WEBVTT - Surveillance: Fed's George Drops Hints at Jackson Hole 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa Brownowitz Jay Lee, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance, an Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.560 dot Com, and of course on the Bloomberg terminal. It 0:00:29.760 --> 0:00:32.239 is the annual FED get together and the host of 0:00:32.320 --> 0:00:35.320 that get together is the Kansas City FED President Esther George. 0:00:35.560 --> 0:00:38.440 She sat down with Bloomberg's Mike McKee and Kathleen Hayes. 0:00:39.600 --> 0:00:42.239 If you think about how tight the labor market is, 0:00:42.320 --> 0:00:45.760 we are operating with an unemployment rate that is below 0:00:45.840 --> 0:00:48.000 I think what most people would consider to be a 0:00:48.000 --> 0:00:50.839 normal or natural rate of unemployment. So that suggests to 0:00:50.920 --> 0:00:54.200 me that to get loosening in that labor market, to 0:00:54.240 --> 0:00:56.760 see some of this tightness come out of the economy, 0:00:57.200 --> 0:01:01.000 that you may well see more unemployment meant in the 0:01:01.000 --> 0:01:03.480 process of this tightening cycle. Well, you got two camps. 0:01:03.520 --> 0:01:05.520 One that says you need to keep going no matter what, 0:01:05.720 --> 0:01:07.839 and another that says you need to be careful because 0:01:07.880 --> 0:01:10.160 these are real people who lose jobs. So how much 0:01:10.240 --> 0:01:13.840 unemployment is too much well, I think anytime someone is 0:01:13.920 --> 0:01:17.360 unemployed that doesn't want to be Uh, you care about that? 0:01:17.959 --> 0:01:20.560 I think in the long run, which is where I'm focused, 0:01:20.800 --> 0:01:23.839 you have to have a sustainable economy and the best 0:01:23.920 --> 0:01:26.560 path to full employment is going to be conditions of 0:01:26.600 --> 0:01:28.759 price stability. And so I think for the long run, 0:01:29.200 --> 0:01:31.920 that's where we have to be focused to bring inflation 0:01:31.959 --> 0:01:33.959 down so that we can have those conditions. So what 0:01:34.000 --> 0:01:36.200 are you looking at when you see the housing market? 0:01:36.280 --> 0:01:38.839 We saw penning home sales with the weakest again since 0:01:38.920 --> 0:01:41.360 the beginning of before the pandemic. Even mortgage rates have 0:01:41.440 --> 0:01:44.120 shot up. We know all kinds of people who backed 0:01:44.120 --> 0:01:46.400 out of wanting to buy a home because they're expecting 0:01:46.440 --> 0:01:50.720 prices to fall more So, is that a welcome tightening 0:01:50.800 --> 0:01:53.560 and financial conditions? Is it a little bit more than 0:01:53.600 --> 0:01:55.920 the thet is bargained for? Well, I think it's been 0:01:55.920 --> 0:01:57.800 one of the first places we've seen it. So you 0:01:57.840 --> 0:02:02.000 saw that initial tightening and mortgage rates very quickly early 0:02:02.040 --> 0:02:04.640 in the tightening cycle, and that of course does affect 0:02:05.120 --> 0:02:07.920 the economics of someone being able to afford a mortgage, 0:02:08.040 --> 0:02:10.040 make that payment they need to pay. So in some 0:02:10.080 --> 0:02:13.000 sense this isn't surprising to see these numbers come off, 0:02:13.000 --> 0:02:17.240 to see sales come down, whether the actual prices the 0:02:17.280 --> 0:02:20.920 housing valuation comes down consistent with that, I think we 0:02:20.960 --> 0:02:22.960 will still have to see, and I suspect that could 0:02:22.960 --> 0:02:25.000 be to come. You know, you just mentioned that the 0:02:25.000 --> 0:02:27.840 funds rate could have to go above four percent to 0:02:27.880 --> 0:02:30.200 get to the point where you're slowing down the economy 0:02:30.360 --> 0:02:34.800 and and really slowing down demand. Uh. John Taylor, author 0:02:34.840 --> 0:02:37.639 the Taylor Rule more. You know, well, just a couple 0:02:37.680 --> 0:02:40.000 of days ago on Bloomberg Television told me that he 0:02:40.080 --> 0:02:43.160 thinks the Fed should be aiming for five percent or 0:02:43.200 --> 0:02:48.320 even more if inflation does not start coming down more rapidly. Well, 0:02:48.360 --> 0:02:51.520 I think certainly if we don't see a response in 0:02:51.639 --> 0:02:56.880 bringing this imbalance between demand and supply to bear on inflation, um, 0:02:57.120 --> 0:03:01.280 we will again have to consider where that short term 0:03:01.320 --> 0:03:02.960 interest rate is going to have to be. You wouldn't 0:03:03.000 --> 0:03:06.440 roll out something that high. Well, I wouldn't rule it out. 0:03:07.120 --> 0:03:10.480 I'm not suggesting that's where we're going. But the other thing, Kathleen, 0:03:10.560 --> 0:03:12.760 that I think we don't talk enough about is the 0:03:12.800 --> 0:03:15.200 sizeable balance sheet that the Federal Reserve has and that 0:03:15.320 --> 0:03:19.240 we will be doing runoff of that balance sheet, and 0:03:19.280 --> 0:03:23.880 again understanding how these two things work together. Um, I 0:03:23.919 --> 0:03:25.880 think it's going to be important to see how that 0:03:26.000 --> 0:03:28.919 runoff works as we go through the year. And that's 0:03:28.919 --> 0:03:31.560 the other part of this rate increase environment that is 0:03:31.600 --> 0:03:33.880 important to watch. I think, what's the danger of a 0:03:33.960 --> 0:03:36.960 session that you see and what would you see it 0:03:37.080 --> 0:03:41.360 in in terms of indications that we are slipping into contraction. 0:03:42.480 --> 0:03:44.800 So you know, again, when I go around my region, 0:03:44.960 --> 0:03:49.720 I don't hear many signs of that, uh from our contacts. 0:03:49.800 --> 0:03:52.880 What I hear is tight labor market, price pressures, supply 0:03:53.000 --> 0:03:55.680 constraints going on here. I will tell you when I 0:03:55.720 --> 0:03:58.360 look at global growth though, so we've seen the i 0:03:58.520 --> 0:04:01.280 m F cut its for cast for global growth. We 0:04:01.320 --> 0:04:04.480 see the issues in China, we see Europe, and we 0:04:04.560 --> 0:04:10.080 know that that reduction and demand will affect our own 0:04:10.120 --> 0:04:13.400 growth here simultaneous with the tightening cycle that the bed 0:04:13.680 --> 0:04:17.360 is underway. So how it how it comes out and 0:04:17.400 --> 0:04:21.000 balance over time is hard to know. But I think 0:04:21.040 --> 0:04:24.400 again the focus on watching these in violence has resolved themselves, 0:04:24.440 --> 0:04:27.039 We're going to have multiple factors that will come to 0:04:27.080 --> 0:04:30.720 bear on the President. Biden has now introduced a student 0:04:30.800 --> 0:04:35.360 loan forgiveness program ten dollars or twenty depending on the 0:04:35.360 --> 0:04:37.520 program you were in per person, which is going to 0:04:37.600 --> 0:04:40.200 cost billions of dollars that a lot of economists are 0:04:40.240 --> 0:04:42.320 worried this is going to be inflationary? Do you see 0:04:42.320 --> 0:04:46.040 it working against your goals? So I haven't looked at 0:04:46.320 --> 0:04:50.839 this particular decision that came out, but I think always 0:04:51.360 --> 0:04:54.400 fiscal policy is something we will take in to understand. 0:04:54.600 --> 0:04:56.760 Is it an impact in the short term? Does that 0:04:56.880 --> 0:04:59.480 happen over a period of time that makes its particularly 0:04:59.520 --> 0:05:02.160 impact of the economy there? So I don't have a 0:05:02.200 --> 0:05:05.400 sense of the particular impact here. Again, given the size 0:05:05.440 --> 0:05:10.080 relative to our economy and what we're looking at in consumption, UM, 0:05:10.320 --> 0:05:12.200 I'd be hard pressed to say what I think it's 0:05:12.240 --> 0:05:14.920 impact is right now speaking of your district, speaking of 0:05:14.960 --> 0:05:18.479 the world economy and what's driving at right now. Drought 0:05:18.920 --> 0:05:22.560 is big. It's across much of the Western United States 0:05:22.880 --> 0:05:27.640 in Europe. Now, Um, where is it the point yet 0:05:27.640 --> 0:05:30.680 where it enters into a factor in policy and is 0:05:30.880 --> 0:05:33.560 something like drought and what it could do to production, 0:05:33.560 --> 0:05:36.479 our cultural production, all kinds of things. Is it potentially 0:05:36.600 --> 0:05:40.480 a drag on the economy which tilts you toward recession 0:05:40.520 --> 0:05:43.160 potentially is it's something that boost inflation because a lot 0:05:43.160 --> 0:05:45.200 of prices are going to get even higher, particularly for food. 0:05:46.279 --> 0:05:49.080 So issues that affect our real economy or things that 0:05:49.160 --> 0:05:51.320 I think we have long taken into account. You think 0:05:51.320 --> 0:05:55.760 about a region like mind where agriculture UM is prominent, 0:05:56.200 --> 0:06:00.120 the idea that weather events, the idea that commodity prices 0:06:00.160 --> 0:06:03.440 all come to bear on how the economy does what 0:06:03.520 --> 0:06:07.640 it contributes to GDP where the constraints are UM in 0:06:07.680 --> 0:06:11.880 that sector. I think these events just our continuation of 0:06:11.920 --> 0:06:14.520 some of that and the magnitude of them may change. 0:06:14.600 --> 0:06:16.839 But I will tell you, for example, in the Kansas 0:06:16.880 --> 0:06:19.719 City Fed District, drought in the western part of our 0:06:19.720 --> 0:06:22.760 region does have an impact on the yields that are 0:06:22.800 --> 0:06:26.640 coming off these crops. Now, it will matter over time. Uh. 0:06:26.760 --> 0:06:29.479 Farmers are used to dealing with that in many respects. 0:06:29.560 --> 0:06:32.159 Banks that lend to them are used to dealing with that, 0:06:32.360 --> 0:06:34.720 and I think in that sense, UM, it will have 0:06:34.839 --> 0:06:38.040 the same impact on our policy that we see across 0:06:38.080 --> 0:06:40.640 many sectors in the economy. A very near term decision 0:06:41.160 --> 0:06:43.719 and every Fed Bank president, every FED official gets as 0:06:43.800 --> 0:06:46.680 this all the time, UM, and especially you, because you 0:06:46.720 --> 0:06:49.960 did dissent against the first seventy five basis point rate hike, 0:06:50.279 --> 0:06:52.719 and you just recently said you're going to continue debate 0:06:53.000 --> 0:06:56.320 the needed size fifth year seventy five with your FED colleagues. 0:06:56.760 --> 0:06:59.880 So again, when you see how well the economy is 0:07:00.000 --> 0:07:04.000 holding up and how little inflation has come down this far, um, 0:07:04.040 --> 0:07:06.600 what is your baseline? Is your baseline fifty and you're 0:07:06.600 --> 0:07:08.880 gonna be talked into seventy five? What's going to tilt 0:07:08.880 --> 0:07:11.640 the balance for you? I mean I supported seventy five 0:07:11.960 --> 0:07:15.480 at the July meeting, and I find it an interesting 0:07:15.520 --> 0:07:17.840 time when we debate fifty or seventy five because who 0:07:17.880 --> 0:07:20.040 would have thought fifty would have a more dubbish view, 0:07:20.320 --> 0:07:24.320 uh than seventy five. I think for me, coming into 0:07:24.320 --> 0:07:26.720 this September meeting, we're going to be looking again at 0:07:26.720 --> 0:07:28.840 an inflation report, We're going to be looking at a 0:07:28.920 --> 0:07:32.080 labor market report, and I think trying to draw some 0:07:32.160 --> 0:07:36.040 sense of whether we see continuation of things that we've 0:07:36.040 --> 0:07:40.240 seen over the summer, whether progress looks like it's meaningful 0:07:40.280 --> 0:07:42.880 in some way. I do look forward to getting back 0:07:42.880 --> 0:07:47.560 to a sustainable rate path. That was my issue at 0:07:47.600 --> 0:07:51.240 the June meeting. Again, No, no, disagreement about the direction 0:07:51.280 --> 0:07:54.320 we are headed, but I think just being mindful of 0:07:55.120 --> 0:07:57.480 the destination and how quickly we get there at a 0:07:57.520 --> 0:07:59.920 time when we're reducing the balance sheet. You've been doing 0:07:59.920 --> 0:08:03.640 that for a long time. The old adage was don't 0:08:03.640 --> 0:08:06.200 fight the fit. Why do you think the markets are 0:08:06.240 --> 0:08:10.640 fighting the Fed now and not listening to what you've 0:08:10.680 --> 0:08:13.920 been saying about how serious you are about taking on inflation. 0:08:15.320 --> 0:08:17.200 I don't know what drives in the markets, Mike. I 0:08:17.280 --> 0:08:20.800 probably would not be a well positioned to say that. Certainly, 0:08:20.840 --> 0:08:23.520 it is important for our communications to be clear because 0:08:23.520 --> 0:08:27.840 we want financial conditions to tighten along with the direction 0:08:27.960 --> 0:08:30.520 we are moving around policy. So I think it puts 0:08:30.920 --> 0:08:34.360 a premium on being clear in our communication of having 0:08:34.440 --> 0:08:37.880 resolved toward the end game here and again, the end 0:08:37.920 --> 0:08:42.080 game is to bring inflation back to our two percent target, 0:08:42.640 --> 0:08:45.920 and um that's challenging and the environment ran we're coming 0:08:45.960 --> 0:08:49.000 off an unprecedented period. The economy, I think, in some 0:08:49.080 --> 0:08:52.440 respects is still sorting itself out. We have global factors 0:08:52.480 --> 0:08:54.800 to take into that, so there's a lot to think about. 0:08:55.120 --> 0:08:57.720 I'm sure markets are thinking about that even as we 0:08:57.880 --> 0:09:01.360 proceed with this interest rate increase. You're retiring at the 0:09:01.440 --> 0:09:05.120 end of the year. This is your last economic symposium. 0:09:05.160 --> 0:09:08.200 How do you think economics and the economy and the 0:09:08.200 --> 0:09:12.319 FED have changed during your tenure. Well, a lot has 0:09:12.360 --> 0:09:15.600 been done. When you think about the Great Financial Crisis 0:09:16.559 --> 0:09:21.360 where the introduction of quantitative easing came about zero interest 0:09:21.440 --> 0:09:26.239 rate policy. Um, has been an extraordinary time for the economy, 0:09:26.320 --> 0:09:30.280 for policy to think about how it responds to the economy. 0:09:30.440 --> 0:09:33.840 Also coming into a time when we have demographic changes, 0:09:33.920 --> 0:09:38.800 really broader changes around the world. So the world continues 0:09:38.880 --> 0:09:41.880 to evolve in ways that sometimes look clear to us, 0:09:42.080 --> 0:09:46.960 sometimes don't. But um, Well, in this vein of of here, 0:09:47.000 --> 0:09:50.839 you are about to end your wonderful tenure at the 0:09:50.880 --> 0:09:53.440 Kansas City FED. This last part, I would think is 0:09:53.440 --> 0:09:55.400 one of them one of the very most difficult parts 0:09:55.440 --> 0:09:57.560 seeing inflation get out of control the way it has. 0:09:58.320 --> 0:10:02.680 What's the biggest lesson learned for you? Uh, for the 0:10:02.720 --> 0:10:06.240 Federal Reserve after having gotten into this situation and now 0:10:06.320 --> 0:10:09.640 needing to get out of it. So, Kathleen, really I'm 0:10:09.640 --> 0:10:11.440 going to answer that question by saying, this is one 0:10:11.480 --> 0:10:13.360 of the things I'm looking forward to with the conference 0:10:13.559 --> 0:10:16.600 that we have this year. Is really reassessing how we 0:10:16.720 --> 0:10:20.600 understood constraints over the last couple of decades, finding ourselves 0:10:20.679 --> 0:10:24.360 again in a place of high inflation which we hadn't 0:10:24.400 --> 0:10:28.080 seen for some forty years, and really being reminded what 0:10:28.200 --> 0:10:32.800 are those factors that are important to price stability? We 0:10:32.880 --> 0:10:36.560 know as our mandate that that hasn't changed for a 0:10:36.559 --> 0:10:39.199 long time, even as the economy is evolved, even as 0:10:39.240 --> 0:10:42.440 the tool kit may have evolved. But getting back to 0:10:42.840 --> 0:10:47.440 really thinking about how price stability is achieved even as 0:10:47.480 --> 0:10:49.120 the world changes, I think is going to be an 0:10:49.120 --> 0:10:52.000 important part of this discussion here at Jackson Hall Symposium 0:10:52.280 --> 0:10:54.440 that was the Kansas City Fed President as the George 0:10:54.440 --> 0:11:08.440 sitting down with Michael McKay and Kathleen Hayes. Yea, let's 0:11:08.440 --> 0:11:10.640 get to the theme at the moment at Jackson Hawaiian 0:11:10.640 --> 0:11:14.160 in case the title reassessing constraints on the Economy and Policy. 0:11:14.440 --> 0:11:17.000 Let's have that conversation now with Glenn Hoover, the Professor 0:11:17.040 --> 0:11:20.040 of Finance and Economics of the Columbia Business gool going, 0:11:20.120 --> 0:11:22.240 great to have you with us. Can you frame how 0:11:22.320 --> 0:11:25.120 challenging this moment is for this fet chair. Well, I 0:11:25.120 --> 0:11:27.840 think it's it's very challenging for two reasons. One, it's 0:11:27.880 --> 0:11:31.959 momentuous time in the economy with both significant uncertainty about 0:11:32.000 --> 0:11:36.880 inflation and recession too. It's important for him and in communication. 0:11:37.040 --> 0:11:41.880 I actually have a hold whip inflation now button here 0:11:42.040 --> 0:11:45.480 from a Ford administration, and I think Chair Powell needs 0:11:45.520 --> 0:11:49.920 to do a bit better in expressing warsome candor about 0:11:50.000 --> 0:11:52.960 the past, not necessarily be a culpole, but for what 0:11:53.160 --> 0:11:56.040 happened and about the future what it's going to take, 0:11:56.400 --> 0:11:59.960 as well as talking about the difficult path of get 0:12:00.120 --> 0:12:03.040 inflation all the way back down to two percent, getting 0:12:03.080 --> 0:12:05.840 it down to four maybe straightforward, getting into too much 0:12:05.840 --> 0:12:11.040 heart Glenn Hubert. The arc of Republican economics, represented by 0:12:11.160 --> 0:12:13.959 so many here at Jackson Hole is that the system 0:12:14.000 --> 0:12:18.199 will solve itself. Is a general statement. Is the religion 0:12:18.240 --> 0:12:22.280 of supply side economics or the religion that the American 0:12:22.280 --> 0:12:26.559 economy can heal itself? Has that failed? I don't think so. 0:12:26.640 --> 0:12:29.719 I mean the economy is a lot of self equilebrating mechanisms. 0:12:29.720 --> 0:12:32.400 A question is over what time period in the presence 0:12:32.440 --> 0:12:35.920 of such a large shocks. I think policy still has 0:12:35.920 --> 0:12:37.600 a role to play and had a role to play 0:12:37.600 --> 0:12:40.760 in the COVID pandemic, and the FED just can't wait 0:12:40.840 --> 0:12:45.199 to let inflation work itself out. So Dean Hubbard, Glenn, 0:12:45.480 --> 0:12:47.200 what's your view on our debate that we were just 0:12:47.280 --> 0:12:50.720 having about whether this FED chair will speak to markets, 0:12:50.800 --> 0:12:54.280 what he will say about their enthusiasm about some sort 0:12:54.320 --> 0:12:58.040 of pivot or some sort of pause in federate hikes. Well, 0:12:58.080 --> 0:13:00.480 I think the message he could give, going back to 0:13:00.480 --> 0:13:02.560 the point I said about candor about where we have 0:13:02.720 --> 0:13:05.720 to go, is what it would take to reduce inflation. 0:13:05.800 --> 0:13:08.240 I don't think he's literally going to lecture the markets 0:13:08.240 --> 0:13:10.400 and say the stock markets too high or something like that. 0:13:10.720 --> 0:13:13.280 But I think he can outline a path that says 0:13:13.640 --> 0:13:16.559 we have work to do, getting that work done requires 0:13:16.600 --> 0:13:20.360 tighter financial conditions, and speaking in general terms, I think 0:13:20.360 --> 0:13:23.240 that would be wise to make that kind of communication 0:13:23.240 --> 0:13:25.240 to the public and to the markets. There was an 0:13:25.280 --> 0:13:27.080 article in the Wall Street Journal. I keep mentioning this 0:13:27.120 --> 0:13:29.760 because it really caught my attention about whether we have 0:13:29.880 --> 0:13:32.080 seen the end of the low rate policies, is what 0:13:32.160 --> 0:13:36.000 PIMCO is put out there, and the possibility of inflation 0:13:36.000 --> 0:13:38.000 remaining high for a longer period of time due to 0:13:38.200 --> 0:13:42.559 a de globalization due to structurally higher commodity prices due 0:13:42.600 --> 0:13:45.040 to a lack of investment over the past few years. 0:13:45.480 --> 0:13:48.160 Do you buy into this theory and if the FED does, 0:13:48.480 --> 0:13:50.520 what does that mean in terms of how high rates 0:13:50.559 --> 0:13:53.040 have to stay and for how long? I think there's 0:13:53.080 --> 0:13:56.120 certainly something to the fact that we have demographic changes, 0:13:56.120 --> 0:14:01.080 structural changes, globalization changes. Be hesitant to draw straight lines 0:14:01.160 --> 0:14:03.520 and say that's just going to be permanent, but I 0:14:03.520 --> 0:14:06.280 think it's definitely something to watch. To my mind, the 0:14:06.320 --> 0:14:09.800 concern for the third eye, there's probably two worlds, one 0:14:09.840 --> 0:14:13.760 in which we keep inflation expectations anchored around two, the 0:14:13.760 --> 0:14:16.760 other in which they go off kilter. I think that's 0:14:16.800 --> 0:14:19.640 the challenge the chair faces, and you'll have to quote 0:14:19.680 --> 0:14:22.880 do what it takes to make that happen. Like Glenn, 0:14:23.200 --> 0:14:25.800 thank you, sir, it's going to hear from you as always. 0:14:25.920 --> 0:14:32.960 From Columbia Business School. We're really happy to say that 0:14:33.040 --> 0:14:35.400 John to gets Mohammed area in a flimp bug opinion 0:14:35.600 --> 0:14:39.080 and Colleen's College, Cambridge. A man who unlike this FED chairman, 0:14:39.480 --> 0:14:43.640 called this, called this inflation spiral. Mohammed, let's go straight there. 0:14:43.680 --> 0:14:46.280 The challenge for this FED chair and this annual FED 0:14:46.320 --> 0:14:49.200 gets together. How big is it? It's huge, John, and 0:14:49.240 --> 0:14:52.760 good morning. It's huge because he's speaking to multiple audiences, 0:14:52.760 --> 0:14:55.400 as you pointed out. But it's also huge because he's 0:14:55.400 --> 0:14:58.880 got to deal with issues with respect to the past, 0:14:58.880 --> 0:15:01.560 the present, and a few He's got to figure out 0:15:01.680 --> 0:15:04.720 how he's going to address his speech last year that 0:15:04.800 --> 0:15:07.600 proves so off the mark. He's got to figure out 0:15:07.640 --> 0:15:11.080 what to signal about current monetary policy. And let's not 0:15:11.160 --> 0:15:15.440 forget that we have a framework that is not fit 0:15:15.480 --> 0:15:18.280 for purpose. We have a policy framework fit for world 0:15:18.360 --> 0:15:21.200 of deficient aggregate demand, and we are in the world 0:15:21.200 --> 0:15:24.680 for deficient aggregate supply. So put all this together, the 0:15:24.800 --> 0:15:27.640 challenge is very big, John Mohammed, you're focused on a 0:15:27.640 --> 0:15:30.480 new word, stickiness, and you've been focused on that for 0:15:30.480 --> 0:15:33.000 a number of months now. From the incoming information, How 0:15:33.040 --> 0:15:36.440 sticky do you think that inflation dynamic is? And how 0:15:36.520 --> 0:15:38.840 much does that tell me about how much work this 0:15:38.920 --> 0:15:41.360 chairman still has to do. So I worried that core 0:15:41.440 --> 0:15:46.880 inflation is going to prove more sticky than the FED anticipates. 0:15:46.960 --> 0:15:49.440 Right now, we have wages are starting to be a 0:15:49.560 --> 0:15:54.160 driver of higher cost and eventually higher prices. So while 0:15:54.240 --> 0:15:56.440 headline inflation is going to continue to go down for 0:15:56.440 --> 0:15:59.560 the next two months, core may prove quite sticky. And 0:15:59.600 --> 0:16:02.080 that's what a problem, Folter. For those of you have 0:16:02.120 --> 0:16:04.320 Bloomberg Radio and Bloomberg Television, you just saw a little 0:16:04.320 --> 0:16:05.680 bit of light going out. That was one of the 0:16:05.680 --> 0:16:08.520 grizzly bears standing up and getting in the way of 0:16:08.560 --> 0:16:11.480 the light. Here they're watching here this morning as well. 0:16:11.760 --> 0:16:15.080 Dr Larry, and people forget why you are, doctor Hilarion, 0:16:15.240 --> 0:16:19.040 and it has to do with the acuity and concision 0:16:19.280 --> 0:16:23.000 of your game theory. You codified in a modern day 0:16:23.480 --> 0:16:28.000 the phrase T decision. Let's distill that down to the 0:16:28.000 --> 0:16:31.720 T decision that Chairman Powell has to make between now 0:16:32.080 --> 0:16:35.920 and a data busy September. And it's an important one, 0:16:36.560 --> 0:16:40.640 Tom because right now the FETE is so late that 0:16:40.760 --> 0:16:44.920 it's looking at two challenges. It's looking at putting the 0:16:44.960 --> 0:16:48.240 inflation genie back into the bottle, and it's looking at 0:16:48.280 --> 0:16:51.880 not creating too much damaged to the economic growth and inequality, 0:16:51.960 --> 0:16:55.440 something that you have been speaking to all morning. Look, 0:16:55.480 --> 0:16:57.840 I don't think he has any choice. He's got to 0:16:57.880 --> 0:16:59.800 put the inflation genie back into the bottle. You know, 0:16:59.840 --> 0:17:04.840 that and all saying that Maco stability isn't everything, but 0:17:05.000 --> 0:17:07.800 without it you have nothing. So they've got to put 0:17:07.840 --> 0:17:10.280 that inflation genie back into the bottle and do it 0:17:10.400 --> 0:17:14.720 in a determined and sustainable fashion. Okay, but this is 0:17:14.760 --> 0:17:16.840 the politics of it, Dr Larry. And if you have 0:17:16.920 --> 0:17:21.359 a partial differentiation from eight percent US inflation, the halves 0:17:21.359 --> 0:17:24.399 are benefited. When you get to six percent or five, 0:17:25.160 --> 0:17:27.600 the have nots, the great middle class are still flat 0:17:27.640 --> 0:17:31.040 on their back. What is your timeline where all of 0:17:31.080 --> 0:17:35.800 America finally gets inflation back into the bottle. So it's 0:17:35.840 --> 0:17:38.680 gonna take some time because the FED has been asleep 0:17:38.680 --> 0:17:42.639 at the wheel and that's unfortunate. Tom. What you raise 0:17:43.080 --> 0:17:47.440 is much bigger. It is speaks to the FED being 0:17:47.520 --> 0:17:51.640 necessary but not sufficient to address our policy issues. Um, 0:17:51.720 --> 0:17:54.880 you've got to deal with the inequality aspect. You've got 0:17:54.880 --> 0:17:59.320 to protect the most vulnerable segments of the population with 0:17:59.480 --> 0:18:03.320 focus um fiscal policy, and you've got a lot to 0:18:03.400 --> 0:18:06.960 do a lot more on productivity and equal opportunity. So 0:18:07.080 --> 0:18:10.000 it's a long list, but the FED has to focus 0:18:10.200 --> 0:18:12.480 on inflation and has to do it in a more 0:18:13.640 --> 0:18:18.360 committed fashion. That has done it so far, So it's 0:18:18.359 --> 0:18:21.080 been trying to sound Mohammed committed, right. I mean, if 0:18:21.080 --> 0:18:23.760 it's basically been saying inflation is or number one issue 0:18:23.800 --> 0:18:26.400 that they're facing, why is the market not hearing it? 0:18:27.440 --> 0:18:29.879 Two reasonsly, so, One is the FED itself. Let's not 0:18:29.960 --> 0:18:35.080 forget that. Chappal hinted not hinted, stated that we were 0:18:35.200 --> 0:18:37.679 at the neutral rate. The minute the market heard that, 0:18:38.119 --> 0:18:40.480 it moved, and it moved in a significant fashion and 0:18:40.520 --> 0:18:44.000 all the talk about pivot started being amplified. So that's 0:18:44.040 --> 0:18:48.000 one reason that the communication hasn't been consistent and that's 0:18:48.000 --> 0:18:51.000 been a problem for the last year. And the second 0:18:51.000 --> 0:18:53.280 issue is that the market is looking at the impact 0:18:53.280 --> 0:18:56.359 on growth, is looking at this at the potential impact 0:18:56.400 --> 0:18:59.800 on markets. And as John said earlier today, we remembers 0:19:00.119 --> 0:19:05.119 fourth quarter of remembers the FED blinking, so it believes 0:19:05.119 --> 0:19:06.760 on push comes to shove, the feed is going to 0:19:06.840 --> 0:19:12.159 blink again, that we're gonna have a flip flopping fed. Ammmed. 0:19:12.200 --> 0:19:13.360 What I hear from you is that you don't think 0:19:13.359 --> 0:19:17.119 this FED blinks anytime soon. I don't know, John. I 0:19:17.200 --> 0:19:20.240 know what they should do, which is they should not 0:19:20.400 --> 0:19:24.520 blink um. But it's been very difficult to call this fed. 0:19:24.720 --> 0:19:29.679 This fed has unfortunately failed at analysis, failed that forecast, 0:19:30.119 --> 0:19:34.359 failed that communication. So it's very difficult to say what 0:19:34.480 --> 0:19:36.320 this feed is going to do. It's easier to say 0:19:36.359 --> 0:19:38.800 what it should do, but it's much it's much harder 0:19:38.840 --> 0:19:40.600 to say what it should what it's going to do. 0:19:40.680 --> 0:19:42.959 And that's why you get this disconnect that you've been 0:19:42.960 --> 0:19:47.879 talking about between the markets and the fat. Easy to 0:19:47.880 --> 0:19:49.959 find out what you think. So let's go there and 0:19:50.040 --> 0:19:52.200 wrap up this segment with you on what you think. 0:19:52.880 --> 0:19:57.399 Larry sum has called that neutral comment analytically indefensible. You 0:19:57.440 --> 0:19:59.080 said on neutral, and I think you're a little bit 0:19:59.080 --> 0:20:01.560 more diplomatic at it. When we last spoke, you said 0:20:01.640 --> 0:20:03.560 the zip code for neutral was hard. And where we 0:20:03.600 --> 0:20:06.240 are right now, Mohammed, what is the zip code for neutral? 0:20:06.280 --> 0:20:07.960 And how on earth do we know with inflation where 0:20:08.000 --> 0:20:09.960 it is and where race where they are right now? 0:20:11.040 --> 0:20:13.520 So I don't know specifically where it is, and I've 0:20:13.560 --> 0:20:17.360 been warning against spurious precision. There are so many structural 0:20:17.440 --> 0:20:21.600 changes going on. We are changing liquidity regimes. I said earlier, 0:20:21.640 --> 0:20:23.920 We're going from a world of deficient aggregate amount to 0:20:24.000 --> 0:20:26.400 world of deficient aggregate supply. That's the world we live 0:20:26.440 --> 0:20:29.399 in now. No one knows for show where neutral is, 0:20:29.800 --> 0:20:31.800 so you've got to try to figure out as you 0:20:31.840 --> 0:20:35.600 go along the way. And you mustn't attempt this purisk 0:20:35.640 --> 0:20:39.399 precision because if you do, the market is gonna jump 0:20:39.440 --> 0:20:42.040 immediately to conclusions and then you're gonna have to undo it. 0:20:42.200 --> 0:20:44.880 You know, the Fed itself federal officials have walked back 0:20:44.920 --> 0:20:47.440 that comment. It didn't take many days for other federal 0:20:47.440 --> 0:20:49.920 officials to come out and say we're not at neutral 0:20:50.920 --> 0:20:53.160 darker Laura and I want to go to the international 0:20:53.200 --> 0:20:56.720 tone here central banker of the world. And the singular 0:20:56.800 --> 0:21:00.359 feature I have is the focus is on Plaza chord 0:21:00.480 --> 0:21:05.200 like partners. When there is e M forget about idiosyncratic 0:21:05.480 --> 0:21:08.960 turkey out over eighteen Lira. What will be the shock 0:21:09.119 --> 0:21:14.080 of Powell action to a more fragile emerging market of 0:21:14.359 --> 0:21:18.440 and third world economies. It's a high risk situation, Tom. 0:21:18.520 --> 0:21:24.520 You have higher rates, so more uncertain market conditions, you 0:21:24.640 --> 0:21:29.720 have global economic growth slowing much faster than most people expected, 0:21:30.240 --> 0:21:33.720 and you have a stronger dollar. Historically that has not 0:21:33.880 --> 0:21:40.480 been a favorable mix for for imaging economies. So right now, 0:21:40.640 --> 0:21:43.000 how much does this bleed back to the U S economy. 0:21:43.080 --> 0:21:45.600 How do you bleed through the pain that you're seeing 0:21:45.600 --> 0:21:48.960 in Europe, in China into slowing US growth and entering 0:21:48.960 --> 0:21:52.119 a recession? You know? He said, The quick and easy 0:21:52.160 --> 0:21:55.400 is to say that everybody has an inflation problem, everybody 0:21:55.400 --> 0:21:59.399 has a growth problem, and that's true, but go further, 0:22:00.119 --> 0:22:04.159 have massive dispersion um growth. The US is in a 0:22:04.280 --> 0:22:08.800 much better place than most other countries central bank policy. 0:22:08.880 --> 0:22:12.040 If we think that the FED faces tough challenges, look 0:22:12.080 --> 0:22:14.880 at the ECB. Not only do I have high inflation, 0:22:14.920 --> 0:22:17.280 they have a much more fragile economy and they have 0:22:17.320 --> 0:22:20.520 the risk of fragmentation. So I think the theme going 0:22:20.640 --> 0:22:23.760 forward is going to have a strong element of dispersion 0:22:24.240 --> 0:22:28.960