WEBVTT - Here's Why The Fed Is Saying Less

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and

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<v Speaker 1>this is Here's Why, where we take one news story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg. Anybody who thinks central banking, especially

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<v Speaker 1>if you're head of a central bank, is a delightful activity,

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<v Speaker 1>let me disabuse you.

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<v Speaker 2>It's torture.

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<v Speaker 1>Everybody on Wall Street has wanted to ask you for

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<v Speaker 1>four years. Since this is your last press conference, can

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<v Speaker 1>you tell us which dot is yours?

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<v Speaker 2>The answer is no, I've never been willing to reveal

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<v Speaker 2>which dot is mine.

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<v Speaker 1>It's appropriate sometimes to look through inflation if it's going

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<v Speaker 1>to go away quickly without action by us, If it's transitory,

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<v Speaker 1>central banker's words can move hundreds of billions of dollars

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<v Speaker 1>in for rate setters. Communication is an art form. One

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<v Speaker 1>slip up can spark massive market moves. So Kevin worsh

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<v Speaker 1>wants a different approach under his leadership of the Federal Reserve.

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<v Speaker 1>When all the financial markets are doing is reflecting back

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<v Speaker 1>what we've said, then we're taking the most important source

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<v Speaker 1>of information and we're being blind to it, but saying

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<v Speaker 1>less about monetary policy. Goes against the trend of central

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<v Speaker 1>banks globally. Here's why the Fed is saying less. Our

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<v Speaker 1>Federal Reserve report around the current joins us now for more.

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<v Speaker 1>And first of all, what is the general approach that

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<v Speaker 1>central bankers take when it comes to talking about their

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<v Speaker 1>policy decisions.

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<v Speaker 2>Well, if you go back maybe thirty years Stephen, central

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<v Speaker 2>bankers really went out of their way to say very

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<v Speaker 2>little at all in terms of where policy and industrates

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<v Speaker 2>were going. That's how they did business. Things change a

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<v Speaker 2>lot in and around say that financial crisis time. We

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<v Speaker 2>started to get more press conferences, more or speeches, a

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<v Speaker 2>lot more communications, and indeed something called forward guidance entered

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<v Speaker 2>a lexicon. This was the idea where central bankers started

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<v Speaker 2>giving fairly strong signals in terms of where they think

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<v Speaker 2>interest rates are headed in the months and in the

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<v Speaker 2>years ahead. Now, in the years since, that has drawn

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<v Speaker 2>criticism because, in the views of some people, there's now

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<v Speaker 2>too much communication. There's over communication, you're complicating the outlook.

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<v Speaker 2>Too many officials are giving speeches, there are too many

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<v Speaker 2>ways of reading the tea leaves on digesting what the

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<v Speaker 2>central blank plans to do. It all needs to be

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<v Speaker 2>simplified and that's kind of the space we're in now

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<v Speaker 2>with the Federal Reserve typically speaking every week, officials are

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<v Speaker 2>out there giving speeches. They could be giving interviews, they

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<v Speaker 2>could be doing podcasts, there could be communicating through other

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<v Speaker 2>avenues like literature and the like. And with new FED

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<v Speaker 2>Chairman Kevin Warsh, he's saying, listen, it's time to start

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<v Speaker 2>thinking and saying that less is more. So fewer speeches,

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<v Speaker 2>perhaps even fewer press conferences. He has set up this

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<v Speaker 2>group to think about ways to improve and streamline the

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<v Speaker 2>FED communications. But his overall approaches we need to slow

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<v Speaker 2>down and just speak when we really have something to say.

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<v Speaker 1>So tell us a bit more about why Kevin Worsh

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<v Speaker 1>decided to make this change now.

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<v Speaker 2>Well, look, there is a view, of course. On the

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<v Speaker 2>one hand, there are those who advocate for transparency. The

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<v Speaker 2>central Bank needs to communicate its policy. The public needs

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<v Speaker 2>to understand what's going on, and of course that is

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<v Speaker 2>the central role for the central bank. The issue is

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<v Speaker 2>it can become a little bit confusing. There's a term

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<v Speaker 2>now in the US FED speak, and that's when these

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<v Speaker 2>officials are out every other day giving a speech, want

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<v Speaker 2>to saying interest rate's going up? Want to saying inter

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<v Speaker 2>rates staying stable. Maybe somebody else somewhere in that chain

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<v Speaker 2>of command of the FED says something different, and the

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<v Speaker 2>end result can be kind of a muddle picture in

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<v Speaker 2>terms of where is policy headed over the months ahead.

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<v Speaker 2>That's the critics view, and their point is that, look,

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<v Speaker 2>there's really no business. There's no need for someone official

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<v Speaker 2>to be speaking and communicating the way they are all

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<v Speaker 2>the time. It just needs to be more refined, honed,

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<v Speaker 2>hone that message down and just speak as a team

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<v Speaker 2>when you have something to say. And I think that's

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<v Speaker 2>where the pushback is against the current kind of FED approach.

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<v Speaker 1>So does Kevin Worth have much control in this situation?

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<v Speaker 1>Can he actually stop the other right setters from going

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<v Speaker 1>out and talking about their thoughts on monetary policy.

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<v Speaker 2>He's the chairman of the federers there, but really it

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<v Speaker 2>operates on a kind of a consensus approach over there, Stephen,

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<v Speaker 2>and he doesn't, in terms of being a boss or manager,

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<v Speaker 2>have the authority to win and say you can't give

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<v Speaker 2>a speech this week. He can't stop his fellow governors

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<v Speaker 2>from doing that, for example, and he can't stop the

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<v Speaker 2>regional FED presidents from doing that. But he can set

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<v Speaker 2>the tone he can guide, he can say, listen, I

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<v Speaker 2>think we're all speaking a bit too much at the moment.

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<v Speaker 2>And by the way, the economy right now is in

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<v Speaker 2>a complicated space. You have the energy story going on,

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<v Speaker 2>you have this extraordinary AI boom, and truth no one

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<v Speaker 2>quite knows how that is going to play out. You've

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<v Speaker 2>lots of different issues going on with underlying inflation, the

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<v Speaker 2>jobs markets suddenly stabilized. So it's all very confusing, and

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<v Speaker 2>there probably is a case we made for right now

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<v Speaker 2>saying less until people get a clearer picture and where

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<v Speaker 2>things are headed. But nonetheless, the balance and all of this,

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<v Speaker 2>Steven is trying to make sure there is transparency. These

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<v Speaker 2>are public officials. The public does need to know what's

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<v Speaker 2>going to be happening with the interest rates and their

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<v Speaker 2>savings and their mortgage and everything else. Balancing that transparency

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<v Speaker 2>with also, you know, not doing the overkill where the

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<v Speaker 2>signal just becomes noise after a while.

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<v Speaker 1>One of the consequences then at this change for investors

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<v Speaker 1>who comb over all those words from central bankers very closely.

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<v Speaker 2>So this is very tricky to get right. Steven, let

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<v Speaker 2>me be clear, while I've tried to acknowledge both sides

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<v Speaker 2>of this argument. I do want to say that the

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<v Speaker 2>danger here, or the warning is that if you leave

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<v Speaker 2>a void, something is going to fill the void in

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<v Speaker 2>the absence of communication. Now it might be overwaiting one

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<v Speaker 2>or two individual officials commentary in the policy making process,

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<v Speaker 2>or could be markets happily obliging filling the gap themselves

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<v Speaker 2>and deciding where they think interest rates are going, where

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<v Speaker 2>they think markets are headed and policy is headed. And

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<v Speaker 2>of course that's not necessarily a helpful thing for the

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<v Speaker 2>FED because they Fed likes the guide markets in the

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<v Speaker 2>direction they wanted to go. So it's very tricky stuff.

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<v Speaker 2>You can argue the case, as we've just been discussing

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<v Speaker 2>that perhaps it can be refined more and there really

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<v Speaker 2>isn't a need to give a speech at every Chamber

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<v Speaker 2>of Commerce in the country every second week of the year.

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<v Speaker 2>They can argue that case. And by the way, there

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<v Speaker 2>is a task force. One of those people leaving the

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<v Speaker 2>task force as former Bank of England Governor Marvin King.

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<v Speaker 2>They're looking at how to change up the Fed's communications.

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<v Speaker 2>So you know, you can put all that on the table,

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<v Speaker 2>but equally pulling off that balancing act is a tricky

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<v Speaker 2>one given the years now of communication. You know, I

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<v Speaker 2>don't think anyone's advocating rolling it back to where we wore, say,

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<v Speaker 2>twenty thirty years ago, but even tweaking what we have

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<v Speaker 2>at the moment is certainly going to take a while

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<v Speaker 2>for everyone to adjust to.

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<v Speaker 1>Is this something that other central bank could choose to

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<v Speaker 1>follow the FED in?

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<v Speaker 2>Well, you could say that the FED was the standard

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<v Speaker 2>bearer globally for leading the way in terms of you know,

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<v Speaker 2>setting out the soul and in terms of communications, the

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<v Speaker 2>rotation of speeches, the publication of minutes. It's not that

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<v Speaker 2>other central banks weren't taking similar steps, but the FED

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<v Speaker 2>is the world's most important central bank, and it has

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<v Speaker 2>led the way in disregard and it does set the

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<v Speaker 2>standard for others. And there is a concern that if

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<v Speaker 2>the FED pulls back on its communications writ large and

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<v Speaker 2>it leaves a void, well, that could leave say, emerging

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<v Speaker 2>market central banks and economies vulnerable because if markets start

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<v Speaker 2>to become wobbly or volatile in the absence of news

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<v Speaker 2>and the FED, well, that will impact spillover of course

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<v Speaker 2>through the dollar channels into emerging markets around the world

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<v Speaker 2>as well. That's number one and number two, there's a

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<v Speaker 2>view that, well, if the FED is pulling back in communications,

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<v Speaker 2>maybe other governments might encourage their central banks around the world. Look,

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<v Speaker 2>you don't need to be speaking youse often either. Why

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<v Speaker 2>don't you start rainy and your messaging as well. So

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<v Speaker 2>there is a worry about kind of spill over and

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<v Speaker 2>pressing that it might set for others. And that's why

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<v Speaker 2>it's a really challenging thing to get right here, Stephen,

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<v Speaker 2>because as I said, there is a constituency that says

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<v Speaker 2>there's too much FED speak that has speak knowledge. But

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<v Speaker 2>I don't know of many who say communications should be

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<v Speaker 2>trimmed back dramatically overall, because that raises risks in itself.

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<v Speaker 1>And we'll be watching with interest to see how that

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<v Speaker 1>debate plays out. End of for now. Thank you. That's

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<v Speaker 1>end of current our Federal Reserve Reporter. For more explanations

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<v Speaker 1>like this from our team of three thousand journalists and

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<v Speaker 1>analysts around the world, go to Bloomberg dot com slash explainers.

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<v Speaker 1>I'm Stephen Carroll. This is here's why. I'll be back

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<v Speaker 1>next week with more. Thanks for listening.