WEBVTT - Surveillance Special: A Conversation With Chicago Fed's Evans 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.960 Bloomberg dot Com, and of course on the Bloomberg Charles 0:00:27.960 --> 0:00:30.680 Evans sitting down with bloom Bluck's Tom Kane to the 0:00:30.680 --> 0:00:33.440 Council on Foreign Relations. We can bring the beginning of 0:00:33.440 --> 0:00:36.080 that conversation to you now right here on bloom Buck Radio. 0:00:36.880 --> 0:00:40.400 A moment to Chicago Economics and to Mr Moscow the 0:00:40.440 --> 0:00:44.120 Researcher Department. There are now and it was important duty. 0:00:44.280 --> 0:00:48.040 So let us dive in right now. And I within 0:00:48.159 --> 0:00:50.479 the many speeches you've given, have to go to the 0:00:50.520 --> 0:00:54.280 speech in Frankfurt, Germany where you speak about mid cycle 0:00:54.520 --> 0:00:57.360 and about the dynamics at hand. Let's first define this 0:00:57.520 --> 0:01:00.200 new phrase. I don't believe I read it in Ring 0:01:00.200 --> 0:01:05.399 Bush Fisher Stars. What is mid cycle? Well, um, you 0:01:05.440 --> 0:01:08.920 know what what the Federal Open Market Committee sort of 0:01:09.480 --> 0:01:13.920 identified in uh early you know, twenty nineteen is that 0:01:14.000 --> 0:01:17.000 the you know, state of the economy and financial markets 0:01:17.040 --> 0:01:20.759 and inflation were behaving somewhat differently than we thought, um, 0:01:20.800 --> 0:01:23.880 you know, going into the end of eighteen and so 0:01:23.920 --> 0:01:27.319 we had been raising the short term policy rate, the 0:01:27.319 --> 0:01:31.160 federal funds rate target for you know, some time. We 0:01:31.160 --> 0:01:33.280 were never on a preset course for anything, but we 0:01:33.280 --> 0:01:36.400 were basically increasing the federal funds right by twenty five 0:01:36.400 --> 0:01:40.039 basis points every um, every quarter. And then we got 0:01:40.040 --> 0:01:41.520 to the point where it's like, there seems to be 0:01:41.600 --> 0:01:45.360 more uncertainty. Um, there were a lot of things in 0:01:45.360 --> 0:01:48.760 in play the Chinese economy, and it looked like the 0:01:48.800 --> 0:01:52.080 path that we had expected, which in my own estimation 0:01:52.160 --> 0:01:56.360 would have called for probably three more rate increases in 0:01:56.400 --> 0:01:58.880 twenty nineteen, all of a sudden that didn't look like 0:01:58.920 --> 0:02:01.680 that was appropriate. So in the middle of this you know, 0:02:01.720 --> 0:02:05.640 economic cycle, as we had been taking the funds right, 0:02:06.320 --> 0:02:08.800 we thought to a more neutral setting, and then just 0:02:08.840 --> 0:02:11.480 a little bit beyond that, we decided, I'm not even 0:02:11.480 --> 0:02:13.520 sure what neutral is anymore. I think it may have 0:02:13.600 --> 0:02:16.079 mowed down on a short term basis, and we need 0:02:16.080 --> 0:02:19.840 to make an adjustment so that policy would be and 0:02:19.960 --> 0:02:24.200 I would say moving from leaning towards a restrictive stance 0:02:24.639 --> 0:02:27.400 as a path to leaning towards an accommodative stance and 0:02:27.440 --> 0:02:30.480 that's pretty much what I think we've engineered with our 0:02:30.840 --> 0:02:34.680 third rate cut. At our last meeting. First the distinctions 0:02:34.680 --> 0:02:38.079 of this Vice Chairman Fisher would speak of ultra accommodative. 0:02:38.680 --> 0:02:42.120 Where where we are now within accommodated. I love the 0:02:42.120 --> 0:02:44.919 phrase Hawker's rate cut. Please explain that to me when 0:02:44.960 --> 0:02:48.240 we get a chance, Hawkers rate. Don't use this language 0:02:48.280 --> 0:02:53.839 like that. It's explaining somebody else, not appropriate for long relations. 0:02:53.880 --> 0:02:56.679 But within this is this path of accommodation that we're 0:02:56.720 --> 0:02:59.680 on right now. We're at the stasis point now waiting 0:02:59.720 --> 0:03:04.120 from were But how accommodative is accommodative right now? That's 0:03:04.120 --> 0:03:08.639 a great question. Um, so you know, so so, um. 0:03:08.680 --> 0:03:13.480 You know, at some level, monetary policy can be very detailed, 0:03:14.240 --> 0:03:17.600 very technocratic. You can look at a lot of data, 0:03:17.960 --> 0:03:20.440 you can try out different models, you can look for 0:03:20.480 --> 0:03:25.919 a robust response. But at some point you're always basically 0:03:25.960 --> 0:03:29.000 searching for do I want to be neutral? Do I 0:03:29.040 --> 0:03:30.840 want to sit in the background and just let the 0:03:30.880 --> 0:03:33.919 economy go? Let businesses do what they do very well, 0:03:34.280 --> 0:03:37.640 you know, capitalism and uh they employ people and they 0:03:37.680 --> 0:03:39.760 deploy capital and they put it in play. When the 0:03:39.760 --> 0:03:43.920 government is behaving in a nice, responsible value added manner 0:03:43.960 --> 0:03:45.760 than the economy does very well, and you sit in 0:03:45.800 --> 0:03:49.440 the background, and then sometimes, uh, there's a shortfall of 0:03:49.480 --> 0:03:53.640 aggregate demand, a weakness, and you know, providing more incentives 0:03:53.680 --> 0:03:57.680 for credit intermediation is helpful or the other way around. 0:03:57.720 --> 0:03:59.680 So you know, you're you're sort of trying to find 0:03:59.680 --> 0:04:03.480 out are we neutral? Are we accommodative? And I would 0:04:03.480 --> 0:04:05.960 call the mid cycle adjustment as one where we were 0:04:06.000 --> 0:04:11.200 clearly on a path headed towards slightly restrictive historically not 0:04:11.280 --> 0:04:14.720 that restrictive at that point in an economic cycle, but 0:04:14.840 --> 0:04:17.800 slightly restrictive. And now, in my own mind, I was 0:04:17.839 --> 0:04:23.320 searching for something that was definitely accommodative, not hugely accommodative, 0:04:23.520 --> 0:04:26.000 but definitely on the accommodative side of neutral. And I 0:04:26.040 --> 0:04:29.320 think that neutral rate probably moved down. I mean, on 0:04:29.360 --> 0:04:32.520 a long run basis, my assessment of neutral is two 0:04:32.560 --> 0:04:35.520 and three quarters per cent, and so we were still 0:04:35.560 --> 0:04:39.480 below that when we paused, and now we're at one 0:04:39.520 --> 0:04:41.240 and a half to one and three quarters. I think 0:04:41.240 --> 0:04:45.440 we are definitely accommodative, but I'm not entirely sure that 0:04:45.520 --> 0:04:48.760 the short run UH neutral funds rate isn't a lot 0:04:48.839 --> 0:04:50.760 closer to two. I want to get to them this moment. 0:04:50.800 --> 0:04:53.120 But you mentioned the foreground right now, and there's times 0:04:53.160 --> 0:04:56.039 where a central bank and for the luxury of being 0:04:56.279 --> 0:04:58.800 not in the foreground is the central Bank of the 0:04:58.880 --> 0:05:02.360 United States of America right now? Too much in the foreground? 0:05:02.520 --> 0:05:05.880 Are we asking too much of the eCos building? No, 0:05:06.040 --> 0:05:08.919 I think at this point in the cycle, as we 0:05:09.080 --> 0:05:13.040 made that judgment to move towards something more neutral and 0:05:13.040 --> 0:05:15.080 and and the short run neutral was moving up during 0:05:15.080 --> 0:05:18.359 that time, we still had a lot of work uh 0:05:18.400 --> 0:05:22.760 to do, even though um we started thinking about raising rates. 0:05:22.800 --> 0:05:26.320 But you know, I would say that UH policy is 0:05:27.240 --> 0:05:30.400 uh not that far off neutral. I'd say it's accommodative. 0:05:30.520 --> 0:05:34.240 That's a point where Um, there are other factors you 0:05:34.279 --> 0:05:38.000 know working. There's there's businesses or you know, working very 0:05:38.040 --> 0:05:42.279 hard to take advantage of the tax reform UH that 0:05:42.360 --> 0:05:45.760 they enjoy now to focus their business investment. Of course, 0:05:45.760 --> 0:05:47.960 business investment right now has been following a little bit, 0:05:48.040 --> 0:05:49.800 so that's that's been a weakness. And now the other 0:05:49.839 --> 0:05:54.080 factors the weak foreign growth, trade policy, uncertainty and things 0:05:54.120 --> 0:05:56.640 like that. So there's a variety of external factors that 0:05:57.000 --> 0:05:59.360 have acted to be restrictive, and so it makes sense 0:05:59.400 --> 0:06:01.800 for us to I don't set that a little bit 0:06:01.800 --> 0:06:04.880 in a risk management setting, but basically we're not in 0:06:04.920 --> 0:06:07.320 the foreground, I would say, And and I believe the 0:06:07.360 --> 0:06:11.800 Frankfort speech you mentioned is one measurement here two with 0:06:12.440 --> 0:06:14.800 added to the two percent inflation added to the real 0:06:14.960 --> 0:06:18.479 our starret and it migrates within your text from five 0:06:18.560 --> 0:06:20.280 down to four down to two and a half percent. 0:06:20.839 --> 0:06:23.920 How our story are we are we slaves to this 0:06:24.040 --> 0:06:27.640 calculation right now? I said, this is just a technocratic 0:06:27.720 --> 0:06:31.200 way of describing what I was just discussing about. Are 0:06:31.240 --> 0:06:34.840 you accommodative or are you restrictive? And so you know, 0:06:34.960 --> 0:06:39.159 if if you're completely comfortable and talking about you know, 0:06:39.200 --> 0:06:40.920 I think we want to be a little more leaning 0:06:40.960 --> 0:06:46.279 towards uh UM, incentivizing, helping, credit intermediation so people can 0:06:46.880 --> 0:06:49.440 take on some investments and consumer spending a little bit. 0:06:49.480 --> 0:06:53.120 Then that would be you know, below this neutral right, 0:06:53.200 --> 0:06:55.360 So you can go as technocratic as you want and say, 0:06:55.360 --> 0:06:57.640 our stars moved down. The short run version of our 0:06:57.680 --> 0:07:00.280 stars moved down, and I'm just trying to catch up 0:07:00.279 --> 0:07:02.880 to it and be a little below that. But in 0:07:02.920 --> 0:07:05.200 my mind, we're just trying to be a little bit accommodative, 0:07:05.240 --> 0:07:07.120 and it's very artful. I mean I could pull out 0:07:07.160 --> 0:07:12.200 all kinds of you know, technical assessments, slowback williams uh 0:07:12.600 --> 0:07:15.280 other measures of that, but there's a lot of uncertainty 0:07:15.280 --> 0:07:17.880 around that. So we have to make what's so interesting 0:07:17.880 --> 0:07:21.080 here and I will speak of Michael Ferro at JP, 0:07:21.160 --> 0:07:23.800 Morgan Mr Powers where this from a city Bank Ellen 0:07:23.840 --> 0:07:26.760 Center with Morgan Stanley and others have a glide path 0:07:26.960 --> 0:07:30.560 down a terminal rate and potential GDP it's under two percent. 0:07:30.680 --> 0:07:33.400 Let us begin with the idea that's not politically acceptable 0:07:33.440 --> 0:07:36.840 as well, GDP growth, GDP growth. There's politics got to 0:07:36.840 --> 0:07:38.920 do with that. What has nothing to do with politics, 0:07:38.920 --> 0:07:43.360 we understand. But but but the the the distinction here 0:07:43.680 --> 0:07:47.240 is you people are dealing with demographics, nominal GDP what 0:07:47.360 --> 0:07:50.520 you've been handid and that's unacceptable to so many. And 0:07:50.560 --> 0:07:53.080 I would suggest the impatience of the president as well. 0:07:53.120 --> 0:07:55.840 How do you deal with that politics buttressing off you 0:07:56.280 --> 0:07:58.800 every day. I don't feel alone in this. I think 0:07:58.800 --> 0:08:03.920 business has have been dealt this environment, demographics, households have 0:08:04.000 --> 0:08:07.240 been dealt this, you know, environment, the ability of the 0:08:07.280 --> 0:08:11.200 economy to grow at some at some level, it's it's 0:08:11.320 --> 0:08:14.520 you know, very simple, it's a matter of arithmetic. Growth 0:08:14.600 --> 0:08:17.200 in output is going to be equal to the growth 0:08:17.200 --> 0:08:21.320 and labor input hours plus what those hours are able 0:08:21.360 --> 0:08:24.360 to accomplish with the capital that businesses give them. That's 0:08:24.440 --> 0:08:28.600 labor productivity. That's just identity. And then you sort of 0:08:28.640 --> 0:08:32.760 look at what determines that labor hours. Demographics are a 0:08:32.760 --> 0:08:36.079 big part of that. Well, the aging of the population, 0:08:36.520 --> 0:08:39.840 mail attachment to the labor force diminishes as they get older. 0:08:40.160 --> 0:08:43.520 Female increases in labor force participation have run their course. 0:08:43.559 --> 0:08:46.160 That led to very strong growth in labor hours in 0:08:46.200 --> 0:08:50.040 the eighties, but now are much weaker and younger people 0:08:50.080 --> 0:08:52.120 don't have the same attachment to the workforce that they 0:08:52.200 --> 0:08:53.840 used to, so they don't work as much now. If 0:08:53.880 --> 0:08:55.640 you add on top of that the fact that you 0:08:56.559 --> 0:09:00.520 have a particular attitude towards uh immigration, which would add 0:09:00.520 --> 0:09:04.080 to labor employment and hours, then you've got a big 0:09:04.120 --> 0:09:06.760 hold that you're looking at. So that labor hours component 0:09:06.880 --> 0:09:09.320 is not going to be very large. We estimated to 0:09:09.360 --> 0:09:13.000 be half a percent each year going forward, half a percent. Now, 0:09:13.040 --> 0:09:16.559 labor productivity, what are you expecting from that? I'd love 0:09:16.600 --> 0:09:19.840 to think that technology is going to improve us labor 0:09:19.840 --> 0:09:24.040 productivity a lot with technology. You didn't mention technology technology 0:09:24.040 --> 0:09:26.280 in any of that discussion, which is fine, But now 0:09:26.320 --> 0:09:30.559 we're all living with technology. Does that lead to an inequality? 0:09:30.640 --> 0:09:34.320 Does that lead to a Barbell outcome where technology a vanage? 0:09:34.360 --> 0:09:36.000 Just let me finish, let me let me finish the 0:09:36.040 --> 0:09:38.640 low growth, just to complete the thought right, because because 0:09:38.679 --> 0:09:41.240 the labor productivity might kind of go. We got a 0:09:41.280 --> 0:09:45.679 tax reform, we've got disruptive technologies, we've got new digital technologies. 0:09:45.720 --> 0:09:48.000 We oughtously really strong growth. When did we see really 0:09:48.000 --> 0:09:50.800 strong growth the eighties? In the eighties, we saw really 0:09:50.800 --> 0:09:53.640 strong growth when we were growing, not not in a decline. 0:09:53.640 --> 0:09:56.680 We grew three and a quarter percent. Why was that 0:09:57.400 --> 0:10:00.600 labor input? Labor input was really st long during that 0:10:00.640 --> 0:10:03.160 time period. How about labor productivity? They call that the 0:10:03.280 --> 0:10:07.560 labor slow the productivity slowdown period. We had great growth, 0:10:08.120 --> 0:10:10.400 low productivity growth. There was a whole bunch of things 0:10:10.400 --> 0:10:12.800 going and it wasn't until nine to two thousand five 0:10:12.840 --> 0:10:16.240 that we really saw an acceleration of productivity. Is very 0:10:16.280 --> 0:10:19.920 difficult to predict when labor productivity is going to accelerate. 0:10:20.360 --> 0:10:24.240 It takes a very long time. Computers hit the factory floor, 0:10:24.760 --> 0:10:28.280 uh in a digital fashion in manufacturing durable goods in 0:10:28.320 --> 0:10:30.719 the late nineties, and so you get this, but it's 0:10:30.800 --> 0:10:33.640 very difficult to predict. You could hope for it to 0:10:33.679 --> 0:10:36.400 be really strong. You can hope a long time. I 0:10:36.440 --> 0:10:38.280 just don't know how to predict. We're predicting one and 0:10:38.360 --> 0:10:41.839 a quarter percent. I think that's a pretty good great 0:10:42.000 --> 0:10:43.920 rate of growth. And that's how I get the one 0:10:43.960 --> 0:10:47.360 and three. And that's what the economy has dealt that hand. 0:10:47.679 --> 0:10:50.880 We're looking at it. The politicians are dealt that hand too. 0:10:51.040 --> 0:10:53.760 If they want three percent, if they want four or 0:10:53.840 --> 0:10:56.360 five percent, then you've got to think about public policies 0:10:56.440 --> 0:10:58.880 are gonna have an effect on that. Call it fiscal 0:10:58.960 --> 0:11:03.880 space this year with new name for labor employment practices. 0:11:04.000 --> 0:11:07.000 All kinds of things tell me about nominal GDP. With 0:11:07.080 --> 0:11:10.120 the lower demographics, with the new lower potential GDP, do 0:11:10.200 --> 0:11:12.520 we need to have a reset in our belief of 0:11:12.559 --> 0:11:15.000 the animal spirit we need to get Are we going 0:11:15.040 --> 0:11:17.840 to be sustained under four percent? Or could we do 0:11:17.920 --> 0:11:22.280 okay the current GDP? Yeah? I don't spend as much 0:11:22.280 --> 0:11:25.439 of my time thinking about nominal GDP, you know, as 0:11:25.480 --> 0:11:28.839 as he's thinking more about how you cut out a car, 0:11:28.880 --> 0:11:31.280 about the real GDP growth in the inflation, and I 0:11:31.280 --> 0:11:33.400 would say inflation has been on the light side. It's 0:11:33.400 --> 0:11:37.120 been under our two percent objective, and we've said that 0:11:37.160 --> 0:11:40.240 we should be pursuing a symmetric two percent objective. So 0:11:40.320 --> 0:11:42.679 that means, you know, it would be good if the 0:11:42.760 --> 0:11:45.240 FM clarified that a little bit more, and some of 0:11:45.240 --> 0:11:49.400 our discussions about our long run strategy, I think clarifying 0:11:49.440 --> 0:11:51.440 what we mean by symmetry would be important to me. 0:11:51.480 --> 0:11:54.040 It means we should average two percent over some reasonable 0:11:54.040 --> 0:11:56.200 period of time. We should probably spend half our time 0:11:56.240 --> 0:11:59.200 above two percent, But we've spent our entire time below 0:11:59.240 --> 0:12:03.120 two percents since we uh called this out. So being 0:12:03.160 --> 0:12:05.320 willing to go above two percent is something that I 0:12:05.360 --> 0:12:08.320 think conservative central bankers have a lot of trouble with. 0:12:08.480 --> 0:12:10.800 I think the ECB historically has had trouble with that. 0:12:10.920 --> 0:12:13.880 Bank of Japan has really had problem with that. And 0:12:13.920 --> 0:12:17.680 so if you limit yourself, if you say our objective 0:12:17.760 --> 0:12:20.600 is two percent, but you really act as if it's 0:12:20.600 --> 0:12:24.120 a ceiling, that reduces the monetary policy space that you 0:12:24.160 --> 0:12:27.840 have when you need to provide more accommodation of during 0:12:27.880 --> 0:12:29.839 the downturn. So that's why I think it's important to 0:12:29.880 --> 0:12:33.080 achieve our two percent symmetric objective. In Evan's speech is 0:12:33.160 --> 0:12:36.839 responsible until it's not and the words come out here, 0:12:37.160 --> 0:12:40.960 I have mild comfort with two and a half percent inflation. 0:12:41.679 --> 0:12:47.160 Perseverance is crucial, a powerful, full throated commitment to this 0:12:47.320 --> 0:12:50.120 a symmetry you speak of because it all centers on 0:12:50.360 --> 0:12:55.480 outcome based monetary policy. Let's dive into this. Olivier Blanchard 0:12:55.559 --> 0:12:58.440 and others many years ago said, look, we need to 0:12:58.440 --> 0:13:01.720 really pop inflation. We need an aggressive approach. Here you 0:13:01.880 --> 0:13:06.080 follow on as a public official with really a strong 0:13:06.360 --> 0:13:09.440 statement that we have to jump start this search for 0:13:09.480 --> 0:13:13.520 a higher level of inflation. Explain what a powerful, full 0:13:13.559 --> 0:13:19.319 throated Evans commitment is. Ah, so you've you've, you've you've 0:13:20.520 --> 0:13:25.600 interwoven two different policies. I would never do that. So so, um, 0:13:25.640 --> 0:13:28.920 I believe you were probably referring to Olivier blanche Shard. 0:13:29.280 --> 0:13:31.240 I think he was research director at the I m 0:13:31.360 --> 0:13:34.120 F and he sort of said, you know, there's really 0:13:34.240 --> 0:13:38.520 because what we have said is on average, the federal 0:13:38.559 --> 0:13:41.280 reserve when we go into recession we cut the short 0:13:41.360 --> 0:13:44.120 run policy rate by at least five hundred basis points 0:13:44.440 --> 0:13:47.440 five percentage points and more. If we start at two 0:13:47.480 --> 0:13:50.480 and three quarters per cent, we can't do five percentage points, 0:13:50.480 --> 0:13:52.679 and so we don't have a lot of ammunition and 0:13:52.720 --> 0:13:58.400 capacity that's premised on a real rate of three quarters 0:13:58.440 --> 0:14:00.480 of a percentage point and two percent being at two 0:14:00.520 --> 0:14:02.560 percent inflation. If you don't get to two percent, you 0:14:02.559 --> 0:14:05.760 start lower than that if you had a higher inflation objective. 0:14:05.760 --> 0:14:08.200 And this is where Olivier Blanchechard was musing, if we 0:14:08.240 --> 0:14:12.160 had four percent for plus a one percent real rate, 0:14:12.240 --> 0:14:14.240 you know that gives you five percentage points, and then 0:14:14.240 --> 0:14:17.760 you've got more capacity. Central banks have sort of settled 0:14:17.760 --> 0:14:21.720 on two percent um. People get very nervous when you 0:14:21.800 --> 0:14:23.840 talk about two point one percent or more than that, 0:14:24.640 --> 0:14:27.800 but any rate, So I think most people have backed 0:14:27.840 --> 0:14:31.200 off in our own long run framework. Cher J. Powell 0:14:31.240 --> 0:14:35.160 took off the table resetting the inflation objective before we 0:14:35.200 --> 0:14:39.000 even got started that type of things. So so when 0:14:39.120 --> 0:14:43.680 you are trying to hit two percent symmetrically, I think 0:14:43.680 --> 0:14:46.240 you need to hit it. And so if you say symmetric, 0:14:46.360 --> 0:14:48.960 we need to say what we mean. That is, if 0:14:49.000 --> 0:14:51.720 it's averaging. That just means it some of the time 0:14:51.760 --> 0:14:54.000 you're going to be above it. And since we've been 0:14:54.000 --> 0:14:57.000 down at one percent and one and a half percent 0:14:57.080 --> 0:14:58.920 one a corner for a very long period of time, 0:14:58.920 --> 0:15:01.119 two and a half just does and seem that outrageous, 0:15:01.120 --> 0:15:04.000 except that they're an awful lot of people who kind 0:15:04.000 --> 0:15:07.120 of say, as soon as you go above two, you're 0:15:07.200 --> 0:15:12.280 probably headed to eighteen on a big number um, and 0:15:12.320 --> 0:15:16.080 it just sort of presumes that it's not possible to 0:15:16.960 --> 0:15:21.760 operate in a parallel environment around that two per set. 0:15:21.880 --> 0:15:24.280 We need to discuss that, we need to communicate what 0:15:24.320 --> 0:15:26.560 we mean. I'm comfortable with two and a half percent 0:15:26.720 --> 0:15:30.840 inflation um, and in fact, trying to get to two 0:15:30.840 --> 0:15:34.760 percent with momentum full throated harder than many would try 0:15:34.960 --> 0:15:37.680 to make sure that we actually get there head for 0:15:37.760 --> 0:15:40.280 two and a half. Half the time we don't get 0:15:40.320 --> 0:15:42.640 to two. So maybe that would get us to two, 0:15:42.920 --> 0:15:44.880 and then maybe the other half we go over a 0:15:44.880 --> 0:15:47.240 little bit. You know, when I get to two and 0:15:47.240 --> 0:15:49.400 a half, I'm definitely gonna be Look, what's my forecast? 0:15:49.440 --> 0:15:51.600 Am I expecting to go to three? Or their special 0:15:51.640 --> 0:15:54.360 circumstances that are gonna make us go further. It is 0:15:54.600 --> 0:15:58.480 very difficult to generate inflation in the current environment. And 0:15:58.560 --> 0:16:02.320 in fact, we just agreed to tax reform and a 0:16:02.320 --> 0:16:06.160 fiscal policy and government spending that increase the national debt 0:16:06.760 --> 0:16:10.000 um by a trillion a half dollars over tenure. That's 0:16:10.000 --> 0:16:13.520 not enough to get inflation going either. So I think, um, 0:16:13.600 --> 0:16:15.280 you know, we need to we need to work harder. 0:16:16.960 --> 0:16:18.920 I was talking to her, Michael McKie this morning about 0:16:18.920 --> 0:16:22.200 the outcome of your Frankfurt speech. How do we affect 0:16:22.840 --> 0:16:26.560 the as you say, momentum the physics to get above 0:16:26.640 --> 0:16:29.840 two even two point five, three months of two point seven, 0:16:30.200 --> 0:16:34.600 how do you affect that process? You know, I'm trained 0:16:34.640 --> 0:16:38.640 as a monetary economists, and most of the time your 0:16:38.640 --> 0:16:44.280 training is you know, inflation is the monetary authorities concern. 0:16:45.360 --> 0:16:48.000 If you're Paul Wolker, you know, if you're g. William 0:16:48.320 --> 0:16:50.760 Miller back in the seventies and you kind of go 0:16:51.040 --> 0:16:53.640 or Arthur Burns, well, you know inflations double I can't 0:16:53.680 --> 0:16:57.640 do anything about that. No, do some way down you 0:16:57.680 --> 0:17:00.720 can do something about that, and Paul Bolker did that. 0:17:00.960 --> 0:17:04.199 It's the responsibility to deal with that. If inflation is 0:17:04.320 --> 0:17:08.840 under your objective. It's your responsibility if you don't understand 0:17:08.840 --> 0:17:11.760 all the other factors that at work to make you 0:17:11.960 --> 0:17:15.760 think you think low rates are accommodative, when in fact 0:17:16.200 --> 0:17:20.240 they're actually still restrictive if you're not hitting there on 0:17:20.320 --> 0:17:23.160 the interst rate lower Young mois with that summer piece 0:17:23.200 --> 0:17:26.080 out of JP Morgan, not a forecast, but a model 0:17:26.119 --> 0:17:29.200 of how you bring the tenure yel down. Is that 0:17:29.280 --> 0:17:32.520 where we could be heading as we affect and evans 0:17:32.560 --> 0:17:37.199 like two and a half percent inflation jump. So I 0:17:37.240 --> 0:17:39.840 think they're kindling to I think there are a lot 0:17:39.840 --> 0:17:42.840 of details. At any point in the process, we could 0:17:42.840 --> 0:17:45.720 have a discussion like that, and I'm willing to have 0:17:45.720 --> 0:17:48.600 it as guy. But at the moment, I'm thinking more 0:17:48.640 --> 0:17:53.480 about strategy and how you go about operationalizing to get 0:17:53.520 --> 0:17:56.680 to your strategic goals, and I think an enormous part 0:17:56.720 --> 0:18:01.920 of it is communicating we are we are headed for symmetry, 0:18:02.000 --> 0:18:04.320 we are willing to go over. We must go over 0:18:04.400 --> 0:18:07.199 two percent. If we are going to average two percent, 0:18:07.640 --> 0:18:09.880 you've got to be above two percent when you've been 0:18:09.920 --> 0:18:12.960 below it. When you think about the effects of the 0:18:13.080 --> 0:18:15.280 U zero lower bound, we now call it the effective 0:18:15.320 --> 0:18:17.320 lower bound. I guess because some people think we might 0:18:17.359 --> 0:18:19.520 go to negative interest rates. I think zero lower bound 0:18:19.600 --> 0:18:23.640 is probably more accurate. But you know, when when when 0:18:23.720 --> 0:18:25.640 interest rates fall a lot and we're at the zero 0:18:25.640 --> 0:18:28.359 lower bound, our expectation is inflation is going to be 0:18:28.400 --> 0:18:30.919 pretty low. Then we get out of this in the 0:18:30.960 --> 0:18:33.080 second half of the cycle, we get back to a 0:18:33.119 --> 0:18:35.520 more we should be there now, and then if you're 0:18:35.520 --> 0:18:37.639 gonna average two, you've got to be above two for 0:18:37.680 --> 0:18:40.600 that second half. Well, maybe you need to, you know, 0:18:40.640 --> 0:18:43.360 be be targeting something more like two and a quarter 0:18:43.400 --> 0:18:45.200 or two and a half on the second half of 0:18:45.240 --> 0:18:48.560 an economic cycle just to get to an average two percent. 0:18:48.760 --> 0:18:52.479 Talking about that strategy, making sure that everybody is totally 0:18:52.480 --> 0:18:57.240 comfortable with it or not, and admitting what your operational approaches, 0:18:57.760 --> 0:19:02.600 but communicating what you're going to do after being very 0:19:02.640 --> 0:19:05.840 clear about that, and not kind of getting nervous and 0:19:05.880 --> 0:19:08.240 twitching when you get to two point one or one 0:19:08.240 --> 0:19:11.479 point nine, Because I confess I'm about as outspoken as 0:19:11.480 --> 0:19:15.600 anybody in terms of I'm okay with inflation above two. 0:19:16.000 --> 0:19:19.280 But then I start talking about inflation at two point two, 0:19:19.280 --> 0:19:21.880 and maybe my maybe my voice breaks a little bit. 0:19:22.520 --> 0:19:24.960 I think it's part of the DNA of central bankers, 0:19:25.000 --> 0:19:27.439 and we really need to break out of that if 0:19:27.440 --> 0:19:29.840 we're going to be able to achieve two percent symmetric inflation. 0:19:29.880 --> 0:19:32.359 I mentioned Gerald Ford today on television. I realized nobody 0:19:32.359 --> 0:19:36.119 on my staff kneho. He was what about whips United 0:19:36.160 --> 0:19:39.520 States whip disinflation? Now, I mean, that's that's really the 0:19:39.560 --> 0:19:42.840 strategy we're talking about. How big a constraint is trillion 0:19:42.840 --> 0:19:46.959 dollar deficits. You mentioned the fiscal response to the vogue 0:19:47.000 --> 0:19:50.320 this moment is fiscal space. Whatever that means. Are you 0:19:50.440 --> 0:19:55.120 constrained by the fiscal challenges of the nation. I mean, 0:19:55.160 --> 0:19:58.480 as we look at conducting monetary policy, you do it 0:19:58.560 --> 0:20:01.120 over a particular horizon and that you know you can 0:20:01.160 --> 0:20:03.520 have some effect on three to five years. You look 0:20:03.560 --> 0:20:07.120 at that forecast, there seems to be uh no constraints 0:20:07.200 --> 0:20:11.280 from um accumulation of fiscal debt. I would expect that 0:20:11.320 --> 0:20:17.560 to emerge from very high treasury rates, long term bond yields. 0:20:17.640 --> 0:20:19.680 That is not what we're seeing. Even though we've seen 0:20:19.680 --> 0:20:22.359 a little bit of a turnaround, they're very low right now, 0:20:22.440 --> 0:20:25.040 so there doesn't seem to be any pressure there. This 0:20:25.119 --> 0:20:28.160 is a different world than the seventies. There's an intense 0:20:29.160 --> 0:20:33.760 desire for safe assets. Um, you know, people used to 0:20:33.800 --> 0:20:35.639 kind of go tee. Have you noticed that the German 0:20:35.680 --> 0:20:37.840 Bund is negative? Who in the heck would want to 0:20:37.920 --> 0:20:40.240 own the German Bund? And I say a lot of people, 0:20:41.080 --> 0:20:43.720 because most people who see the negative yield don't see 0:20:43.760 --> 0:20:46.160 the point that the price is very high because people 0:20:46.640 --> 0:20:49.840 want that. So are are low long term interest rates 0:20:49.880 --> 0:20:53.800 indicate that people like holding that there's a demand for that. 0:20:54.520 --> 0:20:56.520 You could argue that there's, you know, a need for 0:20:56.560 --> 0:20:58.919 more supply and this would be one way for it, 0:20:58.960 --> 0:21:01.879 but it doesn't in any as I can tell. Constraining 0:21:01.880 --> 0:21:04.919 our forecast carnigu melon with the heritage of Allen Meltzer 0:21:04.960 --> 0:21:07.199 Marvin good friend there as well. He wrote a Jackson 0:21:07.240 --> 0:21:09.760 whole about negative interest rates. There was a modest uproar 0:21:10.280 --> 0:21:13.880 about that paper. Your thoughts on the experiment of negative 0:21:13.920 --> 0:21:16.879 interest rates and with that the idea of Japan to 0:21:16.960 --> 0:21:20.080 Europe to a US slowdown? Do we have should we 0:21:20.119 --> 0:21:23.639 have a fear of a trajectory towards negative interest rates 0:21:23.680 --> 0:21:27.160 in America? I think the central banks that have used 0:21:27.200 --> 0:21:31.840 negative interest rates have found them to be helpful for them. 0:21:31.880 --> 0:21:35.640 I think that, um, if you let me just take 0:21:35.640 --> 0:21:37.679 the e c B d c B and in the 0:21:37.680 --> 0:21:43.359 Bank of Japan. They came later to the um broad 0:21:43.400 --> 0:21:48.520 asset purchasing programs that the Fed head embarked upon with 0:21:48.560 --> 0:21:51.639 our open ended QUE three in September two thousand twelve. 0:21:51.640 --> 0:21:53.840 We did quantitative easy before that, but we did the 0:21:53.840 --> 0:21:56.920 open ended in twelve, and that sort of changed things. 0:21:56.960 --> 0:22:01.480 I think for guidance was helpful, but the combination was useful. Um, 0:22:01.600 --> 0:22:03.800 the Bank wage Fan did that. ECB did that, but 0:22:03.840 --> 0:22:07.439 they also added negative interest rates, so I think that 0:22:08.000 --> 0:22:10.080 helped them a little bit. If you look at the 0:22:10.200 --> 0:22:13.679