WEBVTT - Bloomberg Surveillance TV: November 13, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.879 terminal and the Bloomberg Business app. And please to say 0:00:36.920 --> 0:00:39.400 that responding to this economic data now is the Minneapolis 0:00:39.400 --> 0:00:41.880 Fed President Neil Kashgari, President kash Scary. 0:00:41.920 --> 0:00:43.479 Good morning, got to see you again, Good morning, good 0:00:43.479 --> 0:00:43.879 to see you. 0:00:43.840 --> 0:00:44.520 Rate a cats shop. 0:00:44.560 --> 0:00:46.400 I saw some comments from you yesterday, and for our 0:00:46.440 --> 0:00:48.040 audience that might have missed them, I'll share them with 0:00:48.080 --> 0:00:48.920 our audience. 0:00:48.600 --> 0:00:49.640 Now we can pick up on them. 0:00:49.760 --> 0:00:51.760 Then have to be a surprise on the inflation front 0:00:51.760 --> 0:00:54.640 to change the outlook so dramatically. If we saw inflation 0:00:54.680 --> 0:00:56.800 surprises to the upside between now and then, that might 0:00:56.840 --> 0:00:59.320 give us pause for December. It'd be hard to imagine 0:00:59.320 --> 0:01:01.760 the labor market really heat something between now and December. 0:01:02.000 --> 0:01:03.760 That's just not that much time. 0:01:03.960 --> 0:01:06.560 Inflation dates around just months ago, and I think in 0:01:06.600 --> 0:01:08.640 that to disrupt this easing bias that seems to have 0:01:08.640 --> 0:01:10.640 gripped the FED over the last few months. 0:01:11.200 --> 0:01:13.600 Well, first of all, it's very fresh data, so I 0:01:13.640 --> 0:01:15.000 haven't had time to go through it in a lot 0:01:15.040 --> 0:01:17.240 of detail, but at least on the headline level, it 0:01:17.280 --> 0:01:19.200 seems to be confirming the path that we're on. 0:01:19.480 --> 0:01:20.280 We've made a lot of. 0:01:20.240 --> 0:01:23.000 Progress in the last year or so bringing inflation down. 0:01:23.720 --> 0:01:25.520 I need to go through the components of that release, 0:01:25.560 --> 0:01:28.320 which I have not done yet, but generally speaking, goods 0:01:28.360 --> 0:01:30.520 inflation is back down to where we want it to 0:01:30.520 --> 0:01:33.640 be where it was pre pandemic. Services inflation, which is 0:01:33.680 --> 0:01:37.039 tied to wages, is gently trending down. And then finally, 0:01:37.080 --> 0:01:40.120 housing inflation, we know is a lagging indicator. We know 0:01:40.240 --> 0:01:41.880 that it takes a couple of years for the new 0:01:41.959 --> 0:01:44.600 leases to turn over, and the new leases. 0:01:44.319 --> 0:01:45.839 Are showing that we're headed in the right direction. 0:01:45.959 --> 0:01:48.880 So right now I think that inflation is headed in 0:01:48.880 --> 0:01:49.480 the right direction. 0:01:49.840 --> 0:01:52.480 I've got confidence about that, but we need to wait. 0:01:52.520 --> 0:01:54.800 We've got another month or six weeks of data to 0:01:55.160 --> 0:01:57.040 analyze before we make any decisions. 0:01:57.200 --> 0:01:59.720 One of the things that has been very noticeable the 0:02:00.240 --> 0:02:03.160 week is the change in investors' views about where you're 0:02:03.200 --> 0:02:05.960 going to end up. If you're looking at so for 0:02:06.080 --> 0:02:09.079 futures right now, the only price in about seventy five 0:02:09.080 --> 0:02:11.320 basis point cuts between now and the end of twenty 0:02:11.440 --> 0:02:14.840 twenty five. Are we entering a period because we don't 0:02:14.880 --> 0:02:18.120 know what Donald Trump's policies are actually. 0:02:17.800 --> 0:02:19.080 Going to be. 0:02:19.120 --> 0:02:22.320 Where the dot plot, the summary of economic projections are 0:02:22.400 --> 0:02:24.680 kind of off the table, can't really put a lot 0:02:24.680 --> 0:02:27.120 of faith in them, and that maybe you're in the 0:02:27.200 --> 0:02:31.560 layel brainer attenuation phase where you slow down everything and 0:02:31.720 --> 0:02:36.600 people should expect not a lot of guidance from the Fed. 0:02:36.880 --> 0:02:39.880 Well, you know, the dot plot is something that I 0:02:40.639 --> 0:02:42.880 at times I'm glad we have it, and in times 0:02:42.919 --> 0:02:44.600 it's more of a frustration that we have to fill 0:02:44.639 --> 0:02:47.240 it out because there's so much uncertainty about the economic outlook. 0:02:47.680 --> 0:02:50.640 Over the past year or two, I've been surprised at 0:02:50.639 --> 0:02:53.360 the resilience of the US economy in the face of 0:02:53.720 --> 0:02:56.920 seemingly quite high policy rates. Yet the labor market has 0:02:56.919 --> 0:03:00.680 stays strong and the economic growth continues to surprise. So 0:03:00.720 --> 0:03:03.120 for me, I've been asking questions about where's the neutral 0:03:03.200 --> 0:03:04.679 rate for the last year or two. 0:03:05.080 --> 0:03:06.239 That's not about the election. 0:03:06.600 --> 0:03:08.919 That's just about how the economy has been performing over 0:03:08.919 --> 0:03:11.400 the past year or two. And so you know, for example, 0:03:11.720 --> 0:03:14.440 there's been revisions that suggests that productivity is now higher 0:03:14.520 --> 0:03:17.440 that it had been in prior years. If that higher 0:03:17.480 --> 0:03:21.079 productivity environment is maintained, that would tell me we're probably 0:03:21.160 --> 0:03:23.600 in a somewhat higher neutral rate environment. Again, that's not 0:03:23.639 --> 0:03:25.960 about the election. That's just about how the economy has 0:03:26.000 --> 0:03:29.079 actually been performing. And so for me as a policymaker, 0:03:29.440 --> 0:03:32.040 that's what's leading to my own uncertainty about where's our 0:03:32.120 --> 0:03:35.320 ultimate destination. And I think that people are raising questions 0:03:35.320 --> 0:03:37.480 about what is the new administration going to do, what 0:03:37.560 --> 0:03:39.160 is the new Congress going to do? I think that's 0:03:39.200 --> 0:03:42.720 also adding uncertainty about ultimately what's the growth trajectory of 0:03:42.720 --> 0:03:43.600 the US economy. 0:03:43.800 --> 0:03:47.400 Well, Tom Barkin said yesterday your colleague from the Richmond Fed, 0:03:47.520 --> 0:03:51.680 that right now there's no way to know, so one 0:03:51.760 --> 0:03:55.040 has to just kind of assume that things are going 0:03:55.080 --> 0:03:58.800 to be maybe stuck inflation, stuck above two percent. 0:03:59.440 --> 0:04:01.280 Would you join in that sentiment. 0:04:01.800 --> 0:04:04.120 I'm not sure that I'm ready to say that inflation 0:04:04.200 --> 0:04:05.960 is stuck above two percent. I think it's right now 0:04:06.040 --> 0:04:07.200 running in the mid twes on. 0:04:07.160 --> 0:04:08.240 A PCE basis. 0:04:09.200 --> 0:04:12.120 And as I said earlier, goods inflation is backed down. 0:04:12.680 --> 0:04:16.719 Services inflation is tied to wages, and wages are gently 0:04:16.760 --> 0:04:19.719 trending down. And housing inflation, we know, is going to 0:04:19.760 --> 0:04:22.560 take a couple of years before completely before the new 0:04:22.640 --> 0:04:24.839 leases roll all the way through the housing inflation. So 0:04:25.200 --> 0:04:27.840 I have confidence that inflation is headed in the right direction. 0:04:28.360 --> 0:04:30.120 Is it headed there fast enough? Do we want it 0:04:30.160 --> 0:04:32.120 to get there more quickly? You know, we will see. 0:04:32.440 --> 0:04:34.560 But ultimately that and the labor market are going to 0:04:34.600 --> 0:04:35.880 guide our policy decisions. 0:04:35.960 --> 0:04:38.120 Well. Back in September, on the labor market, you said 0:04:38.120 --> 0:04:40.840 that the balance of risks had shifted towards a more 0:04:40.839 --> 0:04:43.680 weakening labor market. Do you think we've backed off that risk? 0:04:43.720 --> 0:04:45.839 Is it not as acute as it was since we've 0:04:45.839 --> 0:04:47.080 had the data since September. 0:04:47.160 --> 0:04:47.360 Yeah. 0:04:47.400 --> 0:04:49.880 We had seen some data piling up up until that 0:04:49.920 --> 0:04:52.800 September meeting, which was pretty much pointed in one direction, 0:04:52.880 --> 0:04:55.680 which was a softening labor market. We then had a 0:04:55.800 --> 0:04:58.359 surprise on the other way, the labor market looks stronger, 0:04:58.440 --> 0:05:00.840 but then a reversal in the subsequent good job report, 0:05:00.960 --> 0:05:03.280 and so I still think the labor market is softening. 0:05:03.360 --> 0:05:05.760 On four point one percent unemployment rate is a good 0:05:05.880 --> 0:05:06.600 unemployment rate. 0:05:06.640 --> 0:05:07.840 It's a good labor market. 0:05:08.080 --> 0:05:10.280 It's not as tight as it was a year ago 0:05:10.440 --> 0:05:14.040 or two years ago. So it's unquestioned that it has 0:05:14.120 --> 0:05:16.560 been softening. And right now we're in a good place 0:05:16.560 --> 0:05:18.520 in the labor market and we want to keep it there. 0:05:18.680 --> 0:05:20.720 You know, I do a lot of outreach to businesses 0:05:20.800 --> 0:05:23.560 large and small around my region, as well as labor 0:05:23.640 --> 0:05:27.160 unions around my region. Generally, what I hear is cautious optimism. 0:05:27.240 --> 0:05:29.760 People feel good about the outlook, but there are some 0:05:29.880 --> 0:05:32.560 trends that it's slowly softening, and we just want to 0:05:32.560 --> 0:05:33.480 watch that carefully. 0:05:33.720 --> 0:05:35.719 Know the election, We've got to talk about the election, 0:05:35.800 --> 0:05:37.600 and I know it's a difficult moment for the Federal Reserve. 0:05:37.600 --> 0:05:40.279 I think it's a difficult moment for managty policy makers 0:05:40.279 --> 0:05:42.960 worldwide for that matter. The Chairman down with it in 0:05:43.000 --> 0:05:45.799 the news conference, and it's pretty clear. We don't speculate, 0:05:45.920 --> 0:05:49.360 we can't make assumptions, but you're in the risk management business, 0:05:49.760 --> 0:05:51.839 and you've been in the risk management business for a 0:05:51.839 --> 0:05:54.320 long time. It predates your experience at the Federal Reserve. 0:05:54.560 --> 0:05:57.200 Do you think we've introduced two way risk in twenty 0:05:57.240 --> 0:05:59.839 twenty five, and when you think about the balance of risk, 0:06:00.080 --> 0:06:02.520 does that call for slow approach to any move in 0:06:02.560 --> 0:06:04.400 monetary policy one way or the other? 0:06:04.960 --> 0:06:07.000 Well, two way risk, I think we've already had two 0:06:07.040 --> 0:06:07.440 way risks. 0:06:07.440 --> 0:06:09.680 So we've got risks of the labor market continuing to 0:06:09.720 --> 0:06:12.479 soften and over softening, and then we've got risks of 0:06:12.920 --> 0:06:15.400 inflation potentially getting stuck. I'm not seeing a lot of 0:06:15.520 --> 0:06:17.880 upside risks yet we don't know what's going to get enacted. 0:06:18.160 --> 0:06:20.080 I'm not seeing a lot of upside risk that inflation 0:06:20.160 --> 0:06:21.279 is going to take off from here. 0:06:21.560 --> 0:06:23.200 The bigger risk that I'd be concerned about. 0:06:23.040 --> 0:06:24.919 In the inflation front is just if we're landing at 0:06:24.960 --> 0:06:27.120 around the two and a half percent level instead of 0:06:27.120 --> 0:06:29.240 back down to two percent level. I think that those 0:06:29.360 --> 0:06:32.200 risks existed before the election, and I think that there 0:06:32.279 --> 0:06:34.720 continues to be uncertainty now and we need to just 0:06:34.760 --> 0:06:37.040 be take our time, let the data come to us, 0:06:37.279 --> 0:06:39.640 and let that guide us. Ultimately, for me, this goes 0:06:39.680 --> 0:06:41.800 back to the discussion we had a moment ago about 0:06:41.839 --> 0:06:45.279 where's the neutral rate. There's tremendous uncertainty in my mind 0:06:45.400 --> 0:06:47.560 about where the neutral rate is, and the longer the 0:06:47.600 --> 0:06:51.240 economy continues to exceed expectations, the more signal I take 0:06:51.600 --> 0:06:54.360 that we must not be as restrictive as I would 0:06:54.360 --> 0:06:54.880 have assumed. 0:06:55.160 --> 0:06:58.360 FED staff analyzed though, during the first iteration of Trump 0:06:58.480 --> 0:07:01.760 the impact of the tariffs, and everyone coalesce around this 0:07:01.839 --> 0:07:04.160 idea that there was a one off increase in inflation. 0:07:04.360 --> 0:07:05.200 You can look through it. 0:07:05.200 --> 0:07:07.640 It wasn't going to be this vicious cycle and ongoing 0:07:07.680 --> 0:07:11.040 inflation threat. Did you agree with that assessment at the time, 0:07:11.440 --> 0:07:14.360 and do you still think that that's what tariffs could 0:07:14.400 --> 0:07:15.400 do in terms of inflation. 0:07:15.720 --> 0:07:17.120 I agree with that assessment at the time. 0:07:17.160 --> 0:07:18.960 I still agree with that, but I think your prior 0:07:19.040 --> 0:07:21.560 guest touched on it, which is it really depends on 0:07:21.600 --> 0:07:23.480 what the other countries end up doing. If there ends 0:07:23.520 --> 0:07:26.680 up being a tit for tat and one country raises terifts, 0:07:26.680 --> 0:07:28.920 they respond and you go back and forth, and definitely 0:07:29.280 --> 0:07:32.080 that could lead to a longer term imprint on inflation 0:07:32.200 --> 0:07:35.480 and potentially inflation expectations and of course, we don't know 0:07:35.480 --> 0:07:37.760 what our own tariffs are going to be, let alone, 0:07:37.760 --> 0:07:39.680 what other countries are going to respond with, and so 0:07:39.920 --> 0:07:42.560 we just need to be patient and see. 0:07:41.960 --> 0:07:44.760 I had a note come in from one of the 0:07:44.760 --> 0:07:47.080 Wall Street analysts that had a line that I thought 0:07:47.160 --> 0:07:49.880 was really valid, and that is that if you're going 0:07:49.920 --> 0:07:51.960 to forecast inflation, you have to have a theory of 0:07:51.960 --> 0:07:57.280 inflation and what's causing inflation. We've got relatively strong labor 0:07:57.320 --> 0:08:02.840 markets right now, and we've got concern about inflation. Real 0:08:02.880 --> 0:08:06.080 interest rates just keep rising and they're working in opposition 0:08:06.120 --> 0:08:08.440 to your rate cuts. What's your theory of inflation and 0:08:08.560 --> 0:08:12.040 how come we're seeing this kind of real rate reaction. 0:08:12.600 --> 0:08:15.440 Well, I've done a lot of soul searching on why 0:08:15.560 --> 0:08:17.920 I missed the inflation run up in the first place. 0:08:18.000 --> 0:08:20.119 I was surprised on the run up. I was also 0:08:20.120 --> 0:08:23.320 surprised on the disinflation that followed it. And the one 0:08:23.360 --> 0:08:26.000 thing that's been content is it was not the labor market. 0:08:25.800 --> 0:08:27.360 On the run up or the disinflation. 0:08:27.880 --> 0:08:31.360 It was mostly supply factors, and so you know, supply 0:08:31.440 --> 0:08:32.320 chains got gummed up. 0:08:32.320 --> 0:08:33.319 That took a lot longer to. 0:08:33.280 --> 0:08:36.480 Resolve the inflation took off, you the war in Ukraine, 0:08:36.679 --> 0:08:39.400 also pushing inflation up, and then many of those factors 0:08:39.480 --> 0:08:42.680 unwound or didn't get worse, bringing inflation back down. So 0:08:42.800 --> 0:08:47.120 monetary policy's role, in my judgment, in this episode, has 0:08:47.160 --> 0:08:50.840 been to keep long run inflation expectations anchored, and it 0:08:50.880 --> 0:08:53.800 has provided some gentle cool into the labor market. I 0:08:53.840 --> 0:08:56.360 don't think the supply factors are what have caused the 0:08:56.400 --> 0:08:59.280 labor market to gently cool. I do think monetary policy 0:08:59.280 --> 0:09:01.960 has been doing that. And so you put all that together, 0:09:02.360 --> 0:09:04.480 it says that when I thought we were applying two 0:09:04.480 --> 0:09:06.960 feet on the breaks of the economy with monetary policy, 0:09:07.400 --> 0:09:09.040 we might only have been applying. 0:09:08.640 --> 0:09:09.560 One foot on the break. 0:09:09.880 --> 0:09:12.120 And so this goes back to where ultimately are we 0:09:12.200 --> 0:09:13.880 going to settle. We're going to have to let the 0:09:13.920 --> 0:09:15.000 economy guide us. 0:09:15.200 --> 0:09:17.880 We are now paying as much attention to CPI again 0:09:17.920 --> 0:09:19.320 as we are to the labor market. 0:09:19.360 --> 0:09:20.400 But the labor market. 0:09:20.160 --> 0:09:22.199 Comes up in early December. 0:09:22.800 --> 0:09:26.760 We had a really really strong September. 0:09:26.240 --> 0:09:27.960 And a really really weak October. 0:09:28.640 --> 0:09:31.400 What do you where is the labor market as far 0:09:31.440 --> 0:09:31.880 as you're. 0:09:31.720 --> 0:09:33.720 Concerned, I think the labor market is in a good 0:09:33.720 --> 0:09:34.400 place right now. 0:09:34.440 --> 0:09:36.160 Again, the anecdotes that I get. 0:09:36.160 --> 0:09:38.600 I look at the data, the official statistics, which always 0:09:38.640 --> 0:09:42.360 have uncertainty. There's even more uncertainty about the labor market statistics, 0:09:42.440 --> 0:09:44.720 not just because of the hurricanes and the Boeing strike, 0:09:45.120 --> 0:09:49.000 but because of the large immigration flows, which are we're 0:09:49.040 --> 0:09:52.080 not exactly sure how big they are and their time varying. 0:09:52.480 --> 0:09:54.800 So what is this month's. 0:09:54.480 --> 0:09:56.880 Break even level of job growth? You know, your guest 0:09:56.960 --> 0:09:58.720 is as good as mine. So I look at the 0:09:58.760 --> 0:10:01.560 official statistics, and then I marry it to what we're 0:10:01.559 --> 0:10:03.520 all here in my colleagues and I from all of 0:10:03.520 --> 0:10:06.280 our contacts around the country. The labor market right now 0:10:06.320 --> 0:10:09.079 is strong. It's a healthy labor market. Jobs are available, 0:10:09.400 --> 0:10:10.640 businesses are feeling good. 0:10:11.400 --> 0:10:12.520 We want to keep it that way. 0:10:12.559 --> 0:10:14.280 And so as we get the data in, I'm going 0:10:14.320 --> 0:10:16.640 to continue to do my own outreach, and all of 0:10:16.640 --> 0:10:18.800 the other presidents are going to do their outreach to 0:10:18.880 --> 0:10:21.240 the businesses large and small, and labor groups to get 0:10:21.280 --> 0:10:24.400 a sense of is the labor market cooling slowly, is 0:10:24.400 --> 0:10:26.840 it heating up, or is it cooling quickly? And that 0:10:26.880 --> 0:10:30.840 will those will be important judgments into our policy deliberations. 0:10:31.120 --> 0:10:34.000 Your former colleague, Bill Dudley wrote a Bloomberg opinion piece 0:10:34.040 --> 0:10:37.040 earlier this week basically saying that there's this possibility that 0:10:37.080 --> 0:10:40.080 Trump enacts policy quickly and forcedly in a way that 0:10:40.120 --> 0:10:42.679 doesn't give the FED enough time to respond and without 0:10:42.720 --> 0:10:45.000 the proper tools to respond. Is that a concern you 0:10:45.040 --> 0:10:45.600 also share? 0:10:46.000 --> 0:10:48.920 I think fiscal policy is always an input into our 0:10:49.440 --> 0:10:52.120 deliberations and into our analysis and assessment of the economy. 0:10:52.160 --> 0:10:54.400 I don't think that's new now, and it's not just 0:10:54.520 --> 0:10:57.000 US fiscal policy. It's what happens with other countries, what 0:10:57.000 --> 0:10:59.360 happens with our trading partners, and so that type of 0:10:59.480 --> 0:11:02.560 uncertainty we're used to dealing with it. Obviously, we would 0:11:02.600 --> 0:11:04.600 like to have less uncertainty. That'd be great, but it's 0:11:04.600 --> 0:11:07.199 the world that we live in, and we will take 0:11:07.240 --> 0:11:09.480 all the information we can as we get it and 0:11:09.600 --> 0:11:10.920 incorporate it into our thinking. 0:11:11.040 --> 0:11:13.440 Speaking of uncertainty, there's been a lot of concern about 0:11:13.480 --> 0:11:15.360 what Trump two point zer would mean in tern of 0:11:15.480 --> 0:11:17.680 job voting, the FED, and how we felt about j. 0:11:17.880 --> 0:11:18.240 Powell. 0:11:18.280 --> 0:11:21.920 The FOMC had this plan during the first iteration of 0:11:21.920 --> 0:11:25.080 Trump that maybe they even move Powell to chair of 0:11:25.120 --> 0:11:27.920 the FOMC if he was going to take over the 0:11:28.000 --> 0:11:31.360 chairmanship of the actual FED. Would you basically all act 0:11:31.400 --> 0:11:33.920 as a group to potentially thwart anything that was coming 0:11:33.960 --> 0:11:36.479 at you that would negate the FED independence. 0:11:37.400 --> 0:11:37.920 We are all. 0:11:37.840 --> 0:11:39.400 Committed to our dual mandate goals. 0:11:39.480 --> 0:11:42.960 Everybody around the table, all of my colleagues, stable prices 0:11:43.000 --> 0:11:46.480 and maximum employment. So number one, we're all committed to 0:11:46.480 --> 0:11:50.040 those goals. Number two, I don't think those goals are controversial. 0:11:50.120 --> 0:11:53.679 I think everybody across the political spectrum wants us to 0:11:53.679 --> 0:11:55.600 get inflation all the way back down to two percent 0:11:55.920 --> 0:11:57.720 and wants to keep a strong labor market. 0:11:57.880 --> 0:11:59.960 So I think that also provides us a lot of support. 0:12:00.320 --> 0:12:02.840 And then there's built in continuity into the structure of 0:12:02.840 --> 0:12:06.000 the FED that Congress designed governors serve up to fourteen 0:12:06.080 --> 0:12:09.240 year terms, the presidents are independent, the presidents of the 0:12:09.280 --> 0:12:10.200 twelve reserve banks. 0:12:10.440 --> 0:12:12.520 These structures help us provide continuity. 0:12:12.720 --> 0:12:15.560 I'm confident that between the people who are there are 0:12:15.600 --> 0:12:18.600 commitment to our dual mandate goals and the structures that 0:12:18.760 --> 0:12:21.520 are in place, I'm confident that we will do the 0:12:21.600 --> 0:12:24.960 right thing and focus on the economy. 0:12:25.080 --> 0:12:26.400 The housing market. 0:12:27.040 --> 0:12:29.520 How do you explain what's going on the fact that 0:12:29.640 --> 0:12:33.360 prices aren't coming down, and if you keep rates higher 0:12:33.360 --> 0:12:37.080 than anticipated, we've already seen mortgage rates go up since 0:12:37.080 --> 0:12:38.000 you started cutting. 0:12:38.240 --> 0:12:39.920 The housing market dead. 0:12:40.720 --> 0:12:43.440 Well, the housing market as I've studied it, and this 0:12:43.480 --> 0:12:46.640 is an issue all around the country, the lack of affordability, 0:12:47.280 --> 0:12:49.439 not just for low income workers, but for middle class 0:12:49.480 --> 0:12:53.360 families and more. It's really one that we've underbuilt housing 0:12:53.360 --> 0:12:55.760 for the last decade following the Great Financial Crisis. We 0:12:55.840 --> 0:12:59.360 just structure the underbuilt housing, so there's a sense of shortage. 0:12:59.480 --> 0:13:01.320 And as I think back to the notion of a 0:13:01.360 --> 0:13:04.319 neutral interest rate, think about a neutral mortgage rate. If 0:13:04.320 --> 0:13:07.280 we have structurally underbuilt housing and there's a lot of 0:13:07.320 --> 0:13:10.559 demand for housing, what interest rate is going to clear 0:13:10.640 --> 0:13:13.120 that market? All else being equal, you would think a 0:13:13.200 --> 0:13:15.720 higher interest rate will clear that market. And so I 0:13:15.720 --> 0:13:18.200 think the housing market has its own unique dynamics that 0:13:18.240 --> 0:13:20.600 are going on that are driving these more than just 0:13:20.640 --> 0:13:23.600 a macroeconomic landscape and more than just monetary policy. 0:13:23.760 --> 0:13:26.360 So the Fed raises its hands and says it's not 0:13:26.400 --> 0:13:27.280 something we can fix. 0:13:27.480 --> 0:13:28.280 Yeah, we can't fix it. 0:13:28.280 --> 0:13:30.439 I mean, if we said we're going to cut interest 0:13:30.520 --> 0:13:34.600 rates to try to support housing affordability, setting aside the 0:13:34.640 --> 0:13:35.440 rest of our goals. 0:13:35.960 --> 0:13:37.760 What would that probably do? That would probably push. 0:13:37.679 --> 0:13:40.000 Up the price of housing, and so would that actually 0:13:40.040 --> 0:13:43.120 improve affordability? And so I don't think monetary policy is 0:13:43.120 --> 0:13:46.240 well suited to address the structural issues that are going 0:13:46.280 --> 0:13:47.120 on in the housing market. 0:13:47.160 --> 0:13:50.160 We've touched on absolutely everything. Can we finish on financial markets? 0:13:50.240 --> 0:13:50.480 Sure? 0:13:50.559 --> 0:13:52.559 You know them? Well? Are you worried about coming into 0:13:52.559 --> 0:13:53.320 an asset bubble? 0:13:54.400 --> 0:13:57.760 You know when I always go back to when chair 0:13:58.280 --> 0:14:00.880 then Chairman Green spent in nineteen ninety five declared irrational 0:14:00.920 --> 0:14:03.680 exuberant nineteen ninety five, you declared it, and the stock 0:14:03.720 --> 0:14:06.160 market went out for the next four years. I look 0:14:06.200 --> 0:14:08.199 at that episode and think if the FED had tried 0:14:08.240 --> 0:14:11.520 to use monetary policy to address that bubble, it would 0:14:11.520 --> 0:14:14.360 have done more harm to the economy than the fairly 0:14:14.400 --> 0:14:17.120 mild recession that followed when the tech bubble burst. And 0:14:17.160 --> 0:14:19.440 so I just think monetary policy is the wrong tool 0:14:19.760 --> 0:14:21.280 to try to address acid bubbles. 0:14:21.320 --> 0:14:23.120 Do you think there's something that needs to be addressed? 0:14:24.040 --> 0:14:28.400 Well, you know, bubbles are easy to spot in hindsight. 0:14:28.520 --> 0:14:31.320 If we really are in a higher productivity environment, if 0:14:31.360 --> 0:14:34.720 we're in a higher growth environment, and corporate earnings are 0:14:34.760 --> 0:14:37.720 going to continue to climb. One might look back and say, hey, 0:14:37.720 --> 0:14:40.840 these asset prices are not irrational. So it's hard to 0:14:40.920 --> 0:14:43.440 judge right now. If I knew where productivity was going, 0:14:43.600 --> 0:14:44.480 I'd be able to give you a. 0:14:44.400 --> 0:14:45.200 More definitive answer. 0:14:45.280 --> 0:14:46.880 Just look in the markets right now. Equity is very 0:14:46.880 --> 0:14:49.080 close to old time highs. We've got credit spreads that 0:14:49.160 --> 0:14:53.000 are at incredibly tight levels for investment grade tights than 0:14:53.000 --> 0:14:55.440 anything we've seen so farbus century for high YELD, I 0:14:55.440 --> 0:14:58.080 think you've got to go back to PREGFC and you 0:14:58.120 --> 0:15:00.760 know what happened next. We kind of get rights into that. 0:15:01.280 --> 0:15:04.240 We have authorities down in Washington, d C. It's some 0:15:04.520 --> 0:15:07.840 second administraction that could be kind of taxes going into 0:15:07.880 --> 0:15:09.920 that as well. What is something you'll write down with 0:15:09.960 --> 0:15:12.080 regards to that, What would you watch to say, actually, 0:15:12.560 --> 0:15:14.480 something coming on here that may be we need to 0:15:14.480 --> 0:15:16.040 pay a little bit more attention to well. 0:15:16.040 --> 0:15:20.320 From a financial stability perspective, traditionally, the biggest sources of 0:15:20.360 --> 0:15:25.000 financial instability are leverage and maturity transformation and the intersection 0:15:25.080 --> 0:15:27.920 of those two. That's why banks are inherently risky. Leverage 0:15:27.960 --> 0:15:30.400 tend to want or more they take overnight money and 0:15:30.440 --> 0:15:32.640 then they lend long into it. So, for example, a 0:15:32.680 --> 0:15:34.520 lot of people have looked at private credit and said, 0:15:34.720 --> 0:15:36.480 this is a huge growing asset class. 0:15:36.520 --> 0:15:39.000 Isn't a scary as I've looked into it. 0:15:39.040 --> 0:15:41.520 They seem to be much less levered than banks, and 0:15:41.560 --> 0:15:44.480 they generally have longer term funding. So in those two 0:15:44.640 --> 0:15:49.080 primary dimension of financial instability, leverage and maturity transformation, it 0:15:49.120 --> 0:15:52.520 doesn't seem to be riskier than banks, probably less risky 0:15:52.560 --> 0:15:55.080 than banks. So we continue to look for leverage, we 0:15:55.120 --> 0:15:56.760 continue to look for maturity transformation. 0:15:56.920 --> 0:15:59.040 No small as I'm going to say it, good to 0:15:59.080 --> 0:16:02.040 see you, thanks me, No cash canry there. The Minneapolis 0:16:02.080 --> 0:16:15.560 Fed President, Johnny guess Now is the JP Morgan chief 0:16:15.720 --> 0:16:18.960 strategist from JP Morgan Asset Management. David Kelly, David Gamon, 0:16:19.000 --> 0:16:20.800 it's your thoughts on this. So were on course for 0:16:20.800 --> 0:16:22.120 a red cut in December? 0:16:22.280 --> 0:16:23.480 I think we probably are. 0:16:24.080 --> 0:16:26.160 I think the key thing here is the Federal Reserve 0:16:26.360 --> 0:16:30.320 is not going to assume or speculate or predict what 0:16:30.680 --> 0:16:33.120 policy on tariffs and fiscal policy is going to be. 0:16:33.280 --> 0:16:35.560 I think they've got an idea where we're headed here, 0:16:35.560 --> 0:16:37.400 but they're just not going to put it into their thinking, 0:16:37.680 --> 0:16:39.120 and I don't think they want to pick a fight 0:16:39.160 --> 0:16:39.640 at this stage. 0:16:39.680 --> 0:16:40.880 They're going to have to have a fight. 0:16:40.720 --> 0:16:42.680 At some stage with the administration, but I don't think 0:16:42.680 --> 0:16:44.320 they want to pick it right now. So what I 0:16:44.320 --> 0:16:46.560 think they'll do is, you know, the markets are pricing 0:16:46.600 --> 0:16:48.120 in a quarter points, So if markets are pricing in 0:16:48.120 --> 0:16:49.760 a quarter point, they'll they'll they'll. 0:16:49.480 --> 0:16:50.240 Do the quarter point. 0:16:50.360 --> 0:16:52.080 But I will say that Marcus at this stage are 0:16:52.080 --> 0:16:54.680 only pricing two more rate cuts next year, and so 0:16:54.720 --> 0:16:56.920 the market are stopping short of the dopplot. The dop 0:16:56.960 --> 0:16:59.120 plot says the Fed keeps going another four rate cuts 0:16:59.240 --> 0:17:01.520 second half of next year or early twenty twenty six, 0:17:01.880 --> 0:17:04.879 and the market saying, look, given this agenda, the different 0:17:04.880 --> 0:17:07.320