WEBVTT - Fed's Stephen Miran Talks Cutting Rates, Iran

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

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<v Speaker 2>Bond move continues, yield slightly high for a third consecutive day,

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<v Speaker 2>inflationary fairs making a comeback, and some people out there

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<v Speaker 2>trimming Federay cup bets.

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<v Speaker 3>Federal Reserve.

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<v Speaker 2>Governor Stephen Myron, I'm pleased to say, joined us around

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<v Speaker 2>the table for a conversation about that and a whole

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<v Speaker 2>lot more.

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<v Speaker 3>Governor Maren, good morning.

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<v Speaker 4>Good morning, Thanks for having me, Thank you for being here. Sir.

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<v Speaker 2>Let's start with the shock over the weekend. What is

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<v Speaker 2>the prudent response for policymaker confronting a shock like the

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<v Speaker 2>one plank out in the Middle East.

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<v Speaker 5>Well, at the moment, I think it's too early to

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<v Speaker 5>sort of have any firm views. As a result of that,

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<v Speaker 5>oil's gone up a bit. But the bigger question is

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<v Speaker 5>does oil stay up or does it come back down?

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<v Speaker 5>And that, of course will depend on how things play out.

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<v Speaker 5>But even that said, even if oil stays at these

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<v Speaker 5>types of levels, to me, it's difficult to get a

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<v Speaker 5>lot of read through as a result of that. Sure,

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<v Speaker 5>oil will feed into headline inflation, but the evidence that

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<v Speaker 5>it feeds into core inflation in any sort of material

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<v Speaker 5>way unless there's a huge move in oil prices, I

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<v Speaker 5>think is quite limited. So it's difficult for me to

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<v Speaker 5>get very excited about a policy implication of what's happened

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<v Speaker 5>thus far.

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<v Speaker 2>So some people come on the producgram spike to Leister

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<v Speaker 2>nine said, these federalserv offishals might be conditioned by the

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<v Speaker 2>post pandemic experience coming out of twenty one into twenty

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<v Speaker 2>two and the inflation spike then and the energy shock

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<v Speaker 2>that developed at the time. Emin I think in Russia

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<v Speaker 2>it is this different in a different place.

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<v Speaker 4>I think it is.

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<v Speaker 5>I think that attitude is a little bit of fighting

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<v Speaker 5>the last war, and I think that the Federal Reserve

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<v Speaker 5>for decades has had the view that that headline headline

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<v Speaker 5>inflation shocks like oil are best looked through, and you

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<v Speaker 5>sort of focus on core inflation because it's indicative of

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<v Speaker 5>where inflation is going to go in the future, and

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<v Speaker 5>you focus on the labor market, and that type of

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<v Speaker 5>reasoning lead you.

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<v Speaker 4>To look through an oil shock.

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<v Speaker 5>Now, of course, what happened in twenty twenty two was

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<v Speaker 5>a bit different because the other policy settings were different.

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<v Speaker 4>Right.

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<v Speaker 5>Don't forget monetary policy was as expansionary as it had

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<v Speaker 5>ever been. At the time, fiscal policy was injecting trillions

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<v Speaker 5>of dollars into an economy that was recovering thanks to

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<v Speaker 5>vaccines and medical medical improvements and COVID passing on its own,

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<v Speaker 5>and so the policy environment was very different, and so

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<v Speaker 5>it was very easy for a slightly inflationary shock to

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<v Speaker 5>feed through into the broader economy and create this type

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<v Speaker 5>of persistent inflationary problem that the FED dealt with. We

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<v Speaker 5>don't have that right now. We don't have fiscal policy

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<v Speaker 5>that's slamming on demand. In fact, if anything, supply is

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<v Speaker 5>moving out quite aggressively, and monetary policy is still modestly

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<v Speaker 5>restrictive in my view. So the policy settings the economic

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<v Speaker 5>environment is different. To focus on that, as you described

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<v Speaker 5>moment ago to me is fighting the last war. That

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<v Speaker 5>was a unique circumstance.

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<v Speaker 1>At the same time, some people have argued that the

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<v Speaker 1>January jobs report raised a question about just how weak

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<v Speaker 1>the labor market actually was. Even Governor Chris Waller came

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<v Speaker 1>out and said, Okay, now it's a coin flip for

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<v Speaker 1>whether we should cut rate to the March meeting. If

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<v Speaker 1>we do get confirmation of that strength with the February

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<v Speaker 1>payrolls report that we get on Friday, Would that make

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<v Speaker 1>you rethink whether March was an appropriate time to cut rates.

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<v Speaker 5>So look, for me, we've got two years of a trend,

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<v Speaker 5>two plus years of a trend of gradually weakening labor

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<v Speaker 5>markets that sort of setting in twenty twenty in twenty twenty.

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<v Speaker 4>Three, it's way.

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<v Speaker 5>Too early to reject the notion that that trend continues

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<v Speaker 5>based on one or two.

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<v Speaker 4>Labor market reports.

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<v Speaker 5>And when you look at thetality of labor market data,

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<v Speaker 5>there's still evidence to me that it needs more support

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<v Speaker 5>from Montaria policy. When I look at things like employment

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<v Speaker 5>levels of young folks and folks without college degrees. When

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<v Speaker 5>I look at people who are umployed for long periods

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<v Speaker 5>of time, long term unemployment, to me, that's indicative of

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<v Speaker 5>their still being slackened the labor market that Montara policy

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<v Speaker 5>can accommodate. So I think it's too early to reject

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<v Speaker 5>the notion that a two plus your trend is over

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<v Speaker 5>on the back of one print.

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<v Speaker 1>Are you concerned though, that right now the market is

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<v Speaker 1>moving the way that any rate cut would be perceived

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<v Speaker 1>as heightening long term inflation pressures just by virtue of

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<v Speaker 1>some of the supply shocks that we're seeing, and frankly,

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<v Speaker 1>the fact that people do see strength re emerging in

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<v Speaker 1>certain pockets of the economy. I mean, how worried are

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<v Speaker 1>you that a rate cut in March could be potentially

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<v Speaker 1>counterproductive and cause the long en of the yield curve

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<v Speaker 1>to rise?

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<v Speaker 4>Yeah?

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<v Speaker 5>So if you saw evidence in inflation markets that markets

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<v Speaker 5>were concerned about longer and inflation expectations, that's the type

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<v Speaker 5>of thing that would give me pause.

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<v Speaker 4>But I don't see evidence of that so far.

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<v Speaker 5>Short run inflation expectations have come up quite a bit,

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<v Speaker 5>and you look at CPI swaps, but that's just because

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<v Speaker 5>the mechanical read through of oil prices into headline inflation.

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<v Speaker 5>When you look at longer tenors, there hasn't been much

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<v Speaker 5>of a move, and so as a result, I don't

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<v Speaker 5>get the impression the market is concerned about long run

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<v Speaker 5>inflation expectation.

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<v Speaker 2>You've used this phrase modestly restrictive a few times in

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<v Speaker 2>the conversation already. What is modestly restrictive to you? Can

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<v Speaker 2>you put numbers on that kind of thing?

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<v Speaker 4>Yeah?

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<v Speaker 5>I think we're probably about a point above neutral now,

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<v Speaker 5>and so my view is that we ought to start

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<v Speaker 5>by getting getting back towards neutral.

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<v Speaker 2>So the one hundred basis points and reductions you want

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<v Speaker 2>this year is not to become accommodative. You believe it's

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<v Speaker 2>to get back to a neutral setting.

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<v Speaker 4>Yeah, pretty much.

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<v Speaker 2>What would it take for you to start thinking about

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<v Speaker 2>the need to get accommodative?

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<v Speaker 5>So I would want to start thinking about inflation coming

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<v Speaker 5>in below the target, which is a risk that I've

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<v Speaker 5>highlighted if I end up being you know, I've emphasized.

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<v Speaker 2>That risk, governor, what would be the source of that

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<v Speaker 2>risk to get below target inflation?

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<v Speaker 5>Sure, I've emphasized housing markets a lot that I'm expecting

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<v Speaker 5>a faster convergence down of renewal rents to new rents,

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<v Speaker 5>which will lead housing inflation to converge quickly to new

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<v Speaker 5>rent levels. And there's reasons for that that I've talked

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<v Speaker 5>about at length. I don't need to repeat them unless

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<v Speaker 5>you want me to. But if I end up being

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<v Speaker 5>right about housing and wrong about tariffs, and so I've

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<v Speaker 5>also argued, I've also argued that I don't view tariffs

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<v Speaker 5>as driving goods inflation. You know, I don't view that

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<v Speaker 5>because imported prices, imported good prices are not inflating faster

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<v Speaker 5>than all.

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<v Speaker 4>Good prices, which is what you'd expect to see.

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<v Speaker 5>And given that backdrop, I don't view tariffs as driving

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<v Speaker 5>and as driving goods prices. So if I end up

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<v Speaker 5>being right about housing and we get a sharp descileration

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<v Speaker 5>in housing this year because of quirks of how housing

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<v Speaker 5>is measured and because of dynamics of renewal rents versus

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<v Speaker 5>new rents, UH, and I end up being wrong about

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<v Speaker 5>goods prices and goods inflation comes down quickly over the

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<v Speaker 5>course of this year, then we're going to undershoot.

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<v Speaker 4>We're going to undershoot our target.

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<v Speaker 3>And you think that's a risk we need to get

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<v Speaker 3>ahead of.

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<v Speaker 5>No, I'm not saying we're gonna we need to get

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<v Speaker 5>ahead of that. That would get me to argue we

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<v Speaker 5>go Bloon's.

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<v Speaker 2>Conversation we're having about how preemptive you might need to

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<v Speaker 2>be in a moment like this when it's on the committee,

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<v Speaker 2>thinking let's wait and see whit and see what happens.

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<v Speaker 2>Lisa was asking, how would you vote the March committee meeting.

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<v Speaker 2>Is this a moment to white and sea or a

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<v Speaker 2>moment to act?

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<v Speaker 4>No?

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<v Speaker 5>I think I think it's a moment to continue acting.

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<v Speaker 5>I have policy. I have projections for unemployment. I have

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<v Speaker 5>projections for labor markets, so to my for inflation, so

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<v Speaker 5>do my colleagues, and I believe it's appropriate to continue

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<v Speaker 5>acting in accordance with those projections until you get evidence

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<v Speaker 5>that you have to change your projections. And thus far

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<v Speaker 5>the evidence from event from events over the weekend haven't

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<v Speaker 5>led me to change any of my forecast for the

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<v Speaker 5>labor market for inflation over the medium terms, so it's

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<v Speaker 5>too early to respond to them.

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<v Speaker 1>You said that you think that the neutralia is a

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<v Speaker 1>point below the three point seventy five where we currently are,

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<v Speaker 1>and I'm just wondering how quickly you think it's important

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<v Speaker 1>to get to neutral based on the uncertainty, based on

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<v Speaker 1>the disagreements that people have about A where neutral is

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<v Speaker 1>and B how things are going to transpire.

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<v Speaker 4>Yeah.

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<v Speaker 5>So last year I was voting for fifties because we

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<v Speaker 5>were higher away from it, and then as we made

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<v Speaker 5>progress cutting and getting closer towards neutral, I felt it

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<v Speaker 5>was appropriate to say, Okay, now I moving in twenty

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<v Speaker 5>five clips. I prefer to still continue moving in twenty

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<v Speaker 5>five clips until we got to neutral, and then to

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<v Speaker 5>reevaluate because at the end of the day, I don't

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<v Speaker 5>see an inflation problem in the United States now. Of course,

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<v Speaker 5>if we get evidence that what's happening in the Middle

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<v Speaker 5>East is leading through into broader inflation, then that would

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<v Speaker 5>change my mind.

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<v Speaker 4>But thus far there's no evidence.

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<v Speaker 2>Kevin, what would that evidence look like? What would you

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<v Speaker 2>look for? Specifically?

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<v Speaker 5>I'd look for inflation expectations starting to move as a result,

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<v Speaker 5>starting to move on it Cosmavice, I tend to think

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<v Speaker 5>that the market based ones are are are more important,

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<v Speaker 5>are more important to me, or evidence that or evidence

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<v Speaker 5>the economy is starting to in some sense overheat again,

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<v Speaker 5>then I would be comfortable sort of changing that view

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<v Speaker 5>and moving more, moving even more slowly. But at the moment,

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<v Speaker 5>you know, I see it as appropriate to continue continue cutting.

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<v Speaker 1>Do you have any company on the committee?

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<v Speaker 4>Uh, you know.

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<v Speaker 5>I can't speak for an I can't speak for anyone else.

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<v Speaker 5>And I think most people probably end up sharing my

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<v Speaker 5>view that it's too early to draw dramatic conclusions.

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<v Speaker 4>As a result of them.

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<v Speaker 1>To a very different conclusion about what to do. As

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<v Speaker 1>a result of not drawing conclusions, they say, then don't move.

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<v Speaker 1>You're saying keep moving.

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<v Speaker 3>So I mean that's this.

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<v Speaker 4>They started and differ every everybody is.

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<v Speaker 5>I think people are generally where they were last week, right,

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<v Speaker 5>and it's just too early to change your mind based

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<v Speaker 5>on based on what's going on. My my forecast for

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<v Speaker 5>inflation and employment and my view call for continuing continuing

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<v Speaker 5>industry cuts. Other people disagree, you know, and so they

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<v Speaker 5>also haven't haven't moved yet. But as we get information

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<v Speaker 5>about it.

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<v Speaker 2>Timil thinks the worksthrope. So the credit jed is one

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<v Speaker 2>an AI another. I want to squeeze them both then

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<v Speaker 2>if we can. So let's start with the AI jitter.

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<v Speaker 2>So Block, a fintech company came out in the last

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<v Speaker 2>week or so and cut almost half of its staff

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<v Speaker 2>and they said them making a massive AI productivity bed.

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<v Speaker 2>As a policy maker for you, do you consider that

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<v Speaker 2>noise or signal?

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<v Speaker 4>What is that?

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<v Speaker 5>So that's you know, that's one, that's one company. It's

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<v Speaker 5>indicative of what you could have more of. But this

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<v Speaker 5>is just how this is how productivity gains and technology work.

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<v Speaker 5>They allow you to produce more with fewer, fewer inputs,

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<v Speaker 5>with fewer fewer resources. And so if you were able

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<v Speaker 5>to produce the same amount with fewer workers and less capital.

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<v Speaker 5>Then your productivity goes up. That frees those workers not

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<v Speaker 5>necessarily into unemployment, but to do other work.

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<v Speaker 4>And this is this has always been the.

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<v Speaker 5>Story of human technological progress and human economic growth. We

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<v Speaker 5>create new technologies, they destroy some jobs, and then they

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<v Speaker 5>create new jobs.

0:09:15.200 --> 0:09:16.520
<v Speaker 4>They free people to do new activities.

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<v Speaker 3>I don't think it's different this time.

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<v Speaker 5>You know, I don't have a reason for. Like I

0:09:21.000 --> 0:09:23.440
<v Speaker 5>said before, you know, it's too early to rejected to

0:09:23.520 --> 0:09:27.480
<v Speaker 5>year trend of labor market moving in gradual cooling direction.

0:09:27.800 --> 0:09:30.800
<v Speaker 5>It's too early to reject tens of thousands of years

0:09:30.800 --> 0:09:32.720
<v Speaker 5>trend of how technology works in the economy.

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<v Speaker 3>We've talked about.

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<v Speaker 2>These sources of risk and one has been the geopolitical problems.

0:09:36.360 --> 0:09:38.319
<v Speaker 2>This is another two and the third one is connected

0:09:38.360 --> 0:09:41.280
<v Speaker 2>in some cases to what's happening with AI. It's also

0:09:41.320 --> 0:09:43.680
<v Speaker 2>the credit jitters as well. So this writses the question

0:09:43.720 --> 0:09:47.800
<v Speaker 2>about potential financial risk for you and the committee. How

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<v Speaker 2>are you thinking about things as they develop?

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<v Speaker 4>But just one one last part.

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<v Speaker 5>An AI, even as it destroys old jobs and creates

0:09:52.960 --> 0:09:54.680
<v Speaker 5>new jobs, that is the type of that is the

0:09:54.679 --> 0:09:57.280
<v Speaker 5>type of job transition that is typically accommodated by a

0:09:57.320 --> 0:09:59.600
<v Speaker 5>central bank. Right, You don't want to prevent the new

0:09:59.679 --> 0:10:02.200
<v Speaker 5>jobs being created by having policy that's too restrictive. If

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<v Speaker 5>you have an increase in job loss due to new technology,

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<v Speaker 5>you have to accommodate that and allow the new jobs

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<v Speaker 5>to get created instead of preventing it.

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<v Speaker 3>Pull what's development and credit?

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<v Speaker 4>Sorry?

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<v Speaker 3>Oh, pull what's developing and credit?

0:10:13.960 --> 0:10:17.199
<v Speaker 5>So look, you know, I am, like with vents in

0:10:17.240 --> 0:10:18.960
<v Speaker 5>the Middle East, I'm not at the point where I

0:10:18.960 --> 0:10:21.120
<v Speaker 5>have a strong read through from what's going on in

0:10:21.120 --> 0:10:24.960
<v Speaker 5>credit into the economy. I'm not at the point where

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<v Speaker 5>I think where I think there's any sort of policy

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<v Speaker 5>response that's necessary or adjustment to forecast this necessary. One

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<v Speaker 5>thing that I think is interesting about what's going on

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<v Speaker 5>in credit is, to me, it highlights the potential shortcoming

0:10:34.960 --> 0:10:36.360
<v Speaker 5>of our financial conditions and disease.

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<v Speaker 4>We've got a lot of people who.

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<v Speaker 5>Argue it's inappropriate to cut because financial conditions are so loose.

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<v Speaker 5>They've been arguing that for a long time. But one

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<v Speaker 5>hypothesis of mind that I'm exploring is that those financial

0:10:46.040 --> 0:10:48.280
<v Speaker 5>conditions and disease aren't showing you what's going on in

0:10:48.280 --> 0:10:50.440
<v Speaker 5>private credit because you don't get the marks for them,

0:10:50.840 --> 0:10:52.880
<v Speaker 5>and to the extent that private credit has been a

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<v Speaker 5>major driver of credit growth over the last half decade

0:10:56.000 --> 0:10:58.440
<v Speaker 5>or so, that's missing from the financial conditions and disease.

0:10:58.480 --> 0:11:00.520
<v Speaker 5>So when we get these jitters in private credit markets

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<v Speaker 5>and then say, oh, financial conditions are so loose, it's

0:11:02.960 --> 0:11:04.520
<v Speaker 5>just because we decided not to look at the part

0:11:04.520 --> 0:11:05.760
<v Speaker 5>of the financial markets that are tight.

0:11:05.840 --> 0:11:07.280
<v Speaker 2>So I do you think we are seeing it unwarranted

0:11:07.320 --> 0:11:08.840
<v Speaker 2>tyning of financial conditions so far?

0:11:09.480 --> 0:11:11.800
<v Speaker 5>Well, you know, sort of unwarranted is a bit of

0:11:11.840 --> 0:11:13.600
<v Speaker 5>a is a bit of a heavy load. But I

0:11:13.640 --> 0:11:15.880
<v Speaker 5>do think I do think it's it's I would be

0:11:15.920 --> 0:11:18.719
<v Speaker 5>cautious about concluding that financial conditions are so loose when

0:11:18.760 --> 0:11:21.640
<v Speaker 5>you're getting these these things happening in private credit markets.

0:11:21.760 --> 0:11:23.840
<v Speaker 1>I just want to ask, have you talked to President

0:11:23.840 --> 0:11:24.559
<v Speaker 1>Trump recently?

0:11:25.400 --> 0:11:27.199
<v Speaker 4>Not since I resigned, now since you resigned.

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<v Speaker 1>I'm just wondering how difficult it is to conduct policy

0:11:30.679 --> 0:11:34.199
<v Speaker 1>with a huge unknown hanging over the committee about who

0:11:34.240 --> 0:11:35.640
<v Speaker 1>is going to be the next FED chair and what

0:11:35.720 --> 0:11:38.040
<v Speaker 1>this process is going to look like past April.

0:11:39.000 --> 0:11:40.360
<v Speaker 5>Well, I mean, I think we have a pretty good

0:11:40.360 --> 0:11:41.880
<v Speaker 5>idea of who's going to be the next the next

0:11:41.960 --> 0:11:44.240
<v Speaker 5>FED chairman. We don't have a good idea yet of

0:11:44.520 --> 0:11:46.680
<v Speaker 5>exactly when he will become the next FED chairman, but

0:11:47.160 --> 0:11:49.320
<v Speaker 5>I'm hopeful that we get that type of that type

0:11:49.360 --> 0:11:51.360
<v Speaker 5>of clarity soon. I think it would be I think

0:11:51.360 --> 0:11:52.840
<v Speaker 5>it would be great to have that type of clarity.

0:11:53.040 --> 0:11:54.720
<v Speaker 2>And it's a way of being on the Federal Reserve

0:11:54.760 --> 0:11:56.920
<v Speaker 2>and not knowing when you're going to exit, just sort

0:11:56.920 --> 0:11:59.960
<v Speaker 2>of like there with an open ended calendar on what's

0:12:00.040 --> 0:12:00.720
<v Speaker 2>going to happen next.

0:12:00.880 --> 0:12:02.040
<v Speaker 4>It makes it difficult to plan.

0:12:03.160 --> 0:12:05.280
<v Speaker 3>I bet it for personal reasons.

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<v Speaker 2>Governor's good to see you, Thanks for having me, thanks

0:12:07.000 --> 0:12:08.920
<v Speaker 2>for making time for us. We appreciate it. Governor Stephen

0:12:08.960 --> 0:12:10.560
<v Speaker 2>Moren there of the Federal Reserve,