WEBVTT - Jeffrey Schmid Talks Inflation Concerns, Fed Independence

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The big question for everybody, especially for Wall Street, is

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<v Speaker 2>what happens on September seventeenth.

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<v Speaker 3>So this is, as you know, kind of an interesting

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<v Speaker 3>month because we've got Jackson Hole and then we've got

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<v Speaker 3>quite a few weeks of data to kind of pull in.

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<v Speaker 3>So I'm really I think everybody's quite interested in some

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<v Speaker 3>of the maybe the prints that happened in the last

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<v Speaker 3>couple of months and kind of where they go from here.

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<v Speaker 3>So I'm I'm like everybody. I think there was some

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<v Speaker 3>fascinating conversations at the last FMC, As you know, there

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<v Speaker 3>were a couple of cents. I think my interpretation of

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<v Speaker 3>what's happening, especially in the labor market, is that the

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<v Speaker 3>first couple quarters, a lot of business people were just

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<v Speaker 3>saying there's uncertainty enough, and I think they kind of

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<v Speaker 3>cooled a little bit on higher side. But the most

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<v Speaker 3>recent couple of weeks that we've been talking to businesses

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<v Speaker 3>in the district, there seems to be a burgeoning optimism

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<v Speaker 3>again that they've kind of digested and they've been agile

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<v Speaker 3>enough to try to work their way through some of

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<v Speaker 3>the new policies from the administration and maybe going forward,

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<v Speaker 3>maybe we'll see a little bit uptick. That said, I

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<v Speaker 3>still believe there's that the inflation number is trending closer

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<v Speaker 3>to three than two.

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<v Speaker 2>Well, we saw that in the minutes that in general

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<v Speaker 2>the Open Market Committee felt that inflation was a bigger

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<v Speaker 2>danger at this point.

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<v Speaker 1>Would you say that's your view now?

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<v Speaker 4>It would be my view now.

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<v Speaker 3>I think with an understanding that what may have happened

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<v Speaker 3>in the first couple quarters on the labor side, which

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<v Speaker 3>I think concerned several people on the committee, me included.

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<v Speaker 3>But I think this PPI was interesting, that print was interesting.

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<v Speaker 3>But I really believe that when we talked to a

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<v Speaker 3>lot of a lot of folks in our district, is

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<v Speaker 3>that if you had to kind of lean or have

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<v Speaker 3>a bias toward, it would be on the inflation side.

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<v Speaker 2>Well, it sounds like what you're saying is that companies

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<v Speaker 2>may be feeling better about being able to keep employees

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<v Speaker 2>on the payroll, but they're going to have to raise prices.

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<v Speaker 4>I don't know. I think that.

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<v Speaker 3>What's interesting to me, Mike is is I think the

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<v Speaker 3>business has learned a lot in that twenty two to

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<v Speaker 3>twenty three cycle with the supply chain disruptions, and I

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<v Speaker 3>think a lot of them really made new decisions with

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<v Speaker 3>plan b's and c's relative to where their goods come from.

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<v Speaker 3>And I think they might not have prepared for terrorists,

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<v Speaker 3>but they might have prepared themselves for other supply shocks.

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<v Speaker 3>But it seems like they've adapted a lot of their

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<v Speaker 3>businesses from that experience.

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<v Speaker 4>So I actually think that the agility that they created.

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<v Speaker 3>From that experience is going to get them through this

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<v Speaker 3>next few quarters.

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<v Speaker 2>Well, then it sounds again that may you've moved toward

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<v Speaker 2>the middle in terms of whether you should hold rates

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<v Speaker 2>or cut rates.

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<v Speaker 3>You know, it's really fascinating you think about and you

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<v Speaker 3>have great experience in this when you get to the

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<v Speaker 3>policy table there when you're talking about it, everything's connected

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<v Speaker 3>to the to the dual mandate, right, and when inflation

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<v Speaker 3>is really ramping up, you have a blunt instrument and

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<v Speaker 3>you act, which is what we did. Now, as you

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<v Speaker 3>get closer to the optimum dual mandate numbers, it actually

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<v Speaker 3>becomes more difficult to make decisions on the margin relative

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<v Speaker 3>to where that policy rate should go. And so that

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<v Speaker 3>I think that's where you're seeing a lot of the

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<v Speaker 3>debate now is you know where's your lean is it?

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<v Speaker 3>Where do you believe things are too restrictive on the

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<v Speaker 3>policy rate side or not. I think they're modestly restrictive.

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<v Speaker 3>I'm still trying to find ways of what's being inhibited

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<v Speaker 3>in the economy from where are policy rate is today.

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<v Speaker 3>But I think we're on a good path.

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<v Speaker 2>So at this point, it probably would be a mistake

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<v Speaker 2>for Fairm and Powell on Friday to say definitely we're

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<v Speaker 2>going to cut as he did last year.

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<v Speaker 3>Yeah, yeah, I always can't wait for that speech. I

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<v Speaker 3>think he keeps it close fast. I wouldn't front round

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<v Speaker 3>him even if I knew. But I think that we've

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<v Speaker 3>been doing so much work this year around the framework,

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<v Speaker 3>around really getting into where how we get this soft

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<v Speaker 3>landing to two percent without breaking anything.

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<v Speaker 4>So I think he has a lot.

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<v Speaker 3>Of different directions to go, and I think it'll be

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<v Speaker 3>a very anticipated discussion.

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<v Speaker 2>Well speaking of the framework or about at that point

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<v Speaker 2>where he is expected to announce what you're going to do.

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<v Speaker 2>Is it basically going back to the old framework of

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<v Speaker 2>we will do whatever is best for the economy at

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<v Speaker 2>the time, as opposed to leaning towards one side or

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<v Speaker 2>the other.

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<v Speaker 4>Of the mandate.

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<v Speaker 3>Yeah, I think I'd say maybe two things on that.

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<v Speaker 3>I think we learned a ton. I mean, think about

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<v Speaker 3>the disruptions that we're created in that twenty twenty pandemic cycle,

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<v Speaker 3>and I think it was very instructive what we did

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<v Speaker 3>and how we did it through twenty twenty. That said,

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<v Speaker 3>you know, I think those learnings are going to come

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<v Speaker 3>out in the framework discussion. And I think the thing

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<v Speaker 3>I'm very interested in the framework is this whole concept

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<v Speaker 3>of transmission. I think we can all learn and try

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<v Speaker 3>to do better relative to how we transmit what we're

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<v Speaker 3>doing at the table, so one people understand what we're

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<v Speaker 3>doing and how we're doing it. And so I'm kind

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<v Speaker 3>of interested in even how we communicate and transmit the

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<v Speaker 3>activities and actions of the FLMC.

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<v Speaker 2>Well, you're on the inside and you're dealing with this

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<v Speaker 2>all the time, and I'm reporting on it.

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<v Speaker 1>So we care about the framework.

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<v Speaker 2>But I'm wondering how important the framework actually is in

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<v Speaker 2>the sense that they adopted a framework in twenty twenty,

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<v Speaker 2>it didn't work when we get the post pandemic inflation,

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<v Speaker 2>and the Chairman has already said, well, right after that,

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<v Speaker 2>we abandoned the framework and we went back to doing

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<v Speaker 2>what we needed to do at the time.

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<v Speaker 1>Does it really matter? We talk about it a lot,

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<v Speaker 1>Does it really matter?

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<v Speaker 3>I think you have to have something that kind of

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<v Speaker 3>frames around what you're trying to accomplish. I mean, you

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<v Speaker 3>have nineteen people at the table, you're trying to collaborate

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<v Speaker 3>and trying to have a consensus of some kind. I

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<v Speaker 3>think there's an expectation of those nineteen that we have

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<v Speaker 3>at least some sense of how we're going to take

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<v Speaker 3>and do our work best, and then how are we

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<v Speaker 3>going to transmit and communicate it after we make the decision.

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<v Speaker 3>So I think it matters because I think there's a

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<v Speaker 3>consistency it creates, even though you've got to have agility

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<v Speaker 3>as you're doing the work, and how you're going to

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<v Speaker 3>communicate it after you decide.

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<v Speaker 4>So I really do.

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<v Speaker 3>I've been there two years and I've been fascinated by

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<v Speaker 3>it all, and I think we're going to emerge with

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<v Speaker 3>something that I think is better than what we had.

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<v Speaker 2>Well, how do you think you should communicate going forward?

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<v Speaker 2>Because there are some people who are candidates for to

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<v Speaker 2>be the next chair who say the FED talks too much.

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<v Speaker 3>Yeah, wow, well you hear both sides of that coin

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<v Speaker 3>all the time. Right, One, do we keep too much

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<v Speaker 3>to our best?

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<v Speaker 4>Two?

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<v Speaker 3>Why aren't we doing more kind of transmitting future crystal

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<v Speaker 3>ball or or or how are we how are we

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<v Speaker 3>interpreting the numbers to a future event? Uh, you know,

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<v Speaker 3>the se P and the dot plot is maybe some

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<v Speaker 3>of that. But I don't hear a lot that we

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<v Speaker 3>that we don't talk enough or express ourselves enough. I

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<v Speaker 3>think it's more important where the American public is concerned.

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<v Speaker 3>As they understand, we do a better job on helping

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<v Speaker 3>them understand what.

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<v Speaker 4>We're doing and why we're doing it. Uh.

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<v Speaker 3>And and the dual mandate and the and the crispness

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<v Speaker 3>of those two mandates help us help us a.

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<v Speaker 4>Lot in the role we have.

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<v Speaker 2>I have to ask you about the latest presidential twe

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<v Speaker 2>and the attack on Lisa Cook, Governor Cook. I know

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<v Speaker 2>that FED officials will always say, we don't let politics come.

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<v Speaker 1>Into the boardroom.

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<v Speaker 2>We do just what we think we should do on

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<v Speaker 2>the account, we don't even talk about it.

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<v Speaker 1>But you've got to be getting sick of this.

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<v Speaker 3>Well, Look, I'm a little philosophical about the whole conversation

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<v Speaker 3>of FED independence and where our role is in the

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<v Speaker 3>American economy. We're almost two hundred and fifty years old

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<v Speaker 3>as a nation. I think there's something to be said.

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<v Speaker 3>We were built on words, and we continue to debate

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<v Speaker 3>those words legislatively and judicially, whatever whatever friction we might

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<v Speaker 3>have with other branches of the government. I think great

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<v Speaker 3>steels tested by fire. So what we can always eat better,

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<v Speaker 3>We can always do this better. But I think the

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<v Speaker 3>nature of independence and I think, don't believe me, believe

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<v Speaker 3>other nations that have central banks and don't it seems

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<v Speaker 3>to work. But I'm always open for the conversation of

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<v Speaker 3>how do we make it better?

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<v Speaker 1>Well?

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<v Speaker 2>Do you think the FED has suffered a hit to

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<v Speaker 2>credibility by the constant attacks from Washington?

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<v Speaker 3>So I think the credibility issue is more in are

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<v Speaker 3>we fulfilling our responsibility and role around the actions of

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<v Speaker 3>monetary policy and monetary operations? And I think the work

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<v Speaker 3>we do on behalf of the American people is very

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<v Speaker 3>important to their lifestyle and their living, and I want

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<v Speaker 3>to make sure that our reputations stay strong around the

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<v Speaker 3>things that we're mandated to do by Congress. Other than that,

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<v Speaker 3>there's a lot of noise outside of that dual mandate

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<v Speaker 3>and look, you take this chair, you do this job,

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<v Speaker 3>and people are going to have opinions, and I'm fine

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<v Speaker 3>with that.

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<v Speaker 2>Well, what kind of reaction do you get from people

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<v Speaker 2>around the district these days? Do people bring it up

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<v Speaker 2>and say, are you guys really on the level?

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<v Speaker 3>Yeah? We have those conversations several times a week. They're

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<v Speaker 3>really the most important conversations. What it helps us do

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<v Speaker 3>is it creates a real time experience and expression that

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<v Speaker 3>I can take to Washington at the FOMC table. But

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<v Speaker 3>I don't think we can communicate enough about the value

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<v Speaker 3>proposition of the feeder reserve. And I think a lot

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<v Speaker 3>of the things that we do, clearly, the monetary policy

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<v Speaker 3>thing gets a lot of press and it gets a

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<v Speaker 3>lot of notoriety. It's the monetary operations that we spend

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<v Speaker 3>most of our time doing, you know, safe and sound banks,

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<v Speaker 3>making sure payments get made every day around the globe,

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<v Speaker 3>and making sure that the research that we're doing is

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<v Speaker 3>a value added to the people we serve in the

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<v Speaker 3>tenth district.

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<v Speaker 2>Well, when you talk to people, do they understand why

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<v Speaker 2>you're not lowering interest rates?

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<v Speaker 4>Actually, it's interesting.

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<v Speaker 3>So we're going to have two sets of folks that

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<v Speaker 3>we would talk to, one are going to be business

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<v Speaker 3>people and finance people that really they understand because they

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<v Speaker 3>have to. I mean, I'm a former banker. You have

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<v Speaker 3>to risk manage the cycles of rates to run your

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<v Speaker 3>bank well and profitably. The general public that we continue

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<v Speaker 3>to try to reach to give them some sense of

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<v Speaker 3>what this dual mandate means to them, and I think

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<v Speaker 3>there's a little bit of perfection in the healthy friction

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<v Speaker 3>between full employment and stable prices. And I actually like

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<v Speaker 3>that friction, and it allows us to kind of balance

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<v Speaker 3>and rebalance what we're doing on their behalf. And it's

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<v Speaker 3>one hundred percent on their behalf. If you reach full

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<v Speaker 3>employment and if you keep prices stable, people can work

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<v Speaker 3>and thrive. And I think that's an important piece of

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<v Speaker 3>what the FED does.

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<v Speaker 2>Our last question has to follow up on something we

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<v Speaker 2>always asked esther before you took over.

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<v Speaker 1>Predictions for the Chiefs this year.

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<v Speaker 3>Oh man, they look pretty good. I love the management,

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<v Speaker 3>I love their focus. I think their coaching is amazing.

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<v Speaker 3>I also follow the Nebraska Cornhuskers. You know, hope spring's

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<v Speaker 3>eternal when it comes to football season. Mike, So, where

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<v Speaker 3>the Chiefs and the huskers are concerned. I'm very hopeful