 0:17:20.840 a quasi fiscal role. Uh, whether it's explicitly funding monetization 0:17:21.000 --> 0:17:24.199 of government spending. It feels like we're at sort of 0:17:24.240 --> 0:17:27.320 this crossroads, or are at this point where people are 0:17:27.400 --> 0:17:30.960 questioning whether the traditional tools as we knew them of 0:17:31.040 --> 0:17:33.800 central banks are up to the task. How do you 0:17:33.840 --> 0:17:36.680 feel about some of these big debates? It does do 0:17:36.960 --> 0:17:40.760 central banks need to rethink their role in the world 0:17:40.800 --> 0:17:43.680 economy and what they can do in order to help 0:17:43.720 --> 0:17:47.560 the economy grow faster and have stable prices and all that. Right, 0:17:47.640 --> 0:17:52.040 central banks are already really engaged in that process because 0:17:52.520 --> 0:17:55.880 it's not about just interest rates anymore. For so many years, 0:17:55.960 --> 0:17:59.920 it was just basis points up, basis points down, something 0:18:00.119 --> 0:18:02.320 like that that was really guiding the general direction of 0:18:02.359 --> 0:18:06.280 financial markets and economies. Uh, we don't have that world anymore, right, 0:18:06.400 --> 0:18:09.639 So many countries are economies are nearer at the zero 0:18:09.640 --> 0:18:11.960 bound or below it that they do have to be 0:18:12.000 --> 0:18:15.560 engaged in different ways of thinking. And that's where we 0:18:15.600 --> 0:18:19.320 saw what where quantitative easing came from. For example, UH 0:18:19.440 --> 0:18:22.240 that we see in in in a number of central banks. 0:18:22.440 --> 0:18:27.080 We see very aggressive actions on the Bank of Japan UH. 0:18:27.119 --> 0:18:30.560 And one interesting, one interesting thing though, is that certainly 0:18:31.000 --> 0:18:32.879 maybe some of these which we have thought in the 0:18:32.880 --> 0:18:35.679 past would have been just crazy, you know, super aggressive 0:18:35.720 --> 0:18:39.679 policies have not always yielded quite the aggressive impacts that 0:18:39.720 --> 0:18:43.439 we would have thought, and that I think is showing 0:18:43.480 --> 0:18:47.280 you something about the limits of monetary policy. I know 0:18:47.440 --> 0:18:50.960 there's essentially two camps on this. One is that monetary 0:18:50.960 --> 0:18:53.160 policy just needs to get easier, right. We we need 0:18:53.200 --> 0:18:55.440 to push in the negative rates more deeply, we need 0:18:55.480 --> 0:18:58.560 more quantitative ease, and we need better forward guidance, and 0:18:58.640 --> 0:19:01.280 that's really the key. But the other camp I think 0:19:01.320 --> 0:19:05.480 is is realistic here and that there's there's a real 0:19:05.600 --> 0:19:09.760 need for fiscal policy that is more coordinated with the 0:19:09.800 --> 0:19:16.240 monetary policy. Right, it's ten and you still have persistent 0:19:16.520 --> 0:19:19.679 shortfalls of inflation targets pretty much everywhere in the world, 0:19:20.000 --> 0:19:23.080 despite the fact that you know, we've had this QUEUEI 0:19:23.359 --> 0:19:26.760 and all in several places tools which at the time 0:19:26.800 --> 0:19:30.040 they were announced seemed very radical and people thought it 0:19:30.040 --> 0:19:32.919 would be dramatic. So where do you fall on this? 0:19:33.359 --> 0:19:37.000 Do you think that the industry, I guess really doesn't 0:19:37.000 --> 0:19:40.840 require a rethink about how powerful it is, how powerful 0:19:40.920 --> 0:19:44.919 it's tools can be. I think that that's correct. It 0:19:45.000 --> 0:19:47.760 does have to rethink that, and I think it has 0:19:47.880 --> 0:19:52.000 rethought that. Um And you see central bankers oftentimes saying 0:19:52.040 --> 0:19:54.800 we could really use some more help from fiscal policy. 0:19:55.280 --> 0:19:58.920 We certainly saw that during the during the recession, were 0:19:59.000 --> 0:20:03.320 then UH chair Bernankey would would would say, you know, 0:20:03.320 --> 0:20:05.919 we could do some more help care And would that 0:20:05.960 --> 0:20:10.080 have been unthinkable in say the late nineties for UH 0:20:10.280 --> 0:20:13.160 for a major central banker to say, oh, we need 0:20:13.160 --> 0:20:16.800 more yea. So so I think that in late at 0:20:16.840 --> 0:20:18.400 that period of time, they would have been much more 0:20:18.440 --> 0:20:22.119 confident of their ability to guide the economy into a stable, 0:20:22.160 --> 0:20:26.359 equaliber in path essentially, and they should then leave fiscal 0:20:26.440 --> 0:20:28.919 policy to do a fiscal policymakers are supposed to do, 0:20:29.000 --> 0:20:31.960 which is considered decide what the size of the government 0:20:32.040 --> 0:20:34.479 is going to be, right, essentially, And that was a 0:20:34.480 --> 0:20:38.800 fairly easy distinction to make when you're operating, you know, 0:20:39.000 --> 0:20:44.639 an an acceptable um level of output for the economy. Now, 0:20:44.680 --> 0:20:47.720 I think it's much harder to make that case, and 0:20:47.760 --> 0:20:50.600 it's only gonna be harder to make that case if 0:20:50.640 --> 0:20:54.159 we go into this next recession with interest rates close 0:20:54.240 --> 0:20:57.520 to zero already. Then we're going to be pushed right 0:20:57.520 --> 0:21:01.080 back into a realm of of quantity using very quickly. 0:21:01.800 --> 0:21:03.359 And I think there's going to be quite a bit 0:21:03.400 --> 0:21:07.160 of discomfort around that. Congress was never really thrilled about 0:21:07.200 --> 0:21:10.359 the policy to begin with UH, and so you know, 0:21:11.240 --> 0:21:13.720 I think you know we're in a zone two were 0:21:13.760 --> 0:21:17.520 simple Bankers are very cautious about being too much of 0:21:17.560 --> 0:21:20.399 fiscal policymakers, and they'd really like that job to be 0:21:20.840 --> 0:21:25.680 taken back over by UM the fiscal side of the equation, 0:21:26.160 --> 0:21:29.879 But fiscal policymakers have been hesitant to do so because 0:21:30.320 --> 0:21:34.560 quite frankly, you need to rethink about how damaging debt 0:21:34.560 --> 0:21:38.040 and deficits are, and that's really holding back some of 0:21:38.040 --> 0:21:40.800 this debate. I don't want to leave our listeners thinking 0:21:40.840 --> 0:21:44.120 about the impotence of central bank policies and the debt 0:21:44.240 --> 0:21:48.679 overhang and all these quite sad and intractable problems facing 0:21:48.680 --> 0:21:51.760 our financial system. So Tim, maybe just to finish off, 0:21:52.280 --> 0:21:56.120 what are your best tips for people who are watching 0:21:56.119 --> 0:21:59.719 the FED or who want to improve their FED watching? 0:21:59.800 --> 0:22:04.760 Gay aim so to speak? So the best tips? Um, 0:22:05.440 --> 0:22:09.760 I think the most important thing is to remember that 0:22:09.800 --> 0:22:12.680 it's not about what you would do as a policymaker. 0:22:12.760 --> 0:22:15.160 It's about what the FED is going to do. So 0:22:15.240 --> 0:22:20.120 you have to remove your own personal biases from your 0:22:20.280 --> 0:22:23.840 analysis and your research. You really have to think about wealth. 0:22:23.960 --> 0:22:28.199 I'm Janet Yellen, I'm Lyle Brainer, I'm you know, a 0:22:28.280 --> 0:22:31.960 FED president. How am I going to react to this data? 0:22:32.560 --> 0:22:35.040 Uh not how myself would react to this data or 0:22:35.080 --> 0:22:37.000 what you know, why I think inflation should be or 0:22:37.040 --> 0:22:39.560 should not be. So I think that's the number one 0:22:40.240 --> 0:22:42.880 UM trap that people fall into when they're doing FED 0:22:42.920 --> 0:22:44.840 watching is they start to think the FED should do 0:22:44.920 --> 0:22:47.080 what they think they should do, and that's not that's 0:22:47.080 --> 0:22:49.720 not going to be a productive UM avenue at all, 0:22:50.200 --> 0:22:53.760 uh to to work with. So I think that's important. UM. 0:22:53.840 --> 0:22:56.880 Then the next thing is is along those lines, pay 0:22:56.920 --> 0:23:01.359 attention to what they say and how they read the data, 0:23:01.880 --> 0:23:04.840