WEBVTT - Surveillance Fed Special: Low Inflation Nerves with Evans 0:00:09.880 --> 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 --> 0:00:30.280 Bloomberg dot Com, and of course on the Bloomberg I'm 0:00:30.360 --> 0:00:32.320 very pleased to say that right now we can cross 0:00:32.560 --> 0:00:35.360 of Bloomberg's Michael McKay to catch up with the Dallas 0:00:35.360 --> 0:00:39.000 Fed President. Well, thank you very much, and we are 0:00:39.120 --> 0:00:41.159 talking with Robert Kaplan. He is the president of the 0:00:41.200 --> 0:00:44.480 Dallas Federal Reserve, the eleventh District and the FEDS set 0:00:44.520 --> 0:00:46.440 up and thank you for getting up early joining us 0:00:46.560 --> 0:00:50.120 this morning on Bloomberg TV and radio worldwide. I gotta 0:00:50.200 --> 0:00:53.320 start with j. Powell. Wall Street took his comments yesterday 0:00:53.360 --> 0:00:55.680 as opening the door to a rake cut. Do you 0:00:55.720 --> 0:00:59.760 think that that door is open? Uh? I think it's 0:01:00.040 --> 0:01:02.760 need to make a judgment on that. We're going to 0:01:02.840 --> 0:01:06.839 be very vigilant about understanding these heightened trade tensions, see 0:01:06.840 --> 0:01:09.679 if they feed through to the economy. More most importantly, 0:01:09.720 --> 0:01:13.480 see if they persist. Uh and uh. And so I 0:01:13.480 --> 0:01:16.000 think it's too soon, though to make a judgment as 0:01:16.040 --> 0:01:17.880 to whether we might or might not take an action. 0:01:17.920 --> 0:01:21.000 I'd rather be patient here and let events unfold a 0:01:21.000 --> 0:01:24.120 little bit more well. Investors have priced in three rate cuts, 0:01:24.160 --> 0:01:27.360 and the Wall Street economists over the weekend basically joined 0:01:27.400 --> 0:01:29.680 the consensus that you're going to cut rates. You've been 0:01:29.720 --> 0:01:33.039 in the watching Wade camp Um. What would tip the 0:01:33.040 --> 0:01:35.440 balance for you? When? When would you think that you 0:01:35.520 --> 0:01:37.920 need to make a decision. I would need to see 0:01:37.959 --> 0:01:43.000 some evidence that there's a deceleration or further deceleration of economy. 0:01:43.040 --> 0:01:46.720 We've expected that growth would slow from eighteen and nineteen, 0:01:46.760 --> 0:01:49.600 but we're still growing above trend. We're still seeing a 0:01:49.680 --> 0:01:52.560 tightening in the labor market, and our Dallas trim mean, 0:01:52.720 --> 0:01:55.600 which is our measure of core inflation, is now at 0:01:55.640 --> 0:01:58.240 two percent. We think we'll end the year around two percent. 0:01:58.520 --> 0:02:01.560 So I would need to see some evidence that there's 0:02:01.640 --> 0:02:05.360 a worsening in those trends. We may well see it. 0:02:05.480 --> 0:02:08.840 I'm very I'm on I'm on watch as to whether 0:02:08.880 --> 0:02:11.880 we see a further deceleration. But that's what I'm watching for. 0:02:12.000 --> 0:02:15.880 The data are lagged cost benefit. What's worse cutting too 0:02:15.919 --> 0:02:19.840 early or waiting too long? So it depends on where 0:02:19.919 --> 0:02:23.240 you are uh in the in the in the cycle 0:02:23.480 --> 0:02:27.119 and UH, and what our stances and my own assessment 0:02:27.160 --> 0:02:29.880 of our stance is, we're in the neighborhood of neutral 0:02:30.000 --> 0:02:34.120 right now. So if if we were to cut, that 0:02:34.200 --> 0:02:37.560 would that would be me making a judgment that we 0:02:37.600 --> 0:02:40.960 need to add stimulus to the economy. That might ultimately 0:02:41.080 --> 0:02:44.800 be a judgment I need to make. But if on 0:02:44.840 --> 0:02:47.800 the other hand, you're you've got a restrictive stance and 0:02:47.840 --> 0:02:51.000 you decided to cut, that's something different. Or if you're 0:02:51.040 --> 0:02:54.400 highly accommodative, it also is a different judgment. But right 0:02:54.440 --> 0:02:58.000 now we're pretty much of a neutral setting. UH. And 0:02:58.040 --> 0:03:01.720 the question is should we be stimulus to this economy? 0:03:02.160 --> 0:03:04.799 That's a question I'm asking. I'm open minded about it. 0:03:05.360 --> 0:03:07.440 I think the risk to the downside in the last 0:03:07.480 --> 0:03:10.519 five or six weeks have increased because of these heightened 0:03:10.520 --> 0:03:13.239 trade tensions. So I'm watching it very carefully. But that's 0:03:13.280 --> 0:03:15.960 the judgment I'm gonna I'm gonna and that's the question 0:03:15.960 --> 0:03:18.520 I'm gonna be asking. Well, they say that the Federal 0:03:18.560 --> 0:03:21.520 Reserve decides when the raise rates, but markets decide when 0:03:21.520 --> 0:03:23.760 you're going to cut them. How much pressure do you 0:03:23.840 --> 0:03:28.680 feel from markets right now? I've spent my entire career 0:03:28.720 --> 0:03:31.560 in the markets, as you know, and I've learned that 0:03:31.760 --> 0:03:35.920 markets can change on a dime. For example, there's been 0:03:35.960 --> 0:03:39.120 a dramatic change in the markets since May first, or 0:03:39.160 --> 0:03:42.440 approximately May first, last five or six weeks, and UH, 0:03:42.760 --> 0:03:46.640 as we've seen, you could see a dramatic change UH 0:03:46.680 --> 0:03:49.160 in a different direction over the next five or six weeks. 0:03:49.160 --> 0:03:51.960 For example, what's happening to the treasury curve I think 0:03:52.080 --> 0:03:55.200 is very much in response to heightened trade tensions, and 0:03:55.360 --> 0:03:57.680 some of those decisions or some of those tensions could 0:03:57.680 --> 0:04:01.320 be reversed in the next several weeks. So I've learned 0:04:01.360 --> 0:04:04.680 to watch markets, but but I don't want to overread 0:04:04.880 --> 0:04:08.600 or overreact to what they're saying and UH, because they 0:04:08.600 --> 0:04:11.000 can change on a dime. Well, what are CEOs in 0:04:11.040 --> 0:04:13.640 your district telling you about what they they see in 0:04:13.680 --> 0:04:17.279 the business climate and what are they asking you to do? So? 0:04:17.640 --> 0:04:20.960 UH the biggest issue for businesses today, and I think 0:04:21.000 --> 0:04:23.960 this is the vulnerability for the US economy. It's not 0:04:24.120 --> 0:04:27.000 the consumers in good shape, it's for businesses. There's a 0:04:27.080 --> 0:04:33.280 high level of uncertainty, and businesses are using UH logistics 0:04:33.279 --> 0:04:37.159 and supply chain arrangements heavily to remain competitive. They have 0:04:37.480 --> 0:04:42.360 they don't have uh much pricing power. Technology and globalization 0:04:43.080 --> 0:04:46.080 have limited their pricing parts. They're using some of these 0:04:46.200 --> 0:04:50.680 other techniques uh to manage their costs, and what they're 0:04:50.720 --> 0:04:53.400 seeing is a lot of uncertainty as to how they're 0:04:53.400 --> 0:04:55.240 going to be able to do that. And I think 0:04:55.279 --> 0:04:59.200 these recent uh, these recent threats against Mexico have further 0:04:59.760 --> 0:05:02.440 put more uncertainty into their minds. So what do businesses do? 0:05:02.560 --> 0:05:05.279 What they're telling me they're doing is be more careful, 0:05:05.640 --> 0:05:09.159 hold off on capex, be more cautious. So I think 0:05:09.160 --> 0:05:13.039 this is having some chilling effect. I think the businesses 0:05:13.080 --> 0:05:17.000 will also remark cost the capital is historically low, access 0:05:17.040 --> 0:05:20.960 to capital is historically high, and so uh, they're not 0:05:21.040 --> 0:05:23.479 that sensitive for many of the businesses I talked to, 0:05:23.520 --> 0:05:26.080 other than say the home builders, they're not as sensitive 0:05:26.440 --> 0:05:30.640 to the policy setting as they are all these other 0:05:30.720 --> 0:05:34.200 uncertainties and managing their business. You mentioned the Mexico tariffs. 0:05:34.200 --> 0:05:37.360 No district would be more vulnerable than the eleventh district yours? 0:05:38.080 --> 0:05:40.479 What would be? Have you modeled what the impact would 0:05:40.520 --> 0:05:44.440 be on your district and then on the national economy. Yeah, 0:05:44.640 --> 0:05:48.000 so we're By our estimate, we're probably a third of 0:05:48.200 --> 0:05:52.000 US trade with Mexico. Texas is the largest ex boarding 0:05:52.040 --> 0:05:55.960 state in the United States. Uh, We've taken a number 0:05:55.960 --> 0:05:57.400 of looks at it. I don't even want to throw 0:05:57.440 --> 0:06:01.960 out statistics because I'm still hopeful that that uh there 0:06:01.960 --> 0:06:04.200 actually won't there won't actually be a follow through on 0:06:04.240 --> 0:06:07.000 these tariffs. And the reason I'm hopeful is this is 0:06:07.040 --> 0:06:09.719 a very different trade relationship than the one with China. 0:06:10.040 --> 0:06:14.400 This is substantially an intermediate goods relationships which allow US 0:06:14.480 --> 0:06:18.960 companies to manage their logistics and supply chains, be competitive 0:06:19.000 --> 0:06:22.080 domicile in the United States, and it's allowed North America 0:06:22.120 --> 0:06:24.720 in the US to take share from Asia, so as 0:06:24.760 --> 0:06:27.440 opposed to the trade relationship with China, which is primarily 0:06:27.480 --> 0:06:31.479 a final goods deficit. And so it is so overwhelmingly 0:06:31.480 --> 0:06:33.479 in the interests of the US to have a strong 0:06:33.520 --> 0:06:37.320 trading relationship in North America with with Mexico and to 0:06:37.440 --> 0:06:40.920 some extent Canada, that I don't want to go too 0:06:40.960 --> 0:06:43.640 far expecting that we're going to do something that was 0:06:43.640 --> 0:06:47.000 going to further jeopardize that relationship. It's so clearly in 0:06:47.040 --> 0:06:50.920 our interest to have a strong trading relationship with Mexico. Well, 0:06:50.960 --> 0:06:55.320 we have seen the impact, just as you say, in uncertainty, 0:06:56.040 --> 0:06:58.799 how do you think the Mexicans would react? You speak 0:06:58.839 --> 0:07:01.520 to their positive maker, did you know we're very close 0:07:01.600 --> 0:07:04.280 to senior officials, they're ahead of the central bank. So 0:07:04.839 --> 0:07:07.320 it's not been as reported as much in the press. 0:07:07.360 --> 0:07:10.680 But over the last two years, Mexico has actually is 0:07:10.720 --> 0:07:14.240 the one country in the world that's fighting an inflation problem. Uh. 0:07:14.360 --> 0:07:17.720 They've had a very volatile currency. They've raised their domestic 0:07:17.760 --> 0:07:21.880 interest rate substantially over the last couple of years. I 0:07:21.920 --> 0:07:24.920 think there was hope that there would be some stability 0:07:25.040 --> 0:07:28.160 uh with U S m c A. This just further 0:07:28.480 --> 0:07:31.720 puts volatility in their currency, makes it harder to manage 0:07:31.720 --> 0:07:36.560 their economy, and we see slowing and economic growth in Mexico. Uh, 0:07:36.960 --> 0:07:40.320 they're actually slipping. Uh. They've got a new president. There's 0:07:40.400 --> 0:07:43.800 uncertainty with that. So it's a very challenging time in Mexico. 0:07:44.440 --> 0:07:47.720 You put it all together, what's what the impact has 0:07:47.720 --> 0:07:50.440 there been on your economic outlook for the rest of 0:07:50.480 --> 0:07:55.600 this year. So our forecast for the year still is 0:07:55.640 --> 0:07:58.080 in the neighborhood of two to and a quarter percent 0:07:58.160 --> 0:08:00.480 GDP growth, who could be a little higher, could be 0:08:00.480 --> 0:08:03.080 a little lower. Still think the labor market's kind of tight, 0:08:03.120 --> 0:08:04.960 and we still think we're gonna end the year in 0:08:05.000 --> 0:08:08.520 the neighborhood of two percent on core inflation. Dallas Trim mean, 0:08:09.040 --> 0:08:13.080 I think this These recent events have have raised the 0:08:13.200 --> 0:08:16.880 risk to the downside, and so I'm much more vigilant. 0:08:17.040 --> 0:08:21.040 I'm much more cautious about how events are going to unfold. 0:08:21.320 --> 0:08:24.840 And the question is are these tensions going to persist? 0:08:24.880 --> 0:08:27.280 And if they do, they're likely going to have some 0:08:27.360 --> 0:08:29.600 negative effect on our outlook. But I think it's a 0:08:29.600 --> 0:08:31.920 little too soon for me to make a judgment about that. 0:08:32.240 --> 0:08:35.640 But we're on heightened alert as a result of these tensions. 0:08:36.160 --> 0:08:39.400 You're here in Chicago for a FED Listens conference on 0:08:39.480 --> 0:08:42.560 the monetary policy framework. Is the framework broken? Do you 0:08:42.559 --> 0:08:45.480 need to fix it? No? I think our framework is 0:08:45.520 --> 0:08:48.960 working reasonably well. Uh. There There are a couple of 0:08:48.960 --> 0:08:52.360 big issues though that that we're that we've been talking about. 0:08:52.360 --> 0:08:54.480 One is inflation has been running for the last eight 0:08:54.559 --> 0:08:58.520 or nine years, not completely, but for a lot of 0:08:58.559 --> 0:09:01.520 that time below our two percent target. I think a 0:09:01.520 --> 0:09:06.360 lot of that has to do with technology, technology enabled disruption, globalization, 0:09:06.400 --> 0:09:11.600 I eat structural trends. Should we be revisiting elements of 0:09:11.600 --> 0:09:16.559 our framework, uh so that we can be more confident 0:09:17.559 --> 0:09:19.920 that we're meeting our two percent target and that we're 0:09:19.960 --> 0:09:23.400 anchoring expectations around two percent. And then the other big issue, 0:09:23.440 --> 0:09:26.400 which is somewhat related to that as well as the 0:09:26.400 --> 0:09:29.160 economy is performed over the last number of years, there's 0:09:29.160 --> 0:09:32.679 a number of underrepresentative groups that have not fully participated 0:09:32.679 --> 0:09:36.319 in this recovery. That may be due to educational attainment, 0:09:36.480 --> 0:09:39.959 other impediments uh in their lives that make it harder 0:09:40.000 --> 0:09:43.760 for them to join the workforce and stay in the workforce. 0:09:43.880 --> 0:09:48.240 And I think running a somewhat hotter labor market may 0:09:48.280 --> 0:09:51.160 help those groups get in and stay in and help 0:09:51.280 --> 0:09:55.000 create somewhat more inclusive growth in this country. And I 0:09:55.040 --> 0:09:58.240 think that's another issue that we're actively talking about. Can 0:09:58.320 --> 0:10:02.040 you generate inflation if you cut rates? Say, would that 0:10:02.120 --> 0:10:07.520 raise inflation? So you've heard me say before, the the 0:10:08.280 --> 0:10:12.120 monetary policy has a pretty potent effect on the cyclical 0:10:12.200 --> 0:10:17.200 aspects of inflation, tightness of the labor market, other elements 0:10:17.360 --> 0:10:20.319 of the cyclical elements, the part that might be a 0:10:20.360 --> 0:10:24.920 little less susceptible to monetary policy or the structural drivers 0:10:25.000 --> 0:10:29.720 of again technology, technology enabled disruption, globalization, which are limiting 0:10:29.720 --> 0:10:34.720 the pricing power of business, improving the negotiating leverage of consumers, 0:10:35.040 --> 0:10:37.720 making it harder for businesses to raise prices even if 0:10:37.760 --> 0:10:41.200 they have wage increases. And so I think it's muting 0:10:41.240 --> 0:10:44.719 the inflation effect. And so uh, I think these are 0:10:44.920 --> 0:10:47.079 this dynamic is one we just need to take into 0:10:47.080 --> 0:10:50.600 account as we think about monetary policy. Is there any suggestion, 0:10:50.640 --> 0:10:52.520 and there have been many of them made for policies 0:10:52.559 --> 0:10:55.920 you can adopt that you find intriguing or interesting. Well, 0:10:56.679 --> 0:11:01.880 I'm I'm open minded on all these proposals, nominal GDP targeting, 0:11:02.240 --> 0:11:05.640 elements of price level targeting, inflation averaging. I think the 0:11:05.720 --> 0:11:09.400 key for me is do we want to come out 0:11:09.400 --> 0:11:12.000 of this framework review saying there are two or three 0:11:12.080 --> 0:11:15.400 new factors we want to take into account, or we 0:11:15.480 --> 0:11:20.120 want to update our framework, for example, to take into 0:11:20.120 --> 0:11:24.000 account average inflation over a period of time. It's one 0:11:24.040 --> 0:11:26.880 thing to take those factors into account. It's another thing 0:11:26.920 --> 0:11:30.680 to make a commitment or create a rule that would 0:11:30.679 --> 0:11:36.520 bind future actions. I'm reluctant, uh to uh to bind 0:11:36.600 --> 0:11:41.560 ourselves to future scenarios that we you know, we can't predict, 0:11:41.760 --> 0:11:45.560 but I am in favor of alternating, probably updating our 0:11:45.600 --> 0:11:49.120 framework to take a few additional factors into account, which 0:11:49.160 --> 0:11:52.000 I think may serve us well in meeting our dual mandate. 0:11:52.040 --> 0:11:54.920 Are you're worried at all that the FENS raised expectations 0:11:54.960 --> 0:11:56.680 for what's going to come out of this process and 0:11:56.720 --> 0:11:58.760 you may disappoint the market. I think we have to 0:11:58.800 --> 0:12:02.960 be careful. The commune AKA clearly that, uh that I 0:12:02.960 --> 0:12:05.320 think it's a healthy thing to do a framework review. 0:12:05.559 --> 0:12:07.199 I don't think it should be a one time thing. 0:12:07.240 --> 0:12:10.720 I think it's something a good organization does regularly. Uh. 0:12:11.720 --> 0:12:13.880 But because we haven't done it in a long time, 0:12:14.200 --> 0:12:16.480 it may raise some expectations. But I think we're gonna 0:12:16.480 --> 0:12:19.079 have to just communicate what we're thinking and how we're 0:12:19.120 --> 0:12:22.280 doing it, so we we we sort of balance how 0:12:22.320 --> 0:12:25.000 we're going about this. All right, Robert Caplan, thank you 0:12:25.080 --> 0:12:28.680 very much, President of the Dallas Federal Reserve. We'll send 0:12:28.720 --> 0:12:31.679 it back to you. Michael McKay, thank you very much, sir. 0:12:31.800 --> 0:12:49.400 A fantastic interview with the Dallas Fed President. An ugly 0:12:49.520 --> 0:12:53.600 a DP report, a massive downside surprise ahead of payrolls 0:12:53.640 --> 0:12:56.240 Friday in the United States, the number coming in at 0:12:56.280 --> 0:13:00.400 twenty seven k, the median estimate one D eight. He five. 0:13:00.440 --> 0:13:03.720 It sparks a big bond market rally, and now we 0:13:03.760 --> 0:13:06.560 can get reaction from the Federal Reserve. The Chicago Fed 0:13:06.600 --> 0:13:11.559 president Charles Evans sitting down with Bloomberg's Michael McKay. Well, 0:13:11.600 --> 0:13:13.840 thank you very much, and welcome back to Chicago where 0:13:13.880 --> 0:13:16.360 we're speaking with the president of the Chicago Fed and 0:13:16.440 --> 0:13:19.640 our host for this conference, Charlie Evans. Thanks for joining 0:13:19.679 --> 0:13:23.520 us of Morning on Blueberg Television and radio worldwide. Got 0:13:23.520 --> 0:13:26.679 to start with the news. J Powell yesterday his comments 0:13:26.720 --> 0:13:30.120 taken by Wall Street as suggesting the Fed is putting 0:13:30.120 --> 0:13:33.200 a rate cut on the table for consideration. Did you 0:13:33.320 --> 0:13:35.720 take it that way? Is a cut as the door 0:13:35.800 --> 0:13:38.640 open to a cut? Uh? Well, I think we've been 0:13:38.679 --> 0:13:42.080 looking at the data and you know, talking to businesses 0:13:42.160 --> 0:13:46.280 and thinking about how the forecast is evolving. I still 0:13:46.320 --> 0:13:49.079 think that the fundamentals are solid for the economy. There 0:13:49.120 --> 0:13:51.920 is uncertainty and you you know, might be wondering if 0:13:51.960 --> 0:13:55.200 businesses are you know, delayne a little bit more taking 0:13:55.800 --> 0:13:58.560 stock of you know, what the international situation looks like 0:13:58.600 --> 0:14:00.680 I think it would be prudent to take a look 0:14:00.720 --> 0:14:04.400 at you know, our you know setting for monetary policy, 0:14:04.440 --> 0:14:08.040 as we do each and every time, and as I've said, um, 0:14:08.080 --> 0:14:10.520 you know earlier, I'm a little nervous about the low 0:14:10.559 --> 0:14:14.760 inflation rate and so um, even though we expect it's 0:14:14.800 --> 0:14:16.840 kind of temporary. I think that that by itself could 0:14:16.880 --> 0:14:18.719 be a reason for a little bit more accommodation. But 0:14:18.800 --> 0:14:19.960 I think we're just gonna have to look at how 0:14:20.000 --> 0:14:24.760 things are evolving. Cut rates basis points. Will that generate 0:14:24.800 --> 0:14:27.960 inflation hasn't so far? Well, I think that's a good 0:14:28.040 --> 0:14:31.560 question because I think it depends on just supporting and 0:14:31.600 --> 0:14:35.120 an accommodative fashion. We've been under running inflation. We're about 0:14:35.160 --> 0:14:37.160 one point six percent year over year. We ought to 0:14:37.160 --> 0:14:39.080 be at two too and a quarter by now this 0:14:39.200 --> 0:14:42.640 late in the cycle, sort of averaging higher inflation at 0:14:42.720 --> 0:14:46.840 least defending our symmetric objective. And so I think more 0:14:46.840 --> 0:14:51.520 accommodative stance would be supportive of that. Um, you know, 0:14:51.560 --> 0:14:53.480 it depends on the evolution of the economy to whether 0:14:53.560 --> 0:14:55.560 or not that supportive of that or not. I think 0:14:55.600 --> 0:14:59.160 additional nervousness would you know, also um, you know, call 0:14:59.240 --> 0:15:02.520 some of that into question. Something changed with inflation dynamics 0:15:02.560 --> 0:15:05.960 that maybe they Fed an economists in general don't understand. 0:15:05.960 --> 0:15:09.040 At this point. We've certainly been under running two percent 0:15:09.120 --> 0:15:11.560 now for quite some time. We've had moments where we've 0:15:11.600 --> 0:15:14.200 gotten up to two percent, and certainly a year and 0:15:14.200 --> 0:15:17.280 a half ago, as we were tightening raising rates, I 0:15:17.440 --> 0:15:19.760 was more confident that we were going to be able 0:15:19.800 --> 0:15:22.040 to get to two percent on a sustainable basis. I 0:15:22.040 --> 0:15:24.560 think that's really important, that would be sustainable. It turns 0:15:24.600 --> 0:15:26.720 out that we weren't. We haven't been able to do that, 0:15:27.240 --> 0:15:30.160 and it seems to be one cycle of temporary uh 0:15:30.320 --> 0:15:33.080 downside risk to inflation after another one after a while. 0:15:33.120 --> 0:15:34.760 I think you really do have to wonder about the 0:15:34.800 --> 0:15:38.200 inflation process and whether or not we just need more accommodation. 0:15:38.600 --> 0:15:40.960 But you're hosting a conference that's part of the fed's 0:15:41.040 --> 0:15:45.080 review of its monetary policy framework designed to sort of 0:15:45.080 --> 0:15:49.080 solve that problem. Have you heard any uh suggestions, and 0:15:49.120 --> 0:15:50.800 there's been a lot of them for different policies you 0:15:50.800 --> 0:15:54.160 could adopt that you think actually would produce the result 0:15:54.440 --> 0:15:57.760 that you want. Well, I think the conference papers have 0:15:57.840 --> 0:15:59.880 been very good. We had a panel yesterday where we 0:16:00.080 --> 0:16:04.760 had people, um, you know, labor, business people in the 0:16:04.760 --> 0:16:08.680 community talking about what maximum employment means for their constituents. 0:16:08.720 --> 0:16:11.160 And I think that, uh, we had a very nice 0:16:11.160 --> 0:16:14.600 paper looking at evaluating different approaches that the FED has 0:16:14.680 --> 0:16:17.520 taken over the last ten in fifteen years. I took 0:16:17.560 --> 0:16:21.800 away from that that it's very important that we continue 0:16:21.840 --> 0:16:24.960 to demonstrate credibility that with all of our actions, we 0:16:25.000 --> 0:16:28.200 want to indicate that we're here to generate symmetric two 0:16:28.200 --> 0:16:33.440 percent inflation and maximum employment. Some of that could be, um, 0:16:33.960 --> 0:16:37.680 another reason for sort of pushing a little harder further 0:16:37.840 --> 0:16:40.800 into the cycle in order to average higher inflation to 0:16:41.840 --> 0:16:44.880 ratify symmetry. I think we're today's papers are going to 0:16:44.920 --> 0:16:46.920 be on that point even more so, and I think 0:16:46.920 --> 0:16:49.440 it will be very interesting to listen to those. Your 0:16:49.680 --> 0:16:52.280 district is sort of at the center of manufacturing in 0:16:52.320 --> 0:16:55.280 the United States. We've seen the I s M reports, 0:16:55.640 --> 0:17:02.920 We've seen the the manufacturing vase suggests ongoing weakness. They 0:17:03.000 --> 0:17:06.000 keep grinding lower, but some say is reminiscent of two 0:17:06.000 --> 0:17:09.880 thousand fifteen. What do you see in manufacturing, Well, we've 0:17:09.920 --> 0:17:12.280 definitely seen the I S M moved down it's still 0:17:12.320 --> 0:17:18.560 expansionary for manufacturing, but there's definitely more uncertainty about you know, 0:17:18.960 --> 0:17:22.159 you know CAPEX orders business fixed investment and you know 0:17:22.160 --> 0:17:24.440 how that's likely to proceed, So that obviously hits the 0:17:24.480 --> 0:17:27.680 manufacturing sector in a pretty big way. UM. I also 0:17:27.760 --> 0:17:31.280 think that the tariffs on agricultural products are really big 0:17:31.320 --> 0:17:35.320 in that effects of farm equipment manufacturers as well, and 0:17:35.400 --> 0:17:38.639 so um, you know, that's just another headwind that the 0:17:38.680 --> 0:17:41.280 economy has got to work its way through in order 0:17:41.320 --> 0:17:45.160 to achieve growth at potential or above potential. I'm looking 0:17:45.160 --> 0:17:47.960 for two percent growth this year. That's actually a pretty 0:17:47.960 --> 0:17:50.880 good growth rate in terms of trend growth. But uh, 0:17:51.240 --> 0:17:53.280 you know, we're gonna have to navigate, um, all of 0:17:53.320 --> 0:17:55.640 the headwinds that we're facing right now. What are your 0:17:55.880 --> 0:17:59.600 district CEO telling you about what they think is going 0:17:59.640 --> 0:18:03.080 to happen to the economy and how they're reacting to it. Um, 0:18:03.320 --> 0:18:05.800 you know, my information from CEOs is a little bit stale. 0:18:05.840 --> 0:18:07.920 It's you know, six weeks since we almost six weeks 0:18:07.920 --> 0:18:09.960 since we had our cycle. I've got my directors meeting today. 0:18:10.000 --> 0:18:13.800 I look forward to their comments. I believe I'm expecting 0:18:13.920 --> 0:18:17.000 sort of a little bit of a continuation of their 0:18:17.080 --> 0:18:20.640 balls up in the air. There's uncertainty. The fundamentals for 0:18:21.119 --> 0:18:25.080 their operations are pretty good, but of course if you 0:18:25.119 --> 0:18:29.640 start making adjustments to the effect supply chains and how 0:18:29.680 --> 0:18:33.120 you move product over and back across the border with Mexico, 0:18:33.160 --> 0:18:35.280 that would have, you know, a negative effect. And so 0:18:35.320 --> 0:18:37.840 I think we have to be aware of all of 0:18:37.880 --> 0:18:40.040 that and make sure that the FED is not getting 0:18:40.040 --> 0:18:43.119 in the way of continued good growth. The FED may 0:18:43.160 --> 0:18:45.639 not be getting in the way, but trade policy maybe 0:18:45.760 --> 0:18:49.240 getting in the way. Have you seen measurable impacts? We 0:18:49.280 --> 0:18:52.639 all talk about the possibility of faster inflation when we 0:18:52.680 --> 0:18:56.080 talk about slower growth. Can you quantify an effect so 0:18:56.160 --> 0:18:58.000 far in the data? So I think that's a challenge. 0:18:58.040 --> 0:19:01.280 I think most of what I've been hearing what I 0:19:01.359 --> 0:19:04.640 just indicated is that this is on the soft data 0:19:04.720 --> 0:19:08.080 kind of side. It's uncertainty. It does get at business 0:19:08.119 --> 0:19:12.240 attitudes towards putting precious capital at risk over a longer 0:19:12.280 --> 0:19:16.440 period of time, when the actions might be undone by 0:19:16.480 --> 0:19:20.560 a change in trade policy or other actions. And so 0:19:20.680 --> 0:19:23.479 I think it's a more difficult time to take a 0:19:23.520 --> 0:19:26.760 longer perspective. And so people are waiting and just sort 0:19:26.800 --> 0:19:30.120 of seeing how things play out. Could come out fine. Um, 0:19:30.160 --> 0:19:32.240 you know that's what everybody helps with the trade policies, 0:19:32.640 --> 0:19:36.520 your cost benefit analysis. Is it better to be slow 0:19:36.600 --> 0:19:39.680 to cut if needed, or better to be cutting through 0:19:39.760 --> 0:19:42.360 seeing Yeah, that's that's a good question too. And and 0:19:42.400 --> 0:19:44.399 I'm gonna I'm gonna pause a little bit and just 0:19:44.400 --> 0:19:46.720 sort of say it gets at the strategy. And my 0:19:46.760 --> 0:19:49.439 own take on things is that inflation is just a 0:19:49.480 --> 0:19:53.280 little light relative to our symmetric two percent inflation. So 0:19:53.320 --> 0:19:56.680 before we even talk about, you know, more trade uncertainty, 0:19:57.040 --> 0:19:59.119 I'm a little more inclined to kind of think, you know, 0:19:59.240 --> 0:20:02.320 we might you I wonder if we've got the appropriately 0:20:02.359 --> 0:20:05.320 accommodative setting in order to generate inflation at two to 0:20:05.359 --> 0:20:07.200 two one a quarter per cent and two and a 0:20:07.240 --> 0:20:10.920 half percent inflation would not be um against our symmetric 0:20:10.960 --> 0:20:13.679 inflation objective as long as it was relatively contained. So 0:20:13.720 --> 0:20:15.879 I think that there's scope for that. Now if you 0:20:15.960 --> 0:20:19.240 layer on top of this additional uncertainties as to the 0:20:19.280 --> 0:20:22.520 real economy and just you know, there are insurance reasons 0:20:22.560 --> 0:20:25.920 to talk about adjustments, I think, um, you know, there's 0:20:25.960 --> 0:20:27.800 more to talk about these days when it comes to 0:20:27.840 --> 0:20:31.120 monetary policy, and we'll be doing that in Washington before 0:20:31.160 --> 0:20:32.720 too long. One of the things you've gotta be talking 0:20:32.720 --> 0:20:35.440 about is what's happening overseas and the impact that comes 0:20:35.440 --> 0:20:37.200 back into the US. And one thing we have seen 0:20:37.320 --> 0:20:43.520 is much stronger dollar companies feeling that impact in your district. Um. 0:20:43.560 --> 0:20:46.000 You know, I think that there are you know, a 0:20:46.080 --> 0:20:50.040 number of headwinds that they're facing, and obviously relative prices 0:20:50.080 --> 0:20:53.959 would have one effect on that. I think commodity prices 0:20:54.000 --> 0:20:58.040 have been another. But they've sort of come off those 0:20:58.119 --> 0:21:01.440 kinds of pressures mentioned agriculture. I wanted to ask you 0:21:01.480 --> 0:21:04.679 about that because of course this is a huge agricultural district. 0:21:04.880 --> 0:21:07.960 You've got tariffs and you've got floods. Uh, you've got 0:21:07.960 --> 0:21:10.320 reports that farmers aren't gonna be able to plant. How 0:21:10.320 --> 0:21:13.080 how bad is it? Um? Yeah, the weather effects have 0:21:13.160 --> 0:21:17.520 been really uh you know, um, not good obviously. UM. 0:21:17.560 --> 0:21:19.080 You know, a lot of flooding, a lot of just 0:21:19.160 --> 0:21:22.960 navigating going around the area. You know, bridges are out 0:21:23.000 --> 0:21:25.240 and things like that in the fields are more difficult. 0:21:25.320 --> 0:21:28.679 So um yeah, everybody struggling with that, and the uh, 0:21:29.280 --> 0:21:33.679 crop prices aren't supportive of you know, that profitability either well, 0:21:33.720 --> 0:21:38.000 what's that going to do to inflation or to growth? Um, 0:21:38.080 --> 0:21:40.399 you know, crop prices have been low, so obviously if 0:21:40.400 --> 0:21:43.280 supply was curtailed by some effect, you might predict that 0:21:43.600 --> 0:21:46.040 prices would go up a little bit, you know, somewhat, 0:21:46.040 --> 0:21:48.720 But it's going to depend on the entire um, you know, 0:21:48.800 --> 0:21:52.640 the market where planting takes place, elsewhere in world conditions. 0:21:52.640 --> 0:21:54.639 So it's hard to say. I'm not really concerned about 0:21:54.640 --> 0:22:00.600 the inflationary consequences of that, nor the tariff effects. Um, 0:22:00.640 --> 0:22:02.879 even larger tariffs I think would sort of be a 0:22:02.920 --> 0:22:05.960 one off effect on overall prices, and so I don't 0:22:05.960 --> 0:22:09.479 think that would risk our inflation objective at the moment. Well, 0:22:09.480 --> 0:22:12.679 then where do you get the symmetric two percent that 0:22:12.760 --> 0:22:14.840 you want from? Well, I think we're trying to find 0:22:14.880 --> 0:22:18.800 the appropriate setting for monetary policy, and uh, you know, 0:22:18.920 --> 0:22:22.119 so far, we sort of decided that settling on the 0:22:22.160 --> 0:22:25.879 low end of the range of neutral uh interest rate 0:22:26.000 --> 0:22:28.280 seems to be a good place to sit because it 0:22:28.359 --> 0:22:32.760 supports the economy and helps support inflation a little bit. 0:22:32.800 --> 0:22:35.240 If all of a sudden, we you know, realize that 0:22:35.240 --> 0:22:37.719