WEBVTT - Former NY Fed President Bill Dudley Talks Alan Greenspan

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

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<v Speaker 2>Us now, and without exaggeration, the only exception would be

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<v Speaker 2>Edward Jardenny is the number one person I want to

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<v Speaker 2>talk to now about the legacy of Alan greenspand William

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<v Speaker 2>Dudley is a different FED president, yes, of the New

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<v Speaker 2>York Fed and all, but far more. He built Goldman

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<v Speaker 2>Sachs Economics with Ed McKelvey and the rest of young

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<v Speaker 2>Jana Hasias. At the time Bill Dudley joins us this

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<v Speaker 2>morning to me Bill Dudley, and the phrase I've always

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<v Speaker 2>used is chart paragraph chart. And it was a people

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<v Speaker 2>like Hymen and Yard Denny at C. J. Lawrence. It

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<v Speaker 2>was the Bear Stearns combine with mel Pass and writing.

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<v Speaker 2>But more than anyone, it was Goldman Sachs chart paragraph chart.

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<v Speaker 2>Alan Greenspan loved that. At the end of the day,

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<v Speaker 2>he was a market economist awen to data. Do we

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<v Speaker 2>have anyone that can be like Alan Greenspan in our

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<v Speaker 2>future or was he a one off in the history

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<v Speaker 2>of our economics?

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<v Speaker 3>Well, the future it takes up a long potential times.

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<v Speaker 1>I'm sure we'll see someone similar to Greenspan in the future,

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<v Speaker 1>But you're right, he was a different type of FED

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<v Speaker 1>chairman because not only was he very knowledgable about economics,

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<v Speaker 1>but he wasn't academic, and so he was basically going

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<v Speaker 1>from the data to the decision making rather than from

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<v Speaker 1>the model to the decision making. And so sometimes when

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<v Speaker 1>the world changed, he got it right before anybody else did.

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<v Speaker 1>The best example, of course, was the late nineteen nineties

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<v Speaker 1>when there was the product three boom and Greenspan held

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<v Speaker 1>off on tightening manentrey policy. So I think he was,

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<v Speaker 1>you know, an exceptional exceptional chairman in both in terms

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<v Speaker 1>of his understanding of economics, his openness to data, his

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<v Speaker 1>willingness to you know, change.

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<v Speaker 3>His mind and update.

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<v Speaker 1>Is his fourth asked, I think the only really you know,

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<v Speaker 1>blind spot was fully his views about financial stability and regulation.

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<v Speaker 1>His view is always, you know, we can't identify bubbles

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<v Speaker 1>in real time, so all we can clean up after

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<v Speaker 1>the fact, And obviously the Great Financial Crisis showed that

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<v Speaker 1>cleaning up after the fact is always it's not always

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<v Speaker 1>the right approach.

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<v Speaker 2>Well did you get into your excellence at Berkeley and

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<v Speaker 2>to say, okay, it is about the regulation decision? Are

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<v Speaker 2>we making the same mistakes today that the critics they

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<v Speaker 2>were made in five and six.

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<v Speaker 3>I don't see the same kind of problems.

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<v Speaker 1>Number one, in terms of, you know, the market having

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<v Speaker 1>a lot of assumptions that will ultimately turn out to

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<v Speaker 1>be wrong. I mean, if you look at two thousand

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<v Speaker 1>and six, two thousand and seven, there was all these

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<v Speaker 1>assumptions triple A CDOs are safe housing. Markets can never

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<v Speaker 1>decline on a national basis. You know, uh, you know,

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<v Speaker 1>there were just a lot of assumptions that turned out

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<v Speaker 1>some prime lending it is not risky. All those assumptions

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<v Speaker 1>turned out to be dramatically wrong. So I think, you know,

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<v Speaker 1>I like, I think there's risk of financial stability today,

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<v Speaker 1>obviously in the non bank financial sector. But the other

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<v Speaker 1>thing is we have a much more robust regulatory regime.

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<v Speaker 1>I know we're in the process of dismantling that too

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<v Speaker 1>much degree. I think it's important that we don't throw

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<v Speaker 1>the baby out with the bathwater. But you know, we

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<v Speaker 1>did learn a lot of good lessons from the financial

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<v Speaker 1>crisis that I think means that the financial system fundamentally

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<v Speaker 1>is stronger than it was back then.

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<v Speaker 4>Putting all that together, Bill, what do you think the

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<v Speaker 4>legacy is for mister Greenspan With a little bit of

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<v Speaker 4>a hindsight here.

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<v Speaker 1>I think he's obviously going to go down in history

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<v Speaker 1>as a great central banker, also go down as someone

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<v Speaker 1>who was really politically adept. I mean, he navigated through

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<v Speaker 1>democratic and Republican administrations really well and didn't have the

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<v Speaker 1>kind of conflicts that a lot of other central bankers

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<v Speaker 1>have run into, like J.

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<v Speaker 3>Paul for example.

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<v Speaker 1>So I think that combination of good economic intuition, reliance

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<v Speaker 1>on data, ability to navigate through Washington really well is

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<v Speaker 1>pretty special.

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<v Speaker 3>Wich.

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<v Speaker 1>He'd done a little bit better on the financial stabil

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<v Speaker 1>reglatory side. If he did that, he sort of gets straight.

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<v Speaker 4>A's let's fast forward to today, mister Walsh. We did hear

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<v Speaker 4>from Kevin Walsh last week for the first time as

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<v Speaker 4>Chairman of the FED.

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<v Speaker 3>What were your takeaways?

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<v Speaker 1>Well, I think the big takeaway is number one that

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<v Speaker 1>it's going to be a different regime under Kevin Walsh.

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<v Speaker 1>You know, so the regime change that he promised is

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<v Speaker 1>in the process of happening. You can just tell it

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<v Speaker 1>right off the bat with a very much shortened statement

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<v Speaker 1>I think and getting rid of Ford guides I think

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<v Speaker 1>is completely appropriate. But I'm pretty nervous about his views

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<v Speaker 1>about not communicating at all about how the FED is

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<v Speaker 1>likely to react if the economics circumstances has changed. This

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<v Speaker 1>reliant on the markets views to sort of guide policy,

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<v Speaker 1>I think is a mistake. The FED Reserve needs to

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<v Speaker 1>set monetary policy, not financial markets. And then if you're

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<v Speaker 1>relying on the markets, how do you make the decision?

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<v Speaker 1>Markets basically don't price to what they think the FED

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<v Speaker 1>should do. They priced to what the Fed what they

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<v Speaker 1>think think the FED will do. So if you're relying

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<v Speaker 1>on the market, you're sort of you have this indeterminacy

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<v Speaker 1>about what you should do. So I think so, I

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<v Speaker 1>think that's a mistake. I think, you know. I think

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<v Speaker 1>transparency I think is very helpful in terms of the

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<v Speaker 1>conduct of mandre polic policy, because you do want markets

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<v Speaker 1>to think along with the Fed when you know strong

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<v Speaker 1>economic report comes out. You want the markets to reprice

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<v Speaker 1>in terms of their expectation about the monetary policy path.

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<v Speaker 3>But to do that well, you need.

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<v Speaker 1>Good community, good communication, markets understand the Fed's monitary policy

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<v Speaker 1>reaction from me. So, I think the risk here is

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<v Speaker 1>Kevin is throwing out the baby with the bath water.

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<v Speaker 1>I have no problem getting rid of afford guys, but

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<v Speaker 1>don't throw out, you know, information about.

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<v Speaker 3>The Fed's Nentrey policy reaction function at the same time.

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<v Speaker 1>And I think he did that at the press conference

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<v Speaker 1>because he was asked very explicitly, what would how did

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<v Speaker 1>you want to tighten manitary policy?

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<v Speaker 3>And he really wouldn't answer the question.

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<v Speaker 1>I mean, obviously, obviously answer would be if inflation stays

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<v Speaker 1>longer for higher than I expect, then we'll obviously have

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<v Speaker 1>to tighten monetary policy. Or if the economy is stronger

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<v Speaker 1>than we expect, then obviously I'll revise up my estimate

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<v Speaker 1>of a neutral madry policy.

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<v Speaker 3>But he refused to answer those questions.

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<v Speaker 1>And I think that's maybe okay for the first press conference,

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<v Speaker 1>but I don't think that can be sustained over time.

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<v Speaker 2>Dudley fired up. That's what we're saying right now, William

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<v Speaker 2>Dudley with us, and we continue the former president of

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<v Speaker 2>the New York FED. You're sitting there, Bill, all fired up,

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<v Speaker 2>and everybody knows I agree with you on this. I

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<v Speaker 2>mean to be polite about it. The heritage of your

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<v Speaker 2>shop called Goldman, Sachs and Hotsius has carried this forward.

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<v Speaker 2>Is a disinflation narrative. Is the big shock after this

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<v Speaker 2>war with West Texas intermediate to seventy one forty nine,

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<v Speaker 2>so I could get with constructive news is sixty nine handle.

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<v Speaker 2>Here are we prepared, Bill Dudley for the disinflation narrative

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<v Speaker 2>that could come.

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<v Speaker 1>Well, there's going to be a disinflation narrative really next month,

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<v Speaker 1>rightway when we get the PC and CPI data for June,

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<v Speaker 1>because obviously oil prices and gasoline prices of them down

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<v Speaker 1>this month. But I think that you have to look

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<v Speaker 1>in the broader context what's the pressure on resources? More broadly,

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<v Speaker 1>we still have a lot of price pressures, like for example,

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<v Speaker 1>chip prices going up really rapidly. And I think the

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<v Speaker 1>I think the fundamental question really for the Madre policy

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<v Speaker 1>outlook is the question is Mantrea policy actually restrictive today?

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<v Speaker 3>And my own personal view is that there's not much

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<v Speaker 3>evidence of that.

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<v Speaker 1>I mean, we've had the Mantre policy at this setting

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<v Speaker 1>or tighter for three years and yet we're still at

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<v Speaker 1>an unploying rate consistent with full employment. So if Madre

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<v Speaker 1>policy isn't restrictive, then why do you need to cut rates?

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<v Speaker 4>What's the next data point, Bill that you think the

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<v Speaker 4>market should really be focusing on.

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<v Speaker 3>I think the layer market is really important here.

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<v Speaker 1>I mean, I think if the economy is strong enough

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<v Speaker 1>to keep the payrolls growing like the pace they've done

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<v Speaker 1>over the last few months, the unemploying rates flat to declining,

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<v Speaker 1>you know that that's going to continue to push the

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<v Speaker 1>fit in the direction of thinking that they need to

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<v Speaker 1>tighten monetary policy.

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<v Speaker 3>I don't you know.

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<v Speaker 1>I'm I'm a little uncertain about how fast madret policy

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<v Speaker 1>is Titan's likely to occur, or what that probability is,

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<v Speaker 1>because it's not clear how much commitment Kevin worsh has

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<v Speaker 1>to actually doing it.

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<v Speaker 3>I mean, the talk is cheap.

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<v Speaker 1>Of course, everybody's in favor of price stability, but the

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<v Speaker 1>question is what are you actually prepared to do to

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<v Speaker 1>achieve that outcome? And I don't think we really know

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<v Speaker 1>that at this point. I mean, you could have obviously

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<v Speaker 1>said the opposite. I'm not in favorite price stability, So

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<v Speaker 1>it's not really clear that there's a lot of content

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<v Speaker 1>in that statement.

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<v Speaker 2>Just valuable. Thank you so much. Bill Dudley with US,

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<v Speaker 2>a former president of New York FED. In remembrance of

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<v Speaker 2>a life of Alan Greenspan,