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Speaker 1: This is Master's in Business with very Rid Holds on

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Speaker 1: Bloomberg Radio this week on the podcast what Can I Say?

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Speaker 1: Bill Dudley, former New York Fed President, multiple positions at

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Speaker 1: Goldman Sachs on Federal Reserve, at the New York Fed,

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Speaker 1: really a master class in how monetary policy is not

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Speaker 1: only made, but executed and put into actual operations. There

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Speaker 1: are few people in the world who understand the inter

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Speaker 1: relationships between central banks, the economy, and markets like Bill

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Speaker 1: Dudley does. This is just a master class in understanding

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Speaker 1: all the factors that affect everything from the economy to inflation,

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Speaker 1: to the labor market, the housing market, and of course

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Speaker 1: Federal Reserve. I could go on and on, but instead

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Speaker 1: I'll just say, with no further ado, my conversation with

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Speaker 1: former New York Fed President Bill Dudley. Great to be here, Barry,

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Speaker 1: It's great to have you. So I feel like I

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Speaker 1: have to call you Bill Bill, because that's what I

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Speaker 1: always hear you described as not a William Yep. Let's

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Speaker 1: talk a little bit about your background. You get an

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Speaker 1: economics PhD from California Berkeley in eighty two, and around

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Speaker 1: the same time you become an economist at the Federal

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Speaker 1: Reserve Board from eighty one to eighty three. Tell us

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Speaker 1: a little bit about that role.

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Speaker 2: I was there in the what's called the Financial Studies Section,

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Speaker 2: which is one of the very small places in the

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Speaker 2: FED that it is not macroeconomics driven, it's microeconomics. So

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Speaker 2: we worked on things like payments policy, you know, regulatory policy,

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Speaker 2: so all sorts of micro issues, not macro issues. It

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Speaker 2: was a pretty interesting period because the Congress had just

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Speaker 2: passed what's called the Monetary Control Act, where they're forcing

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Speaker 2: the FED to charge for all its services to so

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Speaker 2: to sort of level the playing field with.

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Speaker 1: The private sector.

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Speaker 2: So we had to figure out how we're going to

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Speaker 2: price all these services in a way that we can

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Speaker 2: still sort of stay in business and be a viable

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Speaker 2: competitor to the private sector.

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Speaker 1: Huh, that's kind of bizarre. I would imagine in nineteen

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Speaker 1: eighty two, the FED was a much smaller entity than

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Speaker 1: it is today. What was a day in the life

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Speaker 1: of a FED economist like back then?

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Speaker 2: So I was working on issues, you know, on payments,

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Speaker 2: I worked on issues on you know, some of them

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Speaker 2: were quite esoteric. So, for example, the treasure was thinking

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Speaker 2: about moving to direct deposit, but they wanted to know

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Speaker 2: how much it was going to cost them. Because direct

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Speaker 2: deposit the money clears, you know, sorry almost instantly.

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Speaker 1: Right when you.

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Speaker 2: Write a check, you get check float. It takes time

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Speaker 2: for the checks to come back to hit the treasury counts.

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Speaker 2: So they want to know how many days does it

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Speaker 2: take a Treasury check to get back to us. So

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Speaker 2: we actually set this project where we went out to

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Speaker 2: the reserve banks and sample checks to find out how

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Speaker 2: long did it actually take someone to get their treasury

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Speaker 2: check and deposit it somewhere and have a get back

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Speaker 2: to the Fed and debit the treasury of the count

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Speaker 2: It turned out to be like eight or nine days

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Speaker 2: on average.

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Speaker 1: And on a couple of billion dollars that flowed as

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Speaker 1: real money. It's real money.

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Speaker 2: So we wanted to make sure that people understood what

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Speaker 2: the cost was. Now, obviously it's a good thing to do.

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Speaker 2: I mean, it does cost the Treasury money, but it's

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Speaker 2: a much more efficient and more reliable payments medium.

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Speaker 1: Did you overlap with the Chairman Paul Vulkar when you were.

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Speaker 2: There, Yes, I did. I didn't have a lot of

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Speaker 2: interactions with him. I remember one time though I did

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Speaker 2: do a briefing of the of the Board of Governors.

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Speaker 2: And at the time they had they had this very

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Speaker 2: long table in the board in the main board of

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Speaker 2: Governor's meeting room, and Volker sat at one end and

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Speaker 2: the briefer set all the way at the other end,

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Speaker 2: which was made it sort of complicated because Volker had

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Speaker 2: usually had a cigar stuck in his mouth, and you

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Speaker 2: would have acquire and you could like straining to hear them.

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Speaker 2: The senior staff was ready to rescue you if you

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Speaker 2: said something inappropriate. I mean they set the bar, the

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Speaker 2: tension bar so high because you actually couldn't actually do

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Speaker 2: a briefing until you've actually taken a course, no kidding.

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Speaker 2: So that means like you're not exactly relaxed when you're

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Speaker 2: going to brief the governors. It's not a lot of

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Speaker 2: give and take. It's a very formal process.

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Speaker 1: And even without a cigar in his mouth. I only

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Speaker 1: got to meet Toll Paul once, but he's kind of

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Speaker 1: gruff and mumbles like not a clear projecting voice, kind

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Speaker 1: of a hoarse, mumbling voice. I can imagine with a

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Speaker 1: cigar in his mouth, who could even tell what he's saying.

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Speaker 2: Well, I seem to have gotten it good enough. And

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Speaker 2: you know what's interesting about that. I didn't really have

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Speaker 2: that much interaction with Paul over the next you know,

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Speaker 2: fifteen to twenty years, But once I got to the FED,

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Speaker 2: we started to actually see each other on a much

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Speaker 2: more regular basis. I got involved with a group of thirty,

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Speaker 2: Paul was a member of the group of thirty, and

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Speaker 2: we gradually became pretty good friends. So it started like

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Speaker 2: very slow and sort of matured.

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Speaker 1: Like, fine, mind, he's a fascinating guy, and what an

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Speaker 1: amazing career. So before you come back to the FED,

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Speaker 1: there's a private sector interval. Tell us a little bit

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Speaker 1: about the twenty years you spent at Goldman Sachs, where

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Speaker 1: you not only became a managing director and a partner,

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Speaker 1: but you know, really very much rose through the ranks. Well,

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Speaker 1: first I went to JV. Morgan.

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Speaker 2: I was there the regulatory commis. JP Morgan at the

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Speaker 2: time had one regulatory commis And so when the job

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Speaker 2: came open and they approached me at the FED, I thought, boy,

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Speaker 2: if I don't take this job, it's not gonna be available,

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Speaker 2: you know a few years later, So I went to JV.

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Speaker 1: Morgan.

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Speaker 2: I worked on a lot of bank regulatory matters, and

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Speaker 2: that's why I'm still very interested in bank regulatory issues.

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Speaker 1: But that seemed to me like not.

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Speaker 2: A really great long term career because, as you know,

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Speaker 2: bank regulation changes very slowly, and I start wanted a

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Speaker 2: faster tempo. So Goldman Sachs had me into interview for

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Speaker 2: a macro economics job, and I thought, well, I don't

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Speaker 2: really know a lot of macroeconomics, but I do know

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Speaker 2: about how the Federal Reserve operates, how the pay system operates,

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Speaker 2: how the plumbing works, how reserves, you know, moved through

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Speaker 2: the system. And I think they liked the fact that

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Speaker 2: I knew about how things worked at sort of a

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Speaker 2: micro level, so they hired me to do macroeconomics.

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Speaker 1: So you were chief US economist for a decade over

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Speaker 1: a really fascinating period, really the heart of the bull market.

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Speaker 1: Tell us a little bit what you remember from that

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Speaker 1: role in that era.

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Speaker 2: Well, I remember how how it was a period of

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Speaker 2: sort of stars for for equity analysts, much more than

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Speaker 2: it is today. And one of the biggest stars was

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Speaker 2: Abby Joseph's Colin Sure It was the equity analyst for

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Speaker 2: Goldman Sachs. So trying to find some space between Abby

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Speaker 2: and your audience. Was a little bit challenging, but you know,

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Speaker 2: I focused mostly on fixed income and foreign exchange, so

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Speaker 2: there was sort of room for me to do my business.

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Speaker 2: Probably the highlight of my career at Goldman Sachs was

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Speaker 2: that I can't or exactly the year, but it was

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Speaker 2: in the early two thousands when people in the markets

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Speaker 2: couldn't figure out if the FED was going to move

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Speaker 2: by twenty five basis points or by fifty basis points,

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Speaker 2: and unlike today, going into the meeting, it really was

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Speaker 2: fifty to fifty. And Lloyd Blankfin called me up the

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Speaker 2: night before and so I said, you know, we have

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Speaker 2: a lot of risk on this notion that they're going

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Speaker 2: to do fifty. How do you feel about that? And

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Speaker 2: that was my call, I said. I told Loyd said,

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Speaker 2: I don't know what's going to happen, but the probability

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Speaker 2: of fifty is a lot more than fifty to fifty

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Speaker 2: at this point. Next day I had to go to

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Speaker 2: Boston for a client meeting. It was really sort of

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Speaker 2: sad because I wasn't on the floor at the time

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Speaker 2: that the announcement came, but apparently people stood up and.

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Speaker 1: Cheered for me and it was a fifty point yeah.

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Speaker 2: Yeah, yeah, So I got that was so that was

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Speaker 2: probably the highlight and I start I got to miss

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Speaker 2: the best part of it, rightly.

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Speaker 1: So after you know, more than twenty years Agoman, you

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Speaker 1: joined the New York FED in two thousand and seven

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Speaker 1: overseeing domestic and foreign exchange trading operations. Two thousand and seven.

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Speaker 1: That's some timing. It's really it's after real estate rolled over,

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Speaker 1: but it's kind of before the market peaked and the

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Speaker 1: real trouble began in O eight or nine.

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Speaker 2: Yeah, well, I had about seven months of calm and

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Speaker 2: then this chaos started in August of two thousand and seven.

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Speaker 2: I remember it really well because I just finished building

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Speaker 2: this house in West Virginia and we were taking occupancy

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Speaker 2: in early August, and it was literally the same day

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Speaker 2: that BNP Paraba shut off redemptions from some of their

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Speaker 2: mutual funds, caused all sorts of chaos in Europe, and

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Speaker 2: then the question is, well, what are we going to

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Speaker 2: do about adding liquidity in the US. So didn't get

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Speaker 2: out of the house, my new house for the next

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Speaker 2: two days as we tried to figure out how to

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Speaker 2: calm markets after the BNP Paraba event.

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Speaker 1: And the US market kept going higher. I don't think

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Speaker 1: we peaked till like October oh seven, something like that.

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Speaker 2: Yeah, people didn't really understand the consequences of subprime. You know,

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Speaker 2: I thought for.

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Speaker 1: Years, I mean literally for years, if you mentioned it,

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Speaker 1: you would be mocked on TV. Yeah, I mean.

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Speaker 2: You know, one thing I am proud about when I

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Speaker 2: joined the FED is in January two thousand and seven,

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Speaker 2: that was my first briefing of the FOMC, and actually

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Speaker 2: talked about how this could turn out poorly. You know

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Speaker 2: that subprime was being supported by you know, subprime was

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Speaker 2: being you know, the credit was flowing to subprime. Subprime

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Speaker 2: was enable looking people to buy houses. Home prices were

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Speaker 2: going up. Because home prices were going up, subprime wasn't

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Speaker 2: a problem, right, But at some point supply was going

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Speaker 2: to increase in response to the higher home prices, and

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Speaker 2: once prices stopped going up, subprime was going to start

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Speaker 2: to go the wrong direction. I said, this is a possibility.

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Speaker 2: I didn't say it was going to happen, but by

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Speaker 2: I staid it was the possibility. So I was sort

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Speaker 2: of pleased that I got off on the right track.

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Speaker 1: And then in January two thousand and nine, we were

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Speaker 1: deep into the financial crisis where post Lehman and post

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Speaker 1: Aig you get named tenth president CEO of the New

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Speaker 1: York FED. Again, fantastic timing. What was taking up your

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Speaker 1: attention right in the midst of the financial crisis.

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Speaker 2: Well, you know, that was a tremendously fortunate event for me.

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Speaker 2: I always tell people like brock Obama had to become president,

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Speaker 2: Tim Geitner had to become Treasury Secretary, and then the

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Speaker 2: board of directors in near FED had to pick me.

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Speaker 2: So it's sort of like a low probability times of

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Speaker 2: low probably times low probability, so sometimes it works out. Yeah,

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Speaker 2: sort of a bank a bank, a trible bank shot.

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Speaker 2: You know a lot of things that were focused on

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Speaker 2: at the time was trying to provide support to financial markets.

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Speaker 2: So if you remember, we were still rolling out various

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Speaker 2: facilities like the term asset back, the lending facility for example,

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Speaker 2: we were running the commercial paper funding facility. We were

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Speaker 2: trying to figure out how to do stress test, the

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Speaker 2: first stress test of banks. So that was a big

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Speaker 2: job in the spring of two thousand and nine, and

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Speaker 2: those stress tests were probably the critical turning point in

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Speaker 2: the financial crisis. I remember the day after we published

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Speaker 2: the stress test, and for the FAT we were actually

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Speaker 2: pretty transparent about like what we did and what our

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Speaker 2: assumptions were, and here's the results. Bridgewater published a piece

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Speaker 2: and I think the headline said something like we agree,

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Speaker 2: and I said, okay, we've Now that's that's really important

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Speaker 2: because if our analysis is viewed as credible and we

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Speaker 2: have the tart money being able to supply the capital

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Speaker 2: that's needed, then people can start to rest assured that

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Speaker 2: the banking system is going to stabilize and and it's

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Speaker 2: going to stop deteriorating now. It also helped that the

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Speaker 2: e Commedis was showing signs of bottoming out, so it

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Speaker 2: didn't look like we're just heading down into a deep hole.

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Speaker 2: But you know, it was very touching, touch a touch

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Speaker 2: and go there in the first part of two thousand

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Speaker 2: and nine, and there were you know, there were still

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Speaker 2: some major financial firms that were pretty darn shaky. I mean,

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Speaker 2: City was pretty shaky, Morgan Stanley was pretty shaky. Some

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Speaker 2: of the banks were still pretty shaky. So you know,

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Speaker 2: until you actually hit bottom and start to pull up,

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Speaker 2: you're really wondering are you going to get through this

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Speaker 2: and one piece?

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Speaker 1: So the Bridgewater piece raises a really interesting question. The

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Speaker 1: New York FED is kind of I don't know how

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Speaker 1: to say this first amongst the regional feds, because you're

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Speaker 1: located right in the heart of the financial community. What

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Speaker 1: is the communication like back and forth between the New

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Speaker 1: York FED and major players in finance, especially in the

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Speaker 1: midst of a crisis like that.

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Speaker 2: So the New York FED is sort of unique among

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Speaker 2: central banking entities because most central banks they do the

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Speaker 2: policy and strategy and the operations all in the same place,

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Speaker 2: but in the FED is split. You have policy done

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Speaker 2: in Washington, the operational implementation of that policy almost all

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Speaker 2: of that takes place at the New York FED. So

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Speaker 2: the New York FED is sort of the eyes and

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Speaker 2: ears of the FED reserve for markets. I think that

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Speaker 2: you know, one thing that helped me a lot during

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Speaker 2: the financial crisis is I knew a lot of people

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Speaker 2: on Wall Street, and so when something was happening, I

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Speaker 2: could call up people I knew and just ask their opinion,

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Speaker 2: recognizing that oftentimes their opinion does have a touch of

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Speaker 2: self interest. So you need to talk to three or

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Speaker 2: four people to sort of triangulate and figure out what

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Speaker 2: you think is really going on. I mean, I'll give

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Speaker 2: you an example of one thing that really struck me

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Speaker 2: during that period. I called up someone and I said,

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Speaker 2: here's a complex you know, cdo obligation. You know, you know,

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Speaker 2: with all these different mortgages and all these different tranches.

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Speaker 2: How long would it take you to actually go through

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Speaker 2: that and value it appropriately, to come up with an

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Speaker 2: appropriate valuation? He said, oh, take at least two or

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Speaker 2: three weeks. Really, And I thought, oh boy, we're in

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Speaker 2: big trouble.

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Speaker 1: Wow.

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Speaker 2: If you don't really know what things are worth when

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Speaker 2: you're going through a period of financial stress, that's going

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Speaker 2: to be makes things much much more difficult.

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Speaker 1: I would have guessed they would break that up into

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Speaker 1: five parts, give it to a bunch of juniors, and

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Speaker 1: they'd have an answer in three hours. So it scared me.

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Speaker 1: Scared I can imagine. So from the New York FED

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Speaker 1: you ultimately end up as vice chairman of the f OMC,

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Speaker 1: helping to formulate US monetary policy. What was that like

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Speaker 1: going from New York to DC.

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Speaker 2: Well, it wasn't such a big change because I'd already

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Speaker 2: been going to the f MC meetings and briefing the

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Speaker 2: f MC.

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Speaker 1: Members as president of the New York Fed you have

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Speaker 1: a seat. What happened though, as I start switched side.

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Speaker 1: So there, So the.

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Speaker 2: Day that Tim Geidner was named Treasury Secretary was basically

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Speaker 2: the day before an f MC meeting. And I literally

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Speaker 2: didn't know when I went down to Washington that Monday

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Speaker 2: evening whether I was going to be briefing the FMC

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Speaker 2: participants or whether I was going to be an f

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Speaker 2: MC participant myself. So I actually prepared two sets of notes.

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Speaker 2: Here's my briefing notes if I'm I'm the soul the

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Speaker 2: sella manager, and here's my remarks if I'm the president

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Speaker 2: of the FED. So I was ready for both. And

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Speaker 2: what happened that day he was He was named on

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Speaker 2: that Monday, and so on Tuesday, I was I was

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Speaker 2: the President of New York Fed.

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Speaker 1: Wow. And you know I didn't you know?

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Speaker 2: So, And when I got back to New York on

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Speaker 2: you know, I think Thursday morning, we had a town

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Speaker 2: hall and I gave my first remarks to the New

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Speaker 2: York Fed people and had a very simple message for them.

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Speaker 2: Best idea wins, because I was really struck by how

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Speaker 2: hierarchical central banks tend to be. And I wanted to

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Speaker 2: sort of push agat against that idea and basically say,

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Speaker 2: it doesn't matter where the idea comes. If it's the

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Speaker 2: best idea, that's the idea that should win out.

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Speaker 1: Huh. It makes a lot of sense. And since then

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Speaker 1: you've gone on to do some work reforming libor as

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Speaker 1: the benchmark for rates. Tell us, I always get the name,

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Speaker 1: SOFRA the new one that replaced for Yeah, so, so

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Speaker 1: tell us a little bit about the work you did,

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Speaker 1: because libor was probably the most important number, certainly in credit,

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Speaker 1: maybe in all of finance.

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Speaker 2: So library for a while was there was a real

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Speaker 2: question whether central banks were going to take this on

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Speaker 2: or not. And I remember I was in Basel for

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Speaker 2: the BIS meetings and I wrote a one page memo

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Speaker 2: to Ben Bernanke to hand to Mervin King. Mervin King

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Speaker 2: was the head of the sort of the policy making

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Speaker 2: group at the BIS at the time, and the memo

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Speaker 2: was basically arguing why central banks needed to own the

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Speaker 2: librar problem, because if they didn't own it, it wouldn't

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Speaker 2: get fixed, it'd be a problem again, and then the

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Speaker 2: central banks would be blamed for well, why didn't you

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Speaker 2: fix that problem? So I don't know how much important

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Speaker 2: that memo had, but I was very pleased to see

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Speaker 2: the central banks take eyed up. And as you know,

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Speaker 2: it was a huge undertaking which took you know, many

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Speaker 2: many years to complete.

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Speaker 1: And for those people who may not be familiar with

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Speaker 1: the London Interbank offered rate, offered rate literally was a

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Speaker 1: survey where they'd call up various bond desks and say, so,

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Speaker 1: what are you charging for an overnight loan? And eventually

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Speaker 1: traders figured out they could game that by let's just

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Speaker 1: call it talking their books, so to speak, in a

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Speaker 1: way that would move the librar in their direction. You could,

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Speaker 1: you could do a bunch of things with derivatives, and

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Speaker 1: eventually libor kind of spiraled out of control, the new

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Speaker 1: improved version. How do we prevent that from taking place?

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Speaker 1: What were the structural changes?

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Speaker 2: Well, the problem, I mean the problem of LIBRA was

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Speaker 2: that you had a small cash library market that was

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Speaker 2: referencing a very large futures market year all futures market,

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Speaker 2: and so you had a situation where you could take

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Speaker 2: big positions in the euro dollar market, affect the price

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Speaker 2: in the cash market and actually make a profit. So

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Speaker 2: the sort of the tail was wagging the dog for sofa,

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Speaker 2: the secured overnight funding rate for repo. You have a

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Speaker 2: big repo market. I mean it's you know, hundreds and

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Speaker 2: hundreds of billions of dollars, so the idea, and it's

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Speaker 2: a real market. I mean there's real transactions that are traded,

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Speaker 2: and you can sort of track with the price are

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Speaker 2: and where trades are. It's so it's almost impossible to

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Speaker 2: imagine someone manipulating this sofa market.

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Speaker 1: Really really interesting. So so first before we start talking

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Speaker 1: about policy, I have to ask. You're at Goldman Sachs

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Speaker 1: for twenty years and you get the phone call to

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Speaker 1: join the New York FED. What was that like? Was

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Speaker 1: that a tough call or was that an easy decision

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Speaker 1: to make?

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Speaker 2: Well? What happened actually is Tim Geitner called me several

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Speaker 2: months earlier and said, you like to come over to

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Speaker 2: be a senior advisor. And I said, I'd love to

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Speaker 2: be a senior advisor to you, Tim, but what do

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Speaker 2: I do with the rest of my you know, forty

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Speaker 2: to fifty hour work week. And he didn't have a

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Speaker 2: really good answer for that.

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Speaker 1: Was this a full time gig? I means, well, I didn't.

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Speaker 2: When I left Goldman, I didn't really know what my

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Speaker 2: next thing was, so I did not have the next job.

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Speaker 2: I was just assuming that I would something would come

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Speaker 2: along that right, interesting, So he offered that and I thought, well,

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Speaker 2: you know, you know, Tim and I had a very

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Speaker 2: good relationship, and you know, I sort of like the

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Speaker 2: idea of working from but I thought senior advisor was

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Speaker 2: a little bit too unformed. And a couple months later

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Speaker 2: he came back and said, can you run the Markets

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Speaker 2: group at the New York Fed? That's completely different. You're

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Speaker 2: running the group that actually implements monetary policy overseas market

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Speaker 2: analysis Dale deals with the primary dealer community. That was

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Speaker 2: a real opportunity, so that one I didn't have to

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Speaker 2: think very hard about.

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Speaker 1: And what's what Not long after Tim gets elevated, you

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Speaker 1: take the role of New York Fed President. What's a

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Speaker 1: day in the life of New York Fed pres.

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Speaker 2: Like, there's a lot to do because New York Fed

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Speaker 2: does lots of different things. So you know, we have supervision.

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Speaker 2: We oversee some of the largest financial institutions in the

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Speaker 2: world from a supervisory perspective, where the international armor of

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Speaker 2: the FED, so pretty much every two months. I would

393
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Speaker 2: go to the BIS in Basel, be part of the

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Speaker 2: Bank for International Settlement meetings. New York FED President as

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Speaker 2: well as the chairman of the of the Board of

396
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Speaker 2: Governors as the Board of Directors of the b S.

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Speaker 2: As Alan Blinder once joked to me, he says, New

398
00:20:04,240 --> 00:20:08,679
Speaker 2: York FED is the only only institution that's treated it

399
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Speaker 2: like their their own country because they have this board

400
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Speaker 2: director's position. You know, there's lots of things and you know,

401
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Speaker 2: payments they fed. New York Fed runs FED Wire, The

402
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Speaker 2: New York FED runs Central Bank International Services for a

403
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Speaker 2: bunch of foreign central banks. They have I don't know,

404
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Speaker 2: three four trillion dollars of custody assets from foreign so

405
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Speaker 2: there's a lot. There's lots of pieces to the FED.

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Speaker 1: And then there's a.

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Speaker 2: Research department, uh and there's a lot of outreach to

408
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Speaker 2: try to get information about what's really happening in the world.

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Speaker 2: I mean, the one thing that I did that was

410
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Speaker 2: probably a little new from the FED perspective is I

411
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Speaker 2: tried to broaden out the people that the New York

412
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Speaker 2: Fed was talking to. Historically, the New York FEDA typically

413
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Speaker 2: talked mainly to the primary dealer community, so that's where

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Speaker 2: they obtained their information from. And I thought that that

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Speaker 2: was too narrow. We need, we need, we need a

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Speaker 2: broader set of perspectives. And so I hired a woman

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Speaker 2: named Haley Bowski who came in and literally built out

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Speaker 2: a whole operation so we could actually interact not just

419
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Speaker 2: with the cell side, but also with the buy side.

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Speaker 2: And so we started an advisory group of people for

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Speaker 2: you know, hedge funds, pension funds, insurance companies, buyside investors,

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Speaker 2: and so we have them in periodically to talk to

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Speaker 2: and so we got a much broader network of information

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Speaker 2: that we could sort of take on board. And I

425
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Speaker 2: think that's valuable because you know, where you sit really

426
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Speaker 2: does influence your perspective, and you sort of want to

427
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Speaker 2: understand what biases and you know, self promotion sometimes that

428
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Speaker 2: people are talking their book that you want to be

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Speaker 2: able to make sure you don't get fooled by that.

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Speaker 1: Now you could go back not all that far in

431
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Speaker 1: the FED history, and there was none of this communication.

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Speaker 1: It wasn't a transcripts release, there wasn't a reporter scrum

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Speaker 1: and a Q and A. There wasn't even an announcement

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Speaker 1: of change and interest rates. You had to follow bond

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Speaker 1: market to see when rates changed. What are the pros

436
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Speaker 1: and cons of being so clear and so transparent with

437
00:22:08,359 --> 00:22:12,480
Speaker 1: market participants? Is the risk that maybe we're too clear?

438
00:22:13,720 --> 00:22:17,240
Speaker 2: Well, I think there's a strong argument in favor of

439
00:22:17,320 --> 00:22:21,479
Speaker 2: transparency as opposed to opacity. And you know this has

440
00:22:21,480 --> 00:22:23,800
Speaker 2: been debated within the Fed for many years. I mean

441
00:22:23,840 --> 00:22:26,919
Speaker 2: Alan Greenspan, Paul Volker definitely preferred to be opaque. I

442
00:22:26,920 --> 00:22:29,919
Speaker 2: mean Alan greenspand famously said if you understand, if you

443
00:22:29,920 --> 00:22:32,639
Speaker 2: think you understand what I said, then I wasn't unclear

444
00:22:32,760 --> 00:22:34,080
Speaker 2: enough for something.

445
00:22:33,800 --> 00:22:34,320
Speaker 1: To that effect.

446
00:22:35,560 --> 00:22:40,399
Speaker 2: So the value of transparency is that if markets understand

447
00:22:40,600 --> 00:22:43,520
Speaker 2: how the Federal Reserve is going to react to incoming information,

448
00:22:44,200 --> 00:22:47,879
Speaker 2: the market can essentially price in with the Fed hasn't

449
00:22:47,920 --> 00:22:51,160
Speaker 2: even yet done, and so that can make monetary policy

450
00:22:51,240 --> 00:22:52,400
Speaker 2: work much more rapidly.

451
00:22:52,400 --> 00:22:53,560
Speaker 1: So let's think about it today.

452
00:22:53,880 --> 00:22:57,000
Speaker 2: So the market is pricing in roughly five to six

453
00:22:57,119 --> 00:22:59,840
Speaker 2: twenty five basis point rate cuts between now and the

454
00:23:00,119 --> 00:23:03,240
Speaker 2: end of the year, so that means monitary policy is easier,

455
00:23:03,280 --> 00:23:06,679
Speaker 2: even though the Federal Reserve hasn't cut rates yet, So.

456
00:23:06,920 --> 00:23:08,880
Speaker 1: They do some of the work for the Fed. Yeah,

457
00:23:09,080 --> 00:23:09,719
Speaker 1: and it makes it.

458
00:23:09,760 --> 00:23:12,760
Speaker 2: And it also means that as newcoming information is coming in,

459
00:23:13,240 --> 00:23:16,520
Speaker 2: the market can reprice, and so that can cause the

460
00:23:16,560 --> 00:23:19,679
Speaker 2: impulse of the economic news to be filtered into financial

461
00:23:19,720 --> 00:23:23,120
Speaker 2: conditions much more more quickly. I'm a big believer in

462
00:23:23,160 --> 00:23:26,240
Speaker 2: financial conditions as a framework for thinking about monetary policy.

463
00:23:26,720 --> 00:23:29,399
Speaker 2: You know, twenty something years ago Jan Hattys and I

464
00:23:29,440 --> 00:23:32,720
Speaker 2: introduced the gold SAX Financial Conditions Index, and it took

465
00:23:32,760 --> 00:23:36,200
Speaker 2: about twenty plus years for the Federal Reserve too sort

466
00:23:36,200 --> 00:23:38,240
Speaker 2: of endorse it. I mean, Jay Powell talks about financial

467
00:23:38,240 --> 00:23:40,760
Speaker 2: conditions a lot more than any other chair of the

468
00:23:40,800 --> 00:23:43,639
Speaker 2: Fed ever has. The reason why financial conditions are so

469
00:23:43,680 --> 00:23:46,400
Speaker 2: important is in the United States, the commy doesn't really

470
00:23:46,440 --> 00:23:49,199
Speaker 2: run on short term interest rates. It really runs on

471
00:23:49,240 --> 00:23:52,639
Speaker 2: how short term interest rates affect long term rates, mortgage rates,

472
00:23:53,359 --> 00:23:56,879
Speaker 2: stock market, the dollar credit spreads. You know, we have

473
00:23:56,920 --> 00:23:59,320
Speaker 2: a big capital market compared to other countries, and so

474
00:23:59,720 --> 00:24:02,720
Speaker 2: shorts are not really the driver. Now, if short term

475
00:24:02,760 --> 00:24:06,560
Speaker 2: rates and financial conditions were rigidly connected, so if I

476
00:24:06,600 --> 00:24:08,960
Speaker 2: moved the short term rate by X, I know exactly

477
00:24:09,040 --> 00:24:11,880
Speaker 2: how much financial conditions are moved by. Why we don't

478
00:24:11,920 --> 00:24:14,280
Speaker 2: have to worry about financial conditions, but there's actually a

479
00:24:14,320 --> 00:24:17,320
Speaker 2: lot of gift between the two, and so financial conditions

480
00:24:17,359 --> 00:24:19,920
Speaker 2: can move a lot even as short term interest rates

481
00:24:19,920 --> 00:24:21,760
Speaker 2: haven't changed very much. I mean, good example is just

482
00:24:21,800 --> 00:24:24,240
Speaker 2: the last three months, last three months, since the end

483
00:24:24,280 --> 00:24:28,280
Speaker 2: of October till now, financial conditions have eased dramatically. I mean,

484
00:24:28,320 --> 00:24:30,960
Speaker 2: the Golden Sacks Financial conditions indexes moved by about a

485
00:24:31,119 --> 00:24:34,200
Speaker 2: one and a half points, which is a big move

486
00:24:34,240 --> 00:24:37,560
Speaker 2: for that index, even as the FED hasn't done anything

487
00:24:37,560 --> 00:24:38,800
Speaker 2: in terms of short term rates.

488
00:24:39,280 --> 00:24:43,480
Speaker 1: So part of the problem with everybody anticipating FED actions

489
00:24:43,600 --> 00:24:48,880
Speaker 1: is there is a tendency for many people, sometimes most people,

490
00:24:48,960 --> 00:24:54,040
Speaker 1: to get it wrong. Wall Street has been anticipating a

491
00:24:54,080 --> 00:24:56,679
Speaker 1: FED cut for what is it now? We're in the

492
00:24:56,720 --> 00:24:59,480
Speaker 1: seventh month, eighth month of Hey, if the FED is

493
00:24:59,480 --> 00:25:03,680
Speaker 1: going to start any day, now, what does it mean?

494
00:25:03,760 --> 00:25:09,080
Speaker 1: When anticipating FED actions almost becomes a Wall Street parlor game,

495
00:25:09,160 --> 00:25:13,639
Speaker 1: and there's less focus on what's happening in the broad

496
00:25:13,680 --> 00:25:16,480
Speaker 1: economy and more focus on, well, what is the second

497
00:25:16,480 --> 00:25:20,000
Speaker 1: and third derivative of this mean to this economist advising

498
00:25:20,119 --> 00:25:22,840
Speaker 1: this FED governor and the impact on the FOMSA.

499
00:25:23,119 --> 00:25:25,159
Speaker 2: I mean, sometimes I think you're right that there's almost

500
00:25:25,200 --> 00:25:26,800
Speaker 2: too much focus on what's going to happen at the

501
00:25:26,840 --> 00:25:28,439
Speaker 2: next meeting. I mean, you know, when you go to

502
00:25:28,440 --> 00:25:31,800
Speaker 2: the press conference now, Powell has just asked multiple different

503
00:25:31,880 --> 00:25:34,080
Speaker 2: varieties of the question. Okay, so what would cause you

504
00:25:34,119 --> 00:25:37,600
Speaker 2: to move at the March meeting or at the May meeting?

505
00:25:38,080 --> 00:25:39,960
Speaker 2: And of course Paul's not going to answer that question,

506
00:25:40,280 --> 00:25:42,840
Speaker 2: you know, because it depends it depends on how the

507
00:25:42,880 --> 00:25:48,240
Speaker 2: economy evolves between now and then. So I think, you know,

508
00:25:48,280 --> 00:25:50,240
Speaker 2: one of the problems I think you have is that

509
00:25:50,280 --> 00:25:53,399
Speaker 2: the Fed Reserve does publish a forecast, the Summary of

510
00:25:53,400 --> 00:25:56,199
Speaker 2: Economic Projections, which is the forecast of all the nineteen

511
00:25:56,440 --> 00:25:59,440
Speaker 2: FMC participants, So that gives you an idea what they

512
00:25:59,480 --> 00:26:01,120
Speaker 2: sort of think is going to happen at any given

513
00:26:01,160 --> 00:26:04,240
Speaker 2: point in time. But those forecasts are, you know, not

514
00:26:04,320 --> 00:26:08,080
Speaker 2: particularly reliable and says all forecasts, Yeah, it's all four

515
00:26:08,160 --> 00:26:10,360
Speaker 2: cut stars. So you don't want to you don't want

516
00:26:10,359 --> 00:26:13,399
Speaker 2: to take it sort of literally. But you know, like

517
00:26:13,480 --> 00:26:15,960
Speaker 2: right now, there's a bit of a gap, right the

518
00:26:16,040 --> 00:26:20,000
Speaker 2: FEDS is talking about three rate cuts in twenty twenty four,

519
00:26:20,040 --> 00:26:22,800
Speaker 2: and the market's got five to six priced in, so

520
00:26:23,359 --> 00:26:25,600
Speaker 2: you know what will happen is the economic news will

521
00:26:25,600 --> 00:26:27,920
Speaker 2: come out and that will drive make the FETI either

522
00:26:27,960 --> 00:26:30,800
Speaker 2: go more quickly or more slowly, and that will will

523
00:26:31,000 --> 00:26:34,040
Speaker 2: Well what actually is important? So I always tell people

524
00:26:34,119 --> 00:26:37,080
Speaker 2: focus on the data more than what the feder Reserve

525
00:26:37,240 --> 00:26:39,200
Speaker 2: says beyond the next meeting.

526
00:26:39,520 --> 00:26:42,480
Speaker 1: Well, although, to be fair, and I find this perplexing,

527
00:26:43,160 --> 00:26:46,720
Speaker 1: say what people will say about Jerome Powell. He has

528
00:26:46,800 --> 00:26:50,480
Speaker 1: said what his position is, he has said what he's

529
00:26:50,520 --> 00:26:53,800
Speaker 1: going to do, and then he has done exactly that

530
00:26:53,960 --> 00:26:56,520
Speaker 1: for the past three years. And it's almost as if

531
00:26:56,560 --> 00:26:59,400
Speaker 1: Wall Street just doesn't believe him. Like, no, no, we're

532
00:26:59,440 --> 00:27:01,120
Speaker 1: not going to cut this year. You got you got

533
00:27:01,160 --> 00:27:04,360
Speaker 1: three or four quarters settled down. No, no cut next month,

534
00:27:04,359 --> 00:27:07,480
Speaker 1: says wall Street. He has said what he meant and

535
00:27:07,520 --> 00:27:10,080
Speaker 1: then stuck to it, and yet the Street seems to

536
00:27:10,160 --> 00:27:10,680
Speaker 1: doubt him.

537
00:27:11,119 --> 00:27:13,800
Speaker 2: Well, there's two reasons why the market could disagree with

538
00:27:13,840 --> 00:27:17,399
Speaker 2: the FED. One is they could misunderstand the Fed's reaction function.

539
00:27:17,560 --> 00:27:20,000
Speaker 2: So you give them the FED set of economic data,

540
00:27:20,000 --> 00:27:21,800
Speaker 2: how are they going to react to it? But it

541
00:27:21,840 --> 00:27:24,159
Speaker 2: also could be a disagreement about how the economy itself

542
00:27:24,240 --> 00:27:26,760
Speaker 2: is going to evolve. The FED might be more optimistic

543
00:27:26,840 --> 00:27:30,360
Speaker 2: or more pessimistic on the economy than market participants. Right now,

544
00:27:30,359 --> 00:27:34,200
Speaker 2: it's really hard to say what's what's the disagreement about.

545
00:27:34,680 --> 00:27:36,880
Speaker 2: Does Wall Street think the comedy is gonna be weaker

546
00:27:36,960 --> 00:27:39,439
Speaker 2: than the Fed does, or does the or does the

547
00:27:39,480 --> 00:27:42,359
Speaker 2: market just think that the Fed is going to be

548
00:27:42,440 --> 00:27:44,639
Speaker 2: more aggressive than the Fed things at this point?

549
00:27:44,840 --> 00:27:47,639
Speaker 1: Right Sometimes it just looks like pure wishful thinking.

550
00:27:48,280 --> 00:27:50,879
Speaker 2: I think sometimes the market just gets ahead of itself.

551
00:27:50,920 --> 00:27:54,000
Speaker 2: It's almost like there's we're now talking about easing, so

552
00:27:54,080 --> 00:27:55,840
Speaker 2: the bell is about to go off, and I don't

553
00:27:55,840 --> 00:27:57,480
Speaker 2: want to miss out, and so I'm going to be

554
00:27:57,480 --> 00:28:00,119
Speaker 2: pretty aggressive about positioning for that. And I think I

555
00:28:00,119 --> 00:28:02,600
Speaker 2: think there's a little bit of you know, and sometimes

556
00:28:02,640 --> 00:28:05,320
Speaker 2: things tend to go too far because people get caught

557
00:28:05,359 --> 00:28:07,679
Speaker 2: off size and then people have to close out the

558
00:28:07,720 --> 00:28:09,960
Speaker 2: trades that went wrong, and so everyone sort of moving

559
00:28:10,040 --> 00:28:12,400
Speaker 2: all at once to the other side of the boat,

560
00:28:12,440 --> 00:28:14,800
Speaker 2: and so things can get overdone at the end of

561
00:28:14,840 --> 00:28:16,719
Speaker 2: the day, though, I mean, the FED reserve, you know,

562
00:28:17,000 --> 00:28:19,640
Speaker 2: writes the story. You know, the market has to converge

563
00:28:19,680 --> 00:28:21,960
Speaker 2: to what the FED ultimately does. And so this is

564
00:28:22,000 --> 00:28:25,280
Speaker 2: why the Fed's not particularly worried about when the market

565
00:28:25,320 --> 00:28:27,159
Speaker 2: prices in more or less because at the end of

566
00:28:27,200 --> 00:28:29,320
Speaker 2: the day's view, as you know, we'll do what we

567
00:28:29,359 --> 00:28:30,920
Speaker 2: need to do and the market will have to come

568
00:28:31,040 --> 00:28:32,760
Speaker 2: along with us.

569
00:28:32,800 --> 00:28:37,200
Speaker 1: It's inevitable. So we mentioned Jerome pal He's been as

570
00:28:37,240 --> 00:28:41,000
Speaker 1: clear as any FED chief in history. What are your

571
00:28:41,040 --> 00:28:45,840
Speaker 1: thoughts on how the modern Federal Reserve communicates with markets

572
00:28:45,880 --> 00:28:48,680
Speaker 1: in the public today versus how they used to do it.

573
00:28:49,400 --> 00:28:50,960
Speaker 1: You don't even have to go that far back twenty

574
00:28:51,040 --> 00:28:51,480
Speaker 1: years ago.

575
00:28:51,840 --> 00:28:53,840
Speaker 2: I think it's as I said earlier, I think it's

576
00:28:53,920 --> 00:28:56,440
Speaker 2: a lot better way of communicating because then markets can

577
00:28:56,560 --> 00:28:58,840
Speaker 2: understand what the Fed is up to. They can interpret

578
00:28:58,960 --> 00:29:01,600
Speaker 2: economic information and real time and figure out what that

579
00:29:01,640 --> 00:29:04,240
Speaker 2: means for the likely path of short term rates, so

580
00:29:04,360 --> 00:29:09,880
Speaker 2: financial conditions can move long before the Federals are actually acts. Now, obviously,

581
00:29:09,960 --> 00:29:12,520
Speaker 2: you know there's there's a risk in all this because

582
00:29:12,560 --> 00:29:15,600
Speaker 2: what the Fed says may not be borne out by

583
00:29:15,720 --> 00:29:19,080
Speaker 2: the economic information. And so I think the important thing

584
00:29:19,080 --> 00:29:21,200
Speaker 2: in all this is not to take what the federalser

585
00:29:21,360 --> 00:29:24,479
Speaker 2: says as gospel. When they have a forecast, that's their

586
00:29:24,520 --> 00:29:27,720
Speaker 2: forecast today, and that forecast will change as the incoming

587
00:29:27,760 --> 00:29:30,600
Speaker 2: information warrants it. I think where Paulo has done a

588
00:29:30,640 --> 00:29:34,200
Speaker 2: really good job is being very clear about his commitment

589
00:29:34,240 --> 00:29:37,160
Speaker 2: to getting inflation back down to two percent, because the

590
00:29:37,200 --> 00:29:39,720
Speaker 2: biggest risk over the last couple of years was that

591
00:29:40,240 --> 00:29:43,440
Speaker 2: people would start to doubt the Fed's willingness to be

592
00:29:43,520 --> 00:29:46,800
Speaker 2: tough and and and finish the job. And if that

593
00:29:46,840 --> 00:29:50,640
Speaker 2: were to happen, inflation expectations would have become unanchored, and

594
00:29:50,640 --> 00:29:52,720
Speaker 2: that would have made the fedes job a lot more difficult.

595
00:29:52,960 --> 00:29:55,560
Speaker 2: One of the great developments of the last couple of

596
00:29:55,600 --> 00:29:57,520
Speaker 2: years is even though we did have a period of

597
00:29:57,600 --> 00:30:02,560
Speaker 2: very high inflation, long term expectations really stayed unanchored through

598
00:30:02,560 --> 00:30:04,840
Speaker 2: that entire period, and so paul deserves it quite a

599
00:30:04,840 --> 00:30:05,560
Speaker 2: bit of credit for that.

600
00:30:05,920 --> 00:30:08,800
Speaker 1: So we're recording this a few days after his sixty

601
00:30:08,880 --> 00:30:14,600
Speaker 1: minutes interview broadcast. Some things that I took away from that. First,

602
00:30:15,000 --> 00:30:18,840
Speaker 1: it's a complicated job with a lot of moving parts.

603
00:30:18,880 --> 00:30:23,520
Speaker 1: And second, the FED as an institution is a political

604
00:30:24,080 --> 00:30:28,080
Speaker 1: They serve the public, not anyone branch or anyone party

605
00:30:29,000 --> 00:30:32,520
Speaker 1: of the electorate. I thought he was very intelligent and reassuring.

606
00:30:32,680 --> 00:30:34,520
Speaker 1: What was your reaction to that interview?

607
00:30:35,000 --> 00:30:36,560
Speaker 2: I thought it was a very good interview, and I

608
00:30:36,560 --> 00:30:39,680
Speaker 2: thought he actually broke a little bit of new ground

609
00:30:39,680 --> 00:30:43,000
Speaker 2: when he talked about the fiscal sustainability issue, and he

610
00:30:43,040 --> 00:30:46,560
Speaker 2: also talked about the importance of the US role in

611
00:30:46,600 --> 00:30:47,000
Speaker 2: the world.

612
00:30:48,080 --> 00:30:51,160
Speaker 1: I picked that up also. I thought that was the

613
00:30:51,160 --> 00:30:54,160
Speaker 1: first time I've heard of FED chief talk about liberal

614
00:30:54,240 --> 00:30:57,520
Speaker 1: democracy is an important aspect of global leadership.

615
00:30:57,600 --> 00:31:01,120
Speaker 2: Yeah, exactly, And so I thought that was a noteworthy,

616
00:31:01,600 --> 00:31:04,320
Speaker 2: a new new piece. I thought the rest of it was,

617
00:31:04,360 --> 00:31:06,520
Speaker 2: you know, pretty much tracked, you know, his remarks at

618
00:31:06,520 --> 00:31:09,440
Speaker 2: the press conference. You know, I think that, you know,

619
00:31:09,480 --> 00:31:11,840
Speaker 2: it's good for him to get out there and sort

620
00:31:11,840 --> 00:31:14,920
Speaker 2: of demystify the FED. I mean, the FED is you know,

621
00:31:15,040 --> 00:31:19,520
Speaker 2: not so you know, easy for the average person to understand.

622
00:31:19,520 --> 00:31:21,600
Speaker 2: And so going on sixty minutes is is is a

623
00:31:21,600 --> 00:31:24,120
Speaker 2: good idea from from from time to time. I thought

624
00:31:24,120 --> 00:31:25,400
Speaker 2: he did a you know, I thought he did a

625
00:31:25,440 --> 00:31:28,320
Speaker 2: good job. I thought it was very very clear. You know,

626
00:31:28,760 --> 00:31:30,920
Speaker 2: this is not the first FED chair that's been on

627
00:31:30,960 --> 00:31:31,640
Speaker 2: sixty minutes.

628
00:31:31,720 --> 00:31:33,320
Speaker 1: Uh, BERNANKI has done it.

629
00:31:33,400 --> 00:31:35,280
Speaker 2: Yeah, BERNANKI has done it. I'm not I can't remember

630
00:31:35,280 --> 00:31:36,760
Speaker 2: if Janet Yellen did it or not, but.

631
00:31:37,400 --> 00:31:40,719
Speaker 1: Uh, she definitely did it as Treasury secretary, remember if

632
00:31:40,720 --> 00:31:41,120
Speaker 1: she did it.

633
00:31:41,160 --> 00:31:44,480
Speaker 2: As we've been very lucky in terms of the leadership

634
00:31:44,520 --> 00:31:47,280
Speaker 2: of the FED. I mean to have I mean Greenspan obviously,

635
00:31:47,600 --> 00:31:49,720
Speaker 2: you know, was on sort of without parallel, and then

636
00:31:49,840 --> 00:31:53,880
Speaker 2: and then they have Bernanky yelling and Paul in a row.

637
00:31:54,000 --> 00:31:57,040
Speaker 2: Those are three exceptionally good FED chair. I mean my

638
00:31:57,120 --> 00:31:58,560
Speaker 2: only you know, critique of the FED.

639
00:31:58,600 --> 00:32:00,880
Speaker 1: And you know I write for Bloomberg, you know sometimes

640
00:32:01,080 --> 00:32:02,680
Speaker 1: you know, I say what I what I think and

641
00:32:02,760 --> 00:32:03,920
Speaker 1: let the chips follow. They may.

642
00:32:04,440 --> 00:32:06,840
Speaker 2: The one I think mistake the FED made, you know

643
00:32:06,880 --> 00:32:08,880
Speaker 2: over the last few years was they were really really

644
00:32:08,960 --> 00:32:10,560
Speaker 2: late to get off the dime in terms of it's

645
00:32:10,560 --> 00:32:12,600
Speaker 2: starting to tighten monetary policy now.

646
00:32:12,680 --> 00:32:15,520
Speaker 1: Isn't that historically true? Is it so? The Fed throughout

647
00:32:15,560 --> 00:32:19,240
Speaker 1: the twenty tens, we're late to recognize, hey, we don't

648
00:32:19,240 --> 00:32:22,120
Speaker 1: have to be on emergency footing anymore. Not only were

649
00:32:22,160 --> 00:32:25,160
Speaker 1: they late to start tightening in two thousand and one,

650
00:32:25,640 --> 00:32:29,640
Speaker 1: the twenty twenty one, they were late to recognize inflation

651
00:32:29,760 --> 00:32:32,760
Speaker 1: peaked in twenty two. I mean, it's you could easily

652
00:32:32,760 --> 00:32:35,840
Speaker 1: make the argument that they could have begun cutting any

653
00:32:35,960 --> 00:32:39,840
Speaker 1: this meeting, last meeting two meetings ago. Take the past

654
00:32:39,880 --> 00:32:42,640
Speaker 1: six months of inflation, we're at two percent. Yeah.

655
00:32:42,680 --> 00:32:44,960
Speaker 2: I think the reason why they're not cutting at is

656
00:32:44,640 --> 00:32:47,080
Speaker 2: is there's really two reasons for that. Number One, the

657
00:32:47,080 --> 00:32:49,160
Speaker 2: economy is a lot stronger than they thought it was

658
00:32:49,200 --> 00:32:51,800
Speaker 2: going to be, and so that means the risk of

659
00:32:51,840 --> 00:32:53,720
Speaker 2: waiting is a lot lower than they thought it was

660
00:32:53,760 --> 00:32:56,960
Speaker 2: going to be. Because the economy, you know, grew over

661
00:32:57,040 --> 00:33:00,479
Speaker 2: three percent in the fourth quarter. The Atlanta Fed GDP

662
00:33:00,560 --> 00:33:03,080
Speaker 2: now forecast for the first quarters over four percent. I mean,

663
00:33:03,080 --> 00:33:05,000
Speaker 2: obviously it probably won't be that strong when all the

664
00:33:05,080 --> 00:33:07,400
Speaker 2: data comes in, but the Kammy has a lot of momentum,

665
00:33:07,480 --> 00:33:11,000
Speaker 2: and so the pressure on the Fed to cut rates

666
00:33:11,280 --> 00:33:14,040
Speaker 2: because of weakness and growth weakness and the labor market

667
00:33:14,160 --> 00:33:16,360
Speaker 2: just isn't there, and that allows them to be more patient.

668
00:33:16,720 --> 00:33:18,760
Speaker 2: The second thing is important is a little bit of

669
00:33:18,760 --> 00:33:21,840
Speaker 2: delay is not going to have a huge consequence because

670
00:33:21,880 --> 00:33:24,280
Speaker 2: look what's happened to financial conditions over the last few months.

671
00:33:24,320 --> 00:33:27,000
Speaker 2: They be dramatically So the Fed is already getting a

672
00:33:27,040 --> 00:33:30,080
Speaker 2: lot of additional support to the economy without actually having

673
00:33:30,080 --> 00:33:32,200
Speaker 2: hand to cut cut rates. In some ways, the Fed

674
00:33:32,200 --> 00:33:33,440
Speaker 2: can sort of have its cake.

675
00:33:33,760 --> 00:33:35,800
Speaker 1: Keep, you know, show that they're tough minded, and they're

676
00:33:35,800 --> 00:33:38,840
Speaker 1: gonna get inflation all the way down, and and and

677
00:33:38,840 --> 00:33:40,840
Speaker 1: and and and you know, they can have their cake

678
00:33:40,880 --> 00:33:43,000
Speaker 1: and eat it too and have the market basically use

679
00:33:43,080 --> 00:33:45,760
Speaker 1: financial conditions and provide support to the economy. So I

680
00:33:45,840 --> 00:33:47,480
Speaker 1: think it's you know, it's worked out very well from

681
00:33:47,480 --> 00:33:51,080
Speaker 1: the Fed's perspective. So so you mentioned you you contribute

682
00:33:51,120 --> 00:33:56,520
Speaker 1: to Bloomberg Opinion. One of the criticisms that took place

683
00:33:57,000 --> 00:34:03,520
Speaker 1: in the prior administration was the President Trump kind of haranguing.

684
00:34:04,480 --> 00:34:04,520
Speaker 2: J.

685
00:34:04,720 --> 00:34:07,600
Speaker 1: Powell to cut rates, and you wrote an op ed

686
00:34:08,160 --> 00:34:11,120
Speaker 1: tell after you had left the FED saying the Fed

687
00:34:11,160 --> 00:34:15,000
Speaker 1: shouldn't enable Donald Trump. In other words, the independence of

688
00:34:15,040 --> 00:34:20,239
Speaker 1: the institution is much more important than anyone rate cut

689
00:34:20,320 --> 00:34:23,640
Speaker 1: or rate hike it at any time tell us about that.

690
00:34:23,640 --> 00:34:25,920
Speaker 1: That generated a lot of controversy.

691
00:34:26,200 --> 00:34:28,480
Speaker 2: Yeah, I think people you know, I probably didn't say

692
00:34:28,480 --> 00:34:30,680
Speaker 2: it the way I needed to say it. It was

693
00:34:30,719 --> 00:34:32,840
Speaker 2: really more of a thought experiment about how, you know,

694
00:34:32,840 --> 00:34:35,279
Speaker 2: if the Fed Reserve really cares about the country, they

695
00:34:35,320 --> 00:34:37,279
Speaker 2: just need to you know, in the economy, which is

696
00:34:37,320 --> 00:34:39,640
Speaker 2: their mandate. They just need to do the right thing

697
00:34:41,120 --> 00:34:45,359
Speaker 2: and let the chips fall, or they may I think that,

698
00:34:45,600 --> 00:34:48,759
Speaker 2: you know, the Trump administration's attacks on the FED, I

699
00:34:48,760 --> 00:34:52,040
Speaker 2: think are really you know, counterproductive for the Trump administration,

700
00:34:52,239 --> 00:34:55,200
Speaker 2: and they're also damaging to the FED because if the

701
00:34:55,239 --> 00:34:59,600
Speaker 2: FED is viewed as politicized, that basically reduces people's trust

702
00:34:59,760 --> 00:35:02,799
Speaker 2: in in the central Bank. And I think if the

703
00:35:03,040 --> 00:35:04,960
Speaker 2: trust in the central Bank is reduced, that makes the

704
00:35:04,960 --> 00:35:08,799
Speaker 2: Federal Reserve less effective as an institution. One reason why

705
00:35:08,840 --> 00:35:12,279
Speaker 2: I think the FED, you know, doesn't take politics into consideration.

706
00:35:12,560 --> 00:35:14,640
Speaker 2: And in my experience, I was at the FMC table

707
00:35:14,680 --> 00:35:17,400
Speaker 2: for eleven and a half years, never talked about politics,

708
00:35:17,440 --> 00:35:20,719
Speaker 2: never consideration in terms of montre policy decisions. For very

709
00:35:20,760 --> 00:35:24,239
Speaker 2: simple reason. If you start to take politics into consideration,

710
00:35:24,800 --> 00:35:28,000
Speaker 2: you've politicized the FED. And if you politicize the FED,

711
00:35:28,360 --> 00:35:31,279
Speaker 2: you've basically compromised the independence of the FED and its

712
00:35:31,320 --> 00:35:34,000
Speaker 2: ability to be effective. So you just don't want to

713
00:35:34,040 --> 00:35:36,400
Speaker 2: go down that path at all. And I think, you know,

714
00:35:36,680 --> 00:35:40,200
Speaker 2: I think J. Powell completely understands that, and you know,

715
00:35:40,480 --> 00:35:42,080
Speaker 2: I give him a lot of credit. I mean, when

716
00:35:42,320 --> 00:35:46,480
Speaker 2: when Trump was attacking him pretty vocifiorously, Paul did not

717
00:35:46,640 --> 00:35:49,600
Speaker 2: rise to debate. He was completely silent, and he just

718
00:35:49,640 --> 00:35:52,359
Speaker 2: did his job it's got to be tough to be,

719
00:35:52,440 --> 00:35:53,560
Speaker 2: you know, being beaten up.

720
00:35:53,560 --> 00:35:57,400
Speaker 1: Publicly by the president. But he showed a tremendous amount

721
00:35:57,440 --> 00:36:00,720
Speaker 1: of discipline, and I think that basically, you know, enhance

722
00:36:00,880 --> 00:36:04,920
Speaker 1: the credibility and independence of the FED. So that comment

723
00:36:05,000 --> 00:36:08,600
Speaker 1: we were discussing earlier that he made on sixty minutes,

724
00:36:09,280 --> 00:36:12,960
Speaker 1: here's the quote, there's a real desire for American leadership.

725
00:36:13,000 --> 00:36:16,319
Speaker 1: Since World War Two, the US has been the indispensable nation,

726
00:36:16,480 --> 00:36:22,040
Speaker 1: supporting and defending democracy, security arrangements, and economic arrangements, with

727
00:36:22,160 --> 00:36:25,120
Speaker 1: a leading voice on that. It's clear the world wants that.

728
00:36:25,320 --> 00:36:27,640
Speaker 1: I would want the people in the US, in the

729
00:36:27,719 --> 00:36:32,000
Speaker 1: United States to know this has benefited our country enormously.

730
00:36:32,480 --> 00:36:35,959
Speaker 1: It benefits our economy so much to have this role,

731
00:36:36,239 --> 00:36:39,759
Speaker 1: and I just hope that continues. Am I reading too

732
00:36:39,840 --> 00:36:42,880
Speaker 1: much into that to say, hey, this is an argument

733
00:36:43,080 --> 00:36:47,320
Speaker 1: against President Trump, who is trying to realign the world

734
00:36:47,800 --> 00:36:52,040
Speaker 1: and pull back from US leadership. I think it's I

735
00:36:52,040 --> 00:36:54,719
Speaker 1: think it's a something hit.

736
00:36:55,480 --> 00:36:58,360
Speaker 2: Jere Paul very much believes in that US engagement in

737
00:36:58,360 --> 00:37:01,520
Speaker 2: the world leads to better comes, both in a security

738
00:37:01,520 --> 00:37:07,359
Speaker 2: perspective economic perspective. Absolutely essential for addressing issues like climate change,

739
00:37:07,400 --> 00:37:11,400
Speaker 2: and I think you're just expressing his opinion. Obviously, if

740
00:37:11,640 --> 00:37:15,040
Speaker 2: if there is a next Trump administration and they decide

741
00:37:15,080 --> 00:37:20,439
Speaker 2: to file follow a very isolationist policy, I imagine that,

742
00:37:20,600 --> 00:37:23,680
Speaker 2: you know, Paul will not agree with that, but I

743
00:37:23,719 --> 00:37:26,360
Speaker 2: think he'll be very silent about the fact that he

744
00:37:26,400 --> 00:37:28,680
Speaker 2: doesn't agree with it because he won't want to, you know,

745
00:37:28,840 --> 00:37:31,880
Speaker 2: engage in that political process because that will compromise the

746
00:37:31,920 --> 00:37:34,799
Speaker 2: independs of the FED. So so to your point, this

747
00:37:34,960 --> 00:37:37,600
Speaker 2: was pretty you know, this is a step out for

748
00:37:37,719 --> 00:37:40,120
Speaker 2: power relative to what he said, but there was nothing

749
00:37:40,160 --> 00:37:42,520
Speaker 2: in there about who was in favor of what.

750
00:37:43,360 --> 00:37:45,600
Speaker 1: It's not a political statement, it's not a pin the

751
00:37:45,640 --> 00:37:50,760
Speaker 1: fact that hey, this US leadership in global economics has

752
00:37:50,800 --> 00:37:52,080
Speaker 1: nothing but benefit the country.

753
00:37:52,160 --> 00:37:56,160
Speaker 2: Yeah, it's his opinion that this is in the US's interest.

754
00:37:56,239 --> 00:37:58,399
Speaker 2: It has been in the US interests, in the US

755
00:37:58,440 --> 00:38:00,000
Speaker 2: interest today, and it will be in the US interest

756
00:38:00,120 --> 00:38:02,680
Speaker 2: in the future. That's his view, and I have to

757
00:38:02,680 --> 00:38:04,160
Speaker 2: say I very much agree with it.

758
00:38:04,280 --> 00:38:06,839
Speaker 1: I don't disagree. And if there are some candidates that

759
00:38:07,280 --> 00:38:10,320
Speaker 1: don't have that belief system, well, is that being political

760
00:38:10,440 --> 00:38:13,400
Speaker 1: or is that just here's a historical fact, this is

761
00:38:13,520 --> 00:38:14,399
Speaker 1: what's helped the US.

762
00:38:14,560 --> 00:38:18,120
Speaker 2: Well, I think he's allowed to have his beliefs, and

763
00:38:18,160 --> 00:38:20,680
Speaker 2: I don't think that you know his his this belief

764
00:38:20,719 --> 00:38:23,879
Speaker 2: that he's expressed is should be viewed as a controversial one.

765
00:38:24,680 --> 00:38:28,680
Speaker 2: I think that's that's that's something that you know, a

766
00:38:28,760 --> 00:38:32,560
Speaker 2: high number of people in the country. I think would

767
00:38:32,560 --> 00:38:33,640
Speaker 2: would would would support.

768
00:38:34,520 --> 00:38:37,239
Speaker 1: I don't disagree at all. So, so let's talk a

769
00:38:37,239 --> 00:38:41,760
Speaker 1: little bit about the history of the Federal Reserve, starting

770
00:38:41,800 --> 00:38:47,200
Speaker 1: with the dual mandate price stability, namely inflation and unemployment.

771
00:38:47,719 --> 00:38:50,759
Speaker 1: How does the FED balance those two and what are

772
00:38:50,840 --> 00:38:54,200
Speaker 1: the data points that they follow most closely?

773
00:38:55,160 --> 00:38:58,680
Speaker 2: So the FEDS do mandate was actually established by Congress,

774
00:38:58,719 --> 00:39:01,120
Speaker 2: not by the FED. Congress and the Humphrey Hawkson's Act

775
00:39:01,120 --> 00:39:03,160
Speaker 2: basically said, here's what we want the FED to do.

776
00:39:04,040 --> 00:39:08,120
Speaker 2: We want to have the maximum sustainable employment in the

777
00:39:08,160 --> 00:39:12,200
Speaker 2: country consistent with price stability, which the FED then subsequently

778
00:39:12,239 --> 00:39:16,040
Speaker 2: defined to be two percent inflation. And so the FED

779
00:39:16,440 --> 00:39:18,920
Speaker 2: basically is trying to manage the economy with both these

780
00:39:19,040 --> 00:39:23,240
Speaker 2: goals in mind. And sometimes one of the goals turns

781
00:39:23,239 --> 00:39:26,120
Speaker 2: out to be more significant because the FED is doing

782
00:39:26,239 --> 00:39:30,040
Speaker 2: more poorly on that side. So for the last couple

783
00:39:30,080 --> 00:39:32,680
Speaker 2: of years. The problem was not that the economy was

784
00:39:32,680 --> 00:39:35,080
Speaker 2: far away from full employment. The comoty was either at

785
00:39:35,120 --> 00:39:37,800
Speaker 2: full employment or maybe even a little beyond full employment

786
00:39:37,800 --> 00:39:40,440
Speaker 2: when we saw how tight the liver market was, especially

787
00:39:40,480 --> 00:39:44,200
Speaker 2: in twenty twenty two. So the Fed's focus was on

788
00:39:44,239 --> 00:39:46,560
Speaker 2: inflation because the inflation was well above the FEDS two

789
00:39:46,600 --> 00:39:51,759
Speaker 2: percent objective. What's happened recently is inflation's come down, and

790
00:39:51,840 --> 00:39:55,760
Speaker 2: so the FED can start to talk about both sides

791
00:39:55,760 --> 00:39:57,880
Speaker 2: of the mandate, not just the inflation side, but also

792
00:39:57,960 --> 00:40:01,600
Speaker 2: the labor market side. And so now you're going to

793
00:40:01,640 --> 00:40:04,239
Speaker 2: see a lot more balanced messaging from the FED. Now,

794
00:40:04,239 --> 00:40:06,200
Speaker 2: the good news from the Fed is that things are

795
00:40:06,280 --> 00:40:09,719
Speaker 2: going really, really well. You know, you know, the inflation

796
00:40:09,960 --> 00:40:13,200
Speaker 2: on a six months change basis for the core PC deflator,

797
00:40:13,200 --> 00:40:16,840
Speaker 2: which is the FEDS you know, preferred measure of inflation,

798
00:40:16,960 --> 00:40:19,840
Speaker 2: is tracking two percent. So all we need is another

799
00:40:19,960 --> 00:40:22,120
Speaker 2: six months of the same as as cheer Paul said

800
00:40:22,160 --> 00:40:24,640
Speaker 2: in his Breast conference, and we're basically at the FEDS

801
00:40:24,920 --> 00:40:29,360
Speaker 2: two percent objective and the labor markets doing gangbusters. Frankly,

802
00:40:29,440 --> 00:40:32,600
Speaker 2: I mean, payroll employment growth over three hundred thousand last month,

803
00:40:33,520 --> 00:40:35,480
Speaker 2: So we have sort of the best of both worlds,

804
00:40:35,520 --> 00:40:38,000
Speaker 2: inflation has come down and the labor market is still very,

805
00:40:38,200 --> 00:40:41,120
Speaker 2: very robust, So you know, it's it's interesting when you

806
00:40:41,120 --> 00:40:44,480
Speaker 2: look at polling results of Americans. They're they're very unhappy

807
00:40:44,480 --> 00:40:47,799
Speaker 2: about the economy, and what they're unhappy about is how

808
00:40:47,840 --> 00:40:49,640
Speaker 2: much prices went up over the last four.

809
00:40:49,719 --> 00:40:52,360
Speaker 1: Not current rate of inflation, exact absolute prices.

810
00:40:52,480 --> 00:40:55,520
Speaker 2: It's a price level problem, not an inflation rate problem,

811
00:40:55,640 --> 00:40:57,600
Speaker 2: because if you look at the so called misery index,

812
00:40:57,640 --> 00:41:00,080
Speaker 2: which comds like to do, which is the sum of

813
00:41:00,280 --> 00:41:03,640
Speaker 2: inflation plus the unemployed rate, it's really at a historically

814
00:41:03,680 --> 00:41:06,080
Speaker 2: low level. So you know, I think what's going to

815
00:41:06,120 --> 00:41:09,279
Speaker 2: happen over time is if we keep inflation, you know,

816
00:41:09,440 --> 00:41:14,200
Speaker 2: around two percent, some of the unhappiness about the price

817
00:41:14,280 --> 00:41:16,759
Speaker 2: level will gradually fade away. People just sort of start

818
00:41:16,760 --> 00:41:19,560
Speaker 2: to accept it, and then people will start to assess

819
00:41:19,600 --> 00:41:23,120
Speaker 2: the ecmomune in a more favorable way for the Biden administration.

820
00:41:23,200 --> 00:41:25,719
Speaker 2: There's a little bit of race going on, right, will

821
00:41:25,800 --> 00:41:31,680
Speaker 2: this change in sentiment occur fast enough relative to the

822
00:41:31,760 --> 00:41:33,160
Speaker 2: November election?

823
00:41:33,480 --> 00:41:36,440
Speaker 1: They got seven months to hope that the polling data,

824
00:41:36,960 --> 00:41:40,200
Speaker 1: the economic data is going to consumer confidence. So it

825
00:41:40,680 --> 00:41:41,719
Speaker 1: does seem to be improving.

826
00:41:41,800 --> 00:41:43,640
Speaker 2: I mean, if you look at the most recent consumer

827
00:41:43,680 --> 00:41:46,280
Speaker 2: confidence serves, it does look like consumer confidence is improving.

828
00:41:46,320 --> 00:41:50,520
Speaker 2: So people are starting to, you know, understand that the

829
00:41:50,560 --> 00:41:53,239
Speaker 2: inflation rate does seem to be much lower, but they're

830
00:41:53,239 --> 00:41:54,520
Speaker 2: still very unhappy because you know, when you go at

831
00:41:54,520 --> 00:41:56,400
Speaker 2: the grocery store, you just remember that this thing that

832
00:41:56,480 --> 00:41:59,680
Speaker 2: I bought for you know, three dollars, you know, four

833
00:41:59,760 --> 00:42:02,680
Speaker 2: years ago, and that costs four to fifty. And you

834
00:42:02,719 --> 00:42:05,960
Speaker 2: know that just every time you go to the grocery store,

835
00:42:06,000 --> 00:42:08,279
Speaker 2: you go to the gas station, see you're reminded by

836
00:42:08,520 --> 00:42:10,160
Speaker 2: about the higher price level.

837
00:42:10,600 --> 00:42:15,400
Speaker 1: I see it more in the grocery store than gas stations.

838
00:42:15,680 --> 00:42:18,080
Speaker 1: Our gas is three and change and twenty years ago

839
00:42:18,200 --> 00:42:21,240
Speaker 1: gas was three and change. That's been flat for two decades,

840
00:42:21,520 --> 00:42:24,759
Speaker 1: but food prices definitely have and shelter prices have moved up.

841
00:42:24,960 --> 00:42:27,120
Speaker 1: So before I get to two percent, because I have

842
00:42:27,160 --> 00:42:29,680
Speaker 1: a lot of questions about that, let's talk a little

843
00:42:29,719 --> 00:42:34,200
Speaker 1: bit about the labor market. So first we're again we're

844
00:42:34,239 --> 00:42:36,759
Speaker 1: recording this February twenty twenty three. We just had a

845
00:42:36,960 --> 00:42:42,480
Speaker 1: giant number, a giant upside surprise in payrolls. When the

846
00:42:42,480 --> 00:42:45,480
Speaker 1: FED looks at that number, are they thinking, well, you

847
00:42:45,520 --> 00:42:48,120
Speaker 1: know it's January, there are a lot of one time

848
00:42:48,160 --> 00:42:52,200
Speaker 1: adjustments and seasonal ax or are they saying, hey, this

849
00:42:52,360 --> 00:42:55,840
Speaker 1: labor market is really booming. We can sit back a

850
00:42:55,880 --> 00:42:57,480
Speaker 1: little bit, a little bit of both.

851
00:42:57,719 --> 00:42:59,759
Speaker 2: I mean, in other words, you get you understand that

852
00:42:59,760 --> 00:43:04,120
Speaker 2: the is noisy and so reality is not exactly what

853
00:43:04,160 --> 00:43:06,279
Speaker 2: the data is telling you. The data is you know,

854
00:43:06,440 --> 00:43:08,840
Speaker 2: it's sampled. You know, they've go out and poll people,

855
00:43:08,880 --> 00:43:12,359
Speaker 2: and so there's sampling bias. Also, in the winter, things

856
00:43:12,360 --> 00:43:15,480
Speaker 2: get very affected by the weather as you go from

857
00:43:15,560 --> 00:43:19,319
Speaker 2: you know, warm weather, warm winter weather months to cold

858
00:43:19,400 --> 00:43:22,080
Speaker 2: winter weather months when you go from rain to snowfall.

859
00:43:22,600 --> 00:43:26,480
Speaker 2: So the Fed basically doesn't take one month as sort

860
00:43:26,480 --> 00:43:29,719
Speaker 2: of gospel truth. They look at the pattern and the

861
00:43:29,800 --> 00:43:33,200
Speaker 2: underlying trend, and you know, on that underlying trend, labor

862
00:43:33,239 --> 00:43:36,600
Speaker 2: market looks quite strong. So the Fed is taking a

863
00:43:36,600 --> 00:43:38,920
Speaker 2: signal from that, and that's one reason why they're more

864
00:43:38,960 --> 00:43:42,520
Speaker 2: patient about cutting interest rates because they sort of feel like,

865
00:43:43,040 --> 00:43:45,080
Speaker 2: you know, we can wait a little bit longer, and

866
00:43:45,360 --> 00:43:48,640
Speaker 2: the risk that we're taking is very slow because look

867
00:43:48,680 --> 00:43:50,960
Speaker 2: at how strong the US labor market is.

868
00:43:51,160 --> 00:43:53,840
Speaker 1: So let's talk about not one month, but the past

869
00:43:53,920 --> 00:43:56,359
Speaker 1: couple of years of the labor market. You have an

870
00:43:56,440 --> 00:44:00,640
Speaker 1: enormous number of people who are out on disability, reduced

871
00:44:00,760 --> 00:44:07,760
Speaker 1: legal immigration for jobs dramatically. Early retirements have been taking place,

872
00:44:08,520 --> 00:44:13,719
Speaker 1: a giant uptick in new business formation, so that's a

873
00:44:13,719 --> 00:44:16,840
Speaker 1: big group of people who aren't in the hiring pool.

874
00:44:16,880 --> 00:44:19,880
Speaker 1: They were actually running their own firms. It seems like

875
00:44:20,640 --> 00:44:23,000
Speaker 1: all the issues that have been taking place in the

876
00:44:23,080 --> 00:44:27,160
Speaker 1: labor market, including the wage size side, is that we

877
00:44:27,400 --> 00:44:30,080
Speaker 1: just don't have enough bodies to put to work in

878
00:44:30,080 --> 00:44:33,719
Speaker 1: the United States. I think that was true a year ago.

879
00:44:33,800 --> 00:44:35,680
Speaker 1: I think it's less true today.

880
00:44:36,080 --> 00:44:38,719
Speaker 2: If you look at the ratio of unfilled jobs to

881
00:44:38,800 --> 00:44:41,319
Speaker 2: unemployed workers, that peaked at around two to one.

882
00:44:41,400 --> 00:44:44,120
Speaker 1: Yeah, it was almost record.

883
00:44:43,920 --> 00:44:45,839
Speaker 2: High, and now it's about one and a half to one.

884
00:44:46,000 --> 00:44:48,160
Speaker 2: So the labor market is still really tight, but it's

885
00:44:48,200 --> 00:44:51,000
Speaker 2: not quite as tight. You also think we got a

886
00:44:51,040 --> 00:44:53,640
Speaker 2: big positive surprise last year in terms of the labor

887
00:44:53,680 --> 00:44:54,719
Speaker 2: force growth.

888
00:44:55,040 --> 00:44:57,280
Speaker 1: I mean people coming back, people coming.

889
00:44:57,239 --> 00:45:00,439
Speaker 2: Back into the layor force. And also immigration and legal

890
00:45:00,440 --> 00:45:03,279
Speaker 2: immigration into the US picked up dramatically last year. I mean,

891
00:45:03,520 --> 00:45:06,239
Speaker 2: essentially we didn't have much legal immigration at all during

892
00:45:06,320 --> 00:45:09,120
Speaker 2: the COVID period and then all of a sudden, we

893
00:45:09,120 --> 00:45:12,000
Speaker 2: get a big bubble of that in twenty twenty three,

894
00:45:12,440 --> 00:45:16,360
Speaker 2: and so what you've had is big, strong growth in

895
00:45:16,400 --> 00:45:20,760
Speaker 2: payroll employment, but it hasn't translated through into a decline

896
00:45:20,840 --> 00:45:24,080
Speaker 2: in the unemployment rate. So looking at the unemployer rate,

897
00:45:24,080 --> 00:45:25,800
Speaker 2: the labor mark is no tighter than it was a

898
00:45:25,880 --> 00:45:29,640
Speaker 2: year ago, which is, you know, was a huge positive

899
00:45:29,680 --> 00:45:33,560
Speaker 2: benefit to the US economy and to the Fed, because

900
00:45:33,920 --> 00:45:36,200
Speaker 2: if we'd had that growth in payroll employment without the

901
00:45:36,239 --> 00:45:38,719
Speaker 2: increase in the labor force, the labor mark would be

902
00:45:38,760 --> 00:45:41,200
Speaker 2: too tight, wages too high, and the Federal Reserve wild

903
00:45:41,200 --> 00:45:43,320
Speaker 2: still be worried about it too high inflation.

904
00:45:43,560 --> 00:45:45,520
Speaker 1: And we've seen wages go up. I think for the

905
00:45:45,600 --> 00:45:50,520
Speaker 1: past six months real wages are actually growing faster than inflation.

906
00:45:50,600 --> 00:45:52,520
Speaker 2: Well that's one reason why the e commy is staying

907
00:45:53,080 --> 00:45:58,360
Speaker 2: relatively strong. I mean, as inflation comes down and novel wages,

908
00:45:58,600 --> 00:46:01,680
Speaker 2: you know, inflation comes down maybe a little bit less

909
00:46:02,040 --> 00:46:06,680
Speaker 2: slow more slowly, real incomes increase and that supports the

910
00:46:06,719 --> 00:46:11,200
Speaker 2: consumer spending. So I think the unwinding of goods price pressures,

911
00:46:11,239 --> 00:46:13,879
Speaker 2: which is really the big driver of why inflations come down,

912
00:46:14,480 --> 00:46:17,680
Speaker 2: that's sort of a windfall for consumers right now, and

913
00:46:17,719 --> 00:46:20,160
Speaker 2: so that's actually sustaining real consumer spending.

914
00:46:20,640 --> 00:46:24,120
Speaker 1: And that shift from goods back to services, which is

915
00:46:24,520 --> 00:46:27,520
Speaker 1: more or less where we were pre pandemic, is certainly

916
00:46:27,560 --> 00:46:30,920
Speaker 1: easing prices in that sector.

917
00:46:31,120 --> 00:46:33,959
Speaker 2: Yeah. I mean, all the supply chain disruptions that we had,

918
00:46:34,080 --> 00:46:36,280
Speaker 2: you know, a few years ago, caused by that shift

919
00:46:36,320 --> 00:46:38,759
Speaker 2: in demand from services to goods that just sort of

920
00:46:38,840 --> 00:46:41,479
Speaker 2: overwhelmed the capacity of the world to bring those goods

921
00:46:41,520 --> 00:46:44,480
Speaker 2: to the US in a timely way. That's that's that's

922
00:46:44,840 --> 00:46:46,000
Speaker 2: all unwound at this point.

923
00:46:46,239 --> 00:46:50,640
Speaker 1: So let's talk about the two percent inflation target. Your

924
00:46:50,800 --> 00:46:54,879
Speaker 1: colleague Roger Ferguson in the Council on Foreign Relations last

925
00:46:54,920 --> 00:47:00,359
Speaker 1: year criticized the two percent inflation target as some that

926
00:47:00,600 --> 00:47:04,880
Speaker 1: randomly originated from New Zealand, and surprisingly it came not

927
00:47:05,040 --> 00:47:08,920
Speaker 1: from an academic study but from an offhand comment during

928
00:47:08,960 --> 00:47:13,839
Speaker 1: the television interview in the nineteen eighties. Is Ferguson right,

929
00:47:14,000 --> 00:47:16,560
Speaker 1: Is this really just a big, silly round number.

930
00:47:17,000 --> 00:47:19,440
Speaker 2: Well, it's true that the Reserve Bank of New Zealand

931
00:47:19,560 --> 00:47:22,200
Speaker 2: started by, you know, picking the two percent number, and

932
00:47:22,239 --> 00:47:25,040
Speaker 2: then other central banks followed. But I think there are

933
00:47:25,080 --> 00:47:29,719
Speaker 2: some logical reasons why they followed two percent was low

934
00:47:29,800 --> 00:47:33,400
Speaker 2: enough that inflation wasn't going to be sort of important

935
00:47:33,400 --> 00:47:37,239
Speaker 2: component of people's thinking in terms of their consumption investment decisions.

936
00:47:38,239 --> 00:47:40,239
Speaker 2: Two percent inflation in the US, I think the thing

937
00:47:40,360 --> 00:47:44,200
Speaker 2: could argue that that was mostly consistent with price stability.

938
00:47:44,480 --> 00:47:47,000
Speaker 2: You know, prices are only the double at two percent

939
00:47:47,080 --> 00:47:52,560
Speaker 2: inflation compounded every thirty five years. So so but you're right,

940
00:47:52,600 --> 00:47:54,359
Speaker 2: it was arbitrary. They could have picked a different number.

941
00:47:54,400 --> 00:47:56,680
Speaker 2: They could have picked, you know, three percent or one percent.

942
00:47:57,520 --> 00:47:59,359
Speaker 2: The reason why you want to have a little bit

943
00:47:59,360 --> 00:48:02,520
Speaker 2: of inflation is it really allows you to do two things.

944
00:48:02,600 --> 00:48:05,120
Speaker 2: Number one, it provides a little bit of grease in

945
00:48:05,200 --> 00:48:07,880
Speaker 2: the labor market because people don't like their normal wages

946
00:48:07,960 --> 00:48:11,760
Speaker 2: to be cut, but relative wage rates have to change,

947
00:48:11,960 --> 00:48:13,520
Speaker 2: and so if you have a little bit of inflation,

948
00:48:13,600 --> 00:48:16,520
Speaker 2: it makes the labor market work more efficiently in terms

949
00:48:16,520 --> 00:48:20,960
Speaker 2: of allowing wage adjustments that allow workers to be distributed appropriately.

950
00:48:21,000 --> 00:48:21,839
Speaker 1: So that's the first thing.

951
00:48:22,200 --> 00:48:23,719
Speaker 2: The second reason why you want a little bit of

952
00:48:23,800 --> 00:48:26,359
Speaker 2: inflation is that if you have a little bit of inflation,

953
00:48:26,960 --> 00:48:30,080
Speaker 2: the nominal federal funds rate can be a little bit higher,

954
00:48:30,400 --> 00:48:32,880
Speaker 2: and so when you go into an economic downturn, the

955
00:48:32,920 --> 00:48:35,560
Speaker 2: Federal Reserve has more room to cut interest rates before

956
00:48:35,560 --> 00:48:38,120
Speaker 2: they hit the zero or bound for interest rates of zero.

957
00:48:38,600 --> 00:48:42,120
Speaker 2: So people who are arguing for a higher inflation target

958
00:48:42,120 --> 00:48:44,160
Speaker 2: today are basically arguing like it would be better to

959
00:48:44,200 --> 00:48:46,920
Speaker 2: have even more room for the Fed to cut rates,

960
00:48:46,920 --> 00:48:49,480
Speaker 2: because if the inflation target was three rather than two,

961
00:48:49,920 --> 00:48:51,840
Speaker 2: the peak federal funds rate in the cycle would be

962
00:48:51,880 --> 00:48:54,200
Speaker 2: a one percentage point higher, so the Fed would have

963
00:48:54,280 --> 00:48:57,680
Speaker 2: more room to cut rates. I think there's virtually no

964
00:48:57,920 --> 00:48:59,759
Speaker 2: chance that the Fed is going to change their two

965
00:48:59,760 --> 00:49:02,759
Speaker 2: percent inflation virtually no chance. And there's a couple of

966
00:49:02,760 --> 00:49:07,600
Speaker 2: reasons for that. Number One, Congress sets the mandate for

967
00:49:07,680 --> 00:49:10,680
Speaker 2: the FED, and they define it at Brice stability. The

968
00:49:10,719 --> 00:49:12,799
Speaker 2: Fed has stretched that a bit to call that two

969
00:49:12,880 --> 00:49:15,960
Speaker 2: percent inflation. I think stretching a little bit farther to

970
00:49:16,000 --> 00:49:19,120
Speaker 2: call it three percent inflation. That's a bit of a stretch.

971
00:49:19,719 --> 00:49:21,640
Speaker 2: The second reason I think that they're not going to

972
00:49:21,680 --> 00:49:23,919
Speaker 2: move from two percent inflation is it's taken the FED

973
00:49:23,960 --> 00:49:27,240
Speaker 2: a long time to get inflation expectations anchored around two percent.

974
00:49:27,760 --> 00:49:29,960
Speaker 2: If you move from two percent to three percent, all

975
00:49:30,040 --> 00:49:33,480
Speaker 2: sun inflation expectations become unanchored, and it's not obviously you

976
00:49:33,520 --> 00:49:35,439
Speaker 2: can get them re anchored back at three percent, because

977
00:49:35,440 --> 00:49:39,440
Speaker 2: if you're willing to change the target once, why couldn't

978
00:49:39,440 --> 00:49:42,719
Speaker 2: you change the target again, especially in a situation where

979
00:49:42,760 --> 00:49:46,480
Speaker 2: the Fed US is running a massive fiscal deficit, huge

980
00:49:46,520 --> 00:49:50,040
Speaker 2: fiscal problems, and people always wonder, well, one way out

981
00:49:50,040 --> 00:49:54,280
Speaker 2: of a fiscal mess is is inflation and to monetize

982
00:49:54,320 --> 00:49:54,640
Speaker 2: the dead.

983
00:49:54,920 --> 00:49:56,080
Speaker 1: So I don't think you're going to do it for

984
00:49:56,120 --> 00:49:58,480
Speaker 1: that reason. The last reason why don't think they're going

985
00:49:58,480 --> 00:49:59,719
Speaker 1: to do it is there's plenty of room to cut

986
00:49:59,719 --> 00:50:03,320
Speaker 1: interest rates. Federal funds rates over five and a quarter percent,

987
00:50:03,800 --> 00:50:06,799
Speaker 1: So if the Commie gets in trouble over the next year,

988
00:50:06,840 --> 00:50:09,040
Speaker 1: the Fed has plenty of room to cut rates before

989
00:50:09,080 --> 00:50:11,080
Speaker 1: they get to the zero loorbow for it. They could

990
00:50:11,160 --> 00:50:14,600
Speaker 1: do three fifty bases point cuts and you're still way above.

991
00:50:14,400 --> 00:50:17,520
Speaker 2: Aach So it's just not going to happen. This is

992
00:50:17,560 --> 00:50:19,839
Speaker 2: sort of an academic debate. I don't think it's a

993
00:50:19,880 --> 00:50:21,000
Speaker 2: true FED reserved debate.

994
00:50:21,160 --> 00:50:24,000
Speaker 1: Really really interesting, So let's talk a little bit about

995
00:50:24,600 --> 00:50:28,840
Speaker 1: different FED policies over the past decades and how those

996
00:50:28,880 --> 00:50:34,240
Speaker 1: decisions have aged. Let's start with last decade the twenty tens,

997
00:50:34,840 --> 00:50:38,440
Speaker 1: FED rates were essentially zero the whole time, and yet

998
00:50:38,440 --> 00:50:42,120
Speaker 1: we couldn't get CPI to budget above two percent the

999
00:50:42,160 --> 00:50:47,120
Speaker 1: whole decade following the financial crisis. What made that so

1000
00:50:47,320 --> 00:50:49,600
Speaker 1: challenging for monetary policy makers?

1001
00:50:50,360 --> 00:50:52,000
Speaker 2: Well, I think the problem coming out of the Great

1002
00:50:52,000 --> 00:50:54,839
Speaker 2: Financial Crisis was how much damage was done to.

1003
00:50:54,760 --> 00:50:58,239
Speaker 1: People's balance sheets and to their credit scores. And when

1004
00:50:58,280 --> 00:51:01,560
Speaker 1: you say people, you mean households, you mean operations for everybody.

1005
00:51:01,760 --> 00:51:05,239
Speaker 2: Households mostly, but also businesses. Just a tremendous amount of

1006
00:51:05,320 --> 00:51:08,920
Speaker 2: damage caused by that very deep recession. I think of

1007
00:51:08,960 --> 00:51:11,120
Speaker 2: all the households who came out of that period where

1008
00:51:11,160 --> 00:51:13,800
Speaker 2: the value of their mortgage was higher than the value

1009
00:51:13,800 --> 00:51:16,000
Speaker 2: of their home. Think of all the people that were

1010
00:51:16,000 --> 00:51:20,200
Speaker 2: delinquent on their obligations and so then got bad credit scores,

1011
00:51:20,200 --> 00:51:23,799
Speaker 2: and then that reduced their access to credit. So there

1012
00:51:23,800 --> 00:51:26,360
Speaker 2: were a lot of headwinds. The other thing that happened

1013
00:51:26,400 --> 00:51:29,440
Speaker 2: was fiscal policy that was eased pretty dramatically when Barack

1014
00:51:29,440 --> 00:51:33,480
Speaker 2: Obama became president. That got clawed back very very quickly

1015
00:51:33,520 --> 00:51:37,080
Speaker 2: in twenty eleven and twelve. So there were fiscal headwinds

1016
00:51:37,239 --> 00:51:39,879
Speaker 2: that we haven't faced this time around that also held

1017
00:51:39,920 --> 00:51:42,440
Speaker 2: the economy back. So you're absolutely right. The Fed's challenge

1018
00:51:42,480 --> 00:51:46,520
Speaker 2: during that period was to make monitor policy accommodative enough

1019
00:51:46,840 --> 00:51:51,279
Speaker 2: to support the economy sufficiently to keep inflation at two percent. Now,

1020
00:51:51,320 --> 00:51:54,360
Speaker 2: the FED fell a little bit short of their inflation objective,

1021
00:51:54,840 --> 00:51:58,200
Speaker 2: but you know, if you really look at where we were,

1022
00:51:58,320 --> 00:52:01,279
Speaker 2: you know, on the eve of the pandemic, and it

1023
00:52:01,320 --> 00:52:02,200
Speaker 2: was a pretty good place.

1024
00:52:03,000 --> 00:52:05,760
Speaker 1: And the fact that it took a decade is says

1025
00:52:05,840 --> 00:52:10,000
Speaker 1: more about the lack of fiscal spending Congress than what

1026
00:52:10,040 --> 00:52:10,520
Speaker 1: the FED did.

1027
00:52:10,600 --> 00:52:12,560
Speaker 2: And you had a very long expansion. I mean, the

1028
00:52:12,600 --> 00:52:15,040
Speaker 2: reality of the expansion would have kept going except for

1029
00:52:15,080 --> 00:52:16,000
Speaker 2: the COVID pandemic.

1030
00:52:16,880 --> 00:52:20,000
Speaker 1: Really interesting, So let's talk about the prior decade to

1031
00:52:20,120 --> 00:52:24,600
Speaker 1: two thousands. You had a speech around twenty fourteen where

1032
00:52:24,640 --> 00:52:29,120
Speaker 1: you said the FED was late in recognizing how long

1033
00:52:29,520 --> 00:52:33,319
Speaker 1: they kept rates low for and that the liftoff from

1034
00:52:33,560 --> 00:52:37,680
Speaker 1: four to six should have happened faster and sooner. Tell

1035
00:52:37,760 --> 00:52:40,839
Speaker 1: us a little bit about what the lessons were from

1036
00:52:40,880 --> 00:52:45,799
Speaker 1: that episode and what the FED should have done in

1037
00:52:45,840 --> 00:52:47,160
Speaker 1: the early two thousands.

1038
00:52:47,840 --> 00:52:50,239
Speaker 2: So there's been a big debate going on for many,

1039
00:52:50,280 --> 00:52:53,759
Speaker 2: many years about how should the FED respond to financial

1040
00:52:53,800 --> 00:52:57,120
Speaker 2: imbalances in the economy, how should they respond to sort

1041
00:52:57,120 --> 00:53:01,680
Speaker 2: of incipient bubbles. The green Span view was it's very

1042
00:53:01,680 --> 00:53:06,040
Speaker 2: hard to recognize bubbles. It's not clear how you rain

1043
00:53:06,120 --> 00:53:08,279
Speaker 2: them in. So the best thing to do is just

1044
00:53:08,320 --> 00:53:10,320
Speaker 2: sort of let the bubbles take to run their course,

1045
00:53:10,360 --> 00:53:14,719
Speaker 2: and then clean up after the bubble collapses. Here in

1046
00:53:14,800 --> 00:53:17,759
Speaker 2: the bus period, my view has been very much that, no,

1047
00:53:17,920 --> 00:53:21,400
Speaker 2: that's not a great strategy because the bursting of the

1048
00:53:21,400 --> 00:53:24,600
Speaker 2: bubble can cause a lot of financial knock on effects,

1049
00:53:24,960 --> 00:53:28,640
Speaker 2: and so better to identify the bubble in real time

1050
00:53:29,040 --> 00:53:31,880
Speaker 2: and try to sort of rain that bubble in. And

1051
00:53:31,920 --> 00:53:33,239
Speaker 2: I think, you know, if you look at the two

1052
00:53:33,320 --> 00:53:36,320
Speaker 2: thousand and four two thousand and seven to eight period,

1053
00:53:36,800 --> 00:53:39,120
Speaker 2: boy would have been really good if we'd done something

1054
00:53:39,160 --> 00:53:44,319
Speaker 2: about subprime mortgage lending, about mortgage underwriting standards. If we'd

1055
00:53:44,320 --> 00:53:47,400
Speaker 2: done that, we would have had a much smaller housing bubble,

1056
00:53:47,800 --> 00:53:50,160
Speaker 2: and we would have had much less damage when that

1057
00:53:50,200 --> 00:53:53,680
Speaker 2: bubble collapsed in two thousand and eight. So my view

1058
00:53:53,680 --> 00:53:56,560
Speaker 2: has always been let's try to be a little bit

1059
00:53:56,560 --> 00:54:00,480
Speaker 2: more proactive. Now, the problem with being proactive is, you know,

1060
00:54:00,600 --> 00:54:02,640
Speaker 2: how do you know it's a bubble, and the rally

1061
00:54:02,719 --> 00:54:05,560
Speaker 2: is you don't, and so it's very hard to convince

1062
00:54:05,600 --> 00:54:07,880
Speaker 2: people to take proactive steps to deal with sort of

1063
00:54:07,880 --> 00:54:11,680
Speaker 2: incipient problems because you can't really be sure with one

1064
00:54:11,760 --> 00:54:14,160
Speaker 2: hundred percent confidence of what's actually going on.

1065
00:54:15,040 --> 00:54:19,279
Speaker 1: So you're really pointing out two issues. First, I want

1066
00:54:19,280 --> 00:54:22,960
Speaker 1: to say, the FED had taken rates under two percent

1067
00:54:23,040 --> 00:54:26,480
Speaker 1: for about three years and under one percent for a year,

1068
00:54:26,560 --> 00:54:30,360
Speaker 1: so that was pretty unprecedented until you know the post

1069
00:54:30,360 --> 00:54:33,200
Speaker 1: financial crisis here. But you're also pointing out to the

1070
00:54:33,239 --> 00:54:38,759
Speaker 1: FED as regulator, and you know, to cast blame. Greenspan

1071
00:54:39,080 --> 00:54:43,520
Speaker 1: was very much anti regulator, a little bit more lovely

1072
00:54:43,760 --> 00:54:50,080
Speaker 1: care and he allowed a lot of non GSE, non

1073
00:54:50,200 --> 00:54:53,640
Speaker 1: traditional banks to make all sorts of loans. It's not

1074
00:54:53,680 --> 00:54:57,800
Speaker 1: like he gave them permission, he just didn't really regulate them.

1075
00:54:58,200 --> 00:55:03,080
Speaker 1: And that's where a lot of the really sketchy prime

1076
00:55:03,160 --> 00:55:05,400
Speaker 1: can and the FED actually did have some authority in

1077
00:55:05,480 --> 00:55:08,240
Speaker 1: terms of regulating the mortgage market, authority that they didn't

1078
00:55:08,239 --> 00:55:10,759
Speaker 1: really use. Need Gramlik was a governor at the FED,

1079
00:55:10,800 --> 00:55:13,319
Speaker 1: and he sort of brought his concerns, Oh boy did

1080
00:55:13,320 --> 00:55:17,520
Speaker 1: he to Alan Greenspan, and nothing really really happened. I mean,

1081
00:55:17,520 --> 00:55:20,239
Speaker 1: I mean, even when I was at Goldman Sachs, you know,

1082
00:55:20,360 --> 00:55:23,919
Speaker 1: and working with my successor, Yan Hostis, we were very

1083
00:55:24,000 --> 00:55:27,560
Speaker 1: focused on how this mortgage, this housing bubble was fueling

1084
00:55:27,600 --> 00:55:31,040
Speaker 1: consumption through what was called mortgage equity withdrawal. People were

1085
00:55:31,040 --> 00:55:34,000
Speaker 1: basically taking their appreciated gains in their houses and they

1086
00:55:34,000 --> 00:55:36,440
Speaker 1: were pulling it out in terms of you know, Helock's

1087
00:55:36,560 --> 00:55:40,000
Speaker 1: home equity loans, and we felt that that was also

1088
00:55:40,080 --> 00:55:43,000
Speaker 1: contributing to stronger consumption and this was going to potentially

1089
00:55:43,120 --> 00:55:47,120
Speaker 1: end quite badly. Ed Gramlik was an unsung hero of

1090
00:55:47,160 --> 00:55:50,560
Speaker 1: that era because he really identified what was going on

1091
00:55:50,680 --> 00:55:54,120
Speaker 1: in real time and not in a you know, hair

1092
00:55:54,160 --> 00:55:57,760
Speaker 1: on fire historyonic way. He was very sober and thoughtful

1093
00:55:57,760 --> 00:56:03,040
Speaker 1: and academic, and you know, had had Green spent paid

1094
00:56:03,040 --> 00:56:06,759
Speaker 1: more attention to Gromlik, could have been a very different outcome. Well,

1095
00:56:06,760 --> 00:56:07,560
Speaker 1: I think you would.

1096
00:56:07,320 --> 00:56:12,400
Speaker 2: Have had a smaller bubble, maybe you'd have less you know,

1097
00:56:12,880 --> 00:56:15,880
Speaker 2: financial innovation. You could wait against some of the triple

1098
00:56:15,960 --> 00:56:19,000
Speaker 2: A cdo stuff. I mean, you know, that's a that

1099
00:56:19,080 --> 00:56:21,640
Speaker 2: was I mean, some of the innovations in the financial

1100
00:56:21,680 --> 00:56:24,200
Speaker 2: industry in terms of products also contributed to the to

1101
00:56:24,520 --> 00:56:27,120
Speaker 2: the bubble, sure, right, because you managed to sell all

1102
00:56:27,160 --> 00:56:32,080
Speaker 2: these you know, you took a bunch of bad subprime mortgages,

1103
00:56:32,520 --> 00:56:36,360
Speaker 2: then you trunched the cash flows and turned these subprime

1104
00:56:36,400 --> 00:56:40,239
Speaker 2: mortgages into seventy percent triple A rated securities, and so

1105
00:56:40,320 --> 00:56:42,160
Speaker 2: that sort of kept the whole thing going. So the

1106
00:56:42,200 --> 00:56:44,880
Speaker 2: financial engineering was also an aspect of the problem that

1107
00:56:44,960 --> 00:56:46,600
Speaker 2: contributed to the to the bubble.

1108
00:56:46,960 --> 00:56:49,680
Speaker 1: The rating agencies changed their model. They were being paid

1109
00:56:49,680 --> 00:56:53,080
Speaker 1: by the underwriters instead of being paid by the mode purchasers.

1110
00:56:53,120 --> 00:56:55,160
Speaker 1: That's a big factor that. Yeah, I think a lot

1111
00:56:55,200 --> 00:56:57,920
Speaker 1: of people overlook all right, So we could spend forever

1112
00:56:57,960 --> 00:57:01,160
Speaker 1: talking about the financial crisis, but I want to get

1113
00:57:01,360 --> 00:57:06,880
Speaker 1: to the nineteen nineties, and we've referenced the Maestro. I

1114
00:57:07,000 --> 00:57:09,000
Speaker 1: was on a trading desk back then, and I always

1115
00:57:09,000 --> 00:57:13,600
Speaker 1: thought green Span was way too solicitous. I'm not sure

1116
00:57:13,640 --> 00:57:16,800
Speaker 1: if that's the right word. He was way too concerned

1117
00:57:16,800 --> 00:57:20,520
Speaker 1: about how Wall Street perceived him. Is that a fair

1118
00:57:20,600 --> 00:57:24,560
Speaker 1: criticism of green Span? Because it felt like he was

1119
00:57:24,800 --> 00:57:32,080
Speaker 1: much more accommodative of short term market reactions anytime there

1120
00:57:32,080 --> 00:57:36,880
Speaker 1: was a problem for a lais a fair randy and

1121
00:57:37,000 --> 00:57:40,280
Speaker 1: he went right to you know, the interventionist policy so

1122
00:57:40,920 --> 00:57:43,680
Speaker 1: we had the long term capital management issue, we had

1123
00:57:43,760 --> 00:57:48,919
Speaker 1: the Thai crisis and the Russian ruble crisis, and every

1124
00:57:48,920 --> 00:57:52,080
Speaker 1: time there was a hiccup in the markets, green Span

1125
00:57:52,200 --> 00:57:56,760
Speaker 1: didn't hesitate to cut rates. I think that's you know, fair.

1126
00:57:56,840 --> 00:57:58,720
Speaker 2: But at the same time, I think green Span you

1127
00:57:58,840 --> 00:58:02,160
Speaker 2: did a reasonable job being inflation control. So the consequences

1128
00:58:02,200 --> 00:58:05,720
Speaker 2: of coming to the market's aid to sort of sort

1129
00:58:05,760 --> 00:58:09,720
Speaker 2: of smooth out market dysfunction, you know, didn't have a

1130
00:58:09,880 --> 00:58:13,400
Speaker 2: really negative consequence for inflation. So I think he sort

1131
00:58:13,440 --> 00:58:16,400
Speaker 2: of got mostly got away with it. But I agree

1132
00:58:16,400 --> 00:58:20,000
Speaker 2: with you he was probably a little bit more willing

1133
00:58:20,080 --> 00:58:27,760
Speaker 2: to address relatively you know, small, not large, not persistent

1134
00:58:28,200 --> 00:58:31,320
Speaker 2: movements in markets that maybe the FED could have looked

1135
00:58:31,360 --> 00:58:33,520
Speaker 2: looked past, you know that said, I mean, you know,

1136
00:58:33,640 --> 00:58:36,080
Speaker 2: his track record was really good. I mean, I think

1137
00:58:36,160 --> 00:58:40,480
Speaker 2: the blind spot was really just more about not having

1138
00:58:40,520 --> 00:58:42,840
Speaker 2: this view that we can identify bubbles and we should

1139
00:58:42,840 --> 00:58:45,400
Speaker 2: deal with bubbles in real time rather than waiting for

1140
00:58:45,440 --> 00:58:47,320
Speaker 2: the bubble to burst. And that was that was his

1141
00:58:47,360 --> 00:58:49,959
Speaker 2: big mistake. If you know, if you think about when

1142
00:58:50,040 --> 00:58:52,360
Speaker 2: when Ben Bernaki came in in two thousand and six,

1143
00:58:52,960 --> 00:58:55,000
Speaker 2: you know, the die was already cast right in terms

1144
00:58:55,080 --> 00:58:57,360
Speaker 2: of what was going to happen at that point. It's

1145
00:58:57,360 --> 00:59:00,120
Speaker 2: just what no one had yet recognized it.

1146
00:59:00,200 --> 00:59:02,400
Speaker 1: No, there's no doubt about that. And in fact, by

1147
00:59:02,760 --> 00:59:06,480
Speaker 1: six real estate had peaked. You saw it in the

1148
00:59:06,520 --> 00:59:09,640
Speaker 1: homebuilders and the banks and the brokers like there were

1149
00:59:09,680 --> 00:59:13,600
Speaker 1: market signals that there was problems, but the overall stock

1150
00:59:13,640 --> 00:59:18,080
Speaker 1: market kept going until you know, late seven. So let's

1151
00:59:18,120 --> 00:59:22,200
Speaker 1: talk you mentioned earlier about surveys. I always look at

1152
00:59:22,320 --> 00:59:28,680
Speaker 1: surveys askance because A people don't know, and B even

1153
00:59:28,720 --> 00:59:32,680
Speaker 1: when they know about what's happening today, it tends to

1154
00:59:32,720 --> 00:59:36,120
Speaker 1: be on a lag. And then lastly, they have no idea.

1155
00:59:36,160 --> 00:59:38,560
Speaker 1: When you ask, hey, where's inflation going to be five

1156
00:59:38,640 --> 00:59:42,360
Speaker 1: years from now? That seems to be like about as silly. A.

1157
00:59:43,000 --> 00:59:47,200
Speaker 1: Nobody has any idea, much less a layperson. Why do

1158
00:59:47,320 --> 00:59:53,720
Speaker 1: we put so much emphasis on inflation expectations? Well, I

1159
00:59:53,760 --> 00:59:54,280
Speaker 1: don't think that.

1160
00:59:54,400 --> 00:59:56,080
Speaker 2: I mean, I think you're right that people don't have

1161
00:59:56,120 --> 00:59:58,480
Speaker 2: a really good sense of and we talked about earlier

1162
00:59:58,480 --> 01:00:02,680
Speaker 2: at price level versus rate of inflation. But it's interesting

1163
01:00:02,720 --> 01:00:05,560
Speaker 2: to see how their views change over time. So it's

1164
01:00:05,600 --> 01:00:08,120
Speaker 2: probably not the level of what they perceive inflation is

1165
01:00:08,120 --> 01:00:09,200
Speaker 2: going to be over the next ten years.

1166
01:00:09,200 --> 01:00:09,800
Speaker 1: That's interesting.

1167
01:00:09,880 --> 01:00:12,360
Speaker 2: It's whether they think it's higher or lower than it was,

1168
01:00:12,720 --> 01:00:15,480
Speaker 2: you know, a month ago, six months ago, a year ago.

1169
01:00:16,400 --> 01:00:19,000
Speaker 2: The reason why inflation expectations are so important is that

1170
01:00:19,120 --> 01:00:22,120
Speaker 2: people think inflation expectations are truly going to be higher,

1171
01:00:22,480 --> 01:00:24,600
Speaker 2: then that's going to set the wage setting process, and

1172
01:00:24,640 --> 01:00:26,320
Speaker 2: wages are going to be higher. And if wages are

1173
01:00:26,400 --> 01:00:28,840
Speaker 2: going to be higher, that's going to feed into prices

1174
01:00:29,120 --> 01:00:31,640
Speaker 2: and that's going to cause actual inflation to be higher.

1175
01:00:31,800 --> 01:00:35,160
Speaker 1: That was a very nineteen seventies problem that seemed to

1176
01:00:35,200 --> 01:00:38,720
Speaker 1: be what why inflation was so sticky? Yeah, and we

1177
01:00:38,760 --> 01:00:42,120
Speaker 1: had such a hard time until Vulf came along getting

1178
01:00:42,240 --> 01:00:43,000
Speaker 1: out of that cycle.

1179
01:00:43,160 --> 01:00:44,880
Speaker 2: And one good thing is too we have other ways

1180
01:00:44,880 --> 01:00:47,560
Speaker 2: of measuring inflation expectations now that we didn't have thirty

1181
01:00:47,600 --> 01:00:49,800
Speaker 2: years ago. We have the treasure you tips market, so

1182
01:00:49,800 --> 01:00:52,680
Speaker 2: we can look at tips shields versus nonal treasure yields

1183
01:00:52,720 --> 01:00:54,960
Speaker 2: and we can sort of calculate what are people willing

1184
01:00:54,960 --> 01:00:58,000
Speaker 2: to pay for inflation protection and that gives us a

1185
01:00:58,040 --> 01:01:01,800
Speaker 2: sense of how much inflation is into the into in

1186
01:01:01,880 --> 01:01:02,880
Speaker 2: people's expectations.

1187
01:01:02,880 --> 01:01:06,960
Speaker 1: Marketing expectations do the inflation expectation surveys and the spread

1188
01:01:07,000 --> 01:01:10,360
Speaker 1: between the tip shield and treasuries. Do they correlate well

1189
01:01:10,480 --> 01:01:12,040
Speaker 1: or are their occasional big divergence.

1190
01:01:12,080 --> 01:01:15,240
Speaker 2: I think they I think they correlate well in the large,

1191
01:01:15,640 --> 01:01:17,400
Speaker 2: but I don't think they correlate well at all in

1192
01:01:17,440 --> 01:01:19,600
Speaker 2: the small. I mean, one example is, people look at

1193
01:01:19,760 --> 01:01:21,600
Speaker 2: tip shields and they look at what's called the five

1194
01:01:21,680 --> 01:01:24,000
Speaker 2: x five forward rates of what's inflation going to be

1195
01:01:24,040 --> 01:01:26,600
Speaker 2: five years from now for the next five years, and

1196
01:01:26,640 --> 01:01:30,840
Speaker 2: that five year forward inflation rate moves along around with

1197
01:01:30,920 --> 01:01:33,800
Speaker 2: current oil prices. So when the rest go over town,

1198
01:01:34,040 --> 01:01:38,200
Speaker 2: it seems to affect the people's inflation expectations through the

1199
01:01:38,240 --> 01:01:40,560
Speaker 2: tips market five years from now, which makes no you know,

1200
01:01:40,880 --> 01:01:41,440
Speaker 2: no sense.

1201
01:01:42,040 --> 01:01:42,400
Speaker 1: Part of the.

1202
01:01:42,400 --> 01:01:44,960
Speaker 2: Problem is it is also the liquidity of the tips

1203
01:01:44,960 --> 01:01:47,800
Speaker 2: market is different than the liquidity of the nominal treasury market,

1204
01:01:47,800 --> 01:01:50,200
Speaker 2: and so that also can cause some noise in terms

1205
01:01:50,200 --> 01:01:52,800
Speaker 2: of your measurement. But you know, two separate sets of

1206
01:01:53,600 --> 01:01:56,280
Speaker 2: of of numbers. And then you also have you know,

1207
01:01:56,440 --> 01:01:59,240
Speaker 2: professional forecasters, you know what do they think? So that's

1208
01:01:59,240 --> 01:02:00,880
Speaker 2: a third set, and so you look at these three

1209
01:02:01,600 --> 01:02:04,800
Speaker 2: pretty disparate sources of information on inflation expectations, you can

1210
01:02:04,800 --> 01:02:06,560
Speaker 2: get a pretty good sense of, you know, is it

1211
01:02:06,600 --> 01:02:09,880
Speaker 2: broadly stable or is it moving in a bad way.

1212
01:02:10,160 --> 01:02:14,320
Speaker 1: So let's talk about the biggest part of CPI, which

1213
01:02:14,440 --> 01:02:17,520
Speaker 1: is shelter. When we're looking at inflation, we really want

1214
01:02:17,560 --> 01:02:22,800
Speaker 1: to know what shelter costs are. The way bls, the

1215
01:02:22,840 --> 01:02:25,720
Speaker 1: way the Bureau of Labor Statistics measures shelter is owner's

1216
01:02:25,800 --> 01:02:30,360
Speaker 1: equivalent rent and full caveat everybody's aware there's issues with

1217
01:02:30,400 --> 01:02:34,240
Speaker 1: this and there are some changes coming. But let's talk

1218
01:02:34,240 --> 01:02:36,120
Speaker 1: a little bit. As it's been for the past couple

1219
01:02:36,160 --> 01:02:40,480
Speaker 1: of years. It's survey based. Hey what could you rent

1220
01:02:40,800 --> 01:02:44,400
Speaker 1: your property for? Seems to be a funny question. So

1221
01:02:45,040 --> 01:02:48,600
Speaker 1: it's laggy versus real time measures. And yet this is

1222
01:02:48,640 --> 01:02:54,480
Speaker 1: the single biggest part of CPI. George Box famously said

1223
01:02:54,520 --> 01:02:57,480
Speaker 1: all models are wrong, but some are useful. Is this

1224
01:02:58,240 --> 01:03:00,480
Speaker 1: a model that is both wrong and useful.

1225
01:03:01,120 --> 01:03:04,640
Speaker 2: Well, I think you've underscored some of the shortcomings of

1226
01:03:04,640 --> 01:03:07,480
Speaker 2: owner's equivalent rent, as you know, both in terms of

1227
01:03:07,640 --> 01:03:09,960
Speaker 2: timeliness and also in terms of you know, it's not

1228
01:03:10,000 --> 01:03:12,400
Speaker 2: even a cash outlay that people are making. So when

1229
01:03:12,440 --> 01:03:14,840
Speaker 2: you started thinking about what's having to people's real incomes,

1230
01:03:14,840 --> 01:03:17,320
Speaker 2: you're sort of imputing a cost that they don't actually

1231
01:03:17,480 --> 01:03:20,400
Speaker 2: really incur. So when you're started thinking about how much

1232
01:03:20,400 --> 01:03:23,240
Speaker 2: can people actually afford to buy, well, I'm not really

1233
01:03:23,240 --> 01:03:24,640
Speaker 2: renting my house from myself.

1234
01:03:24,680 --> 01:03:28,520
Speaker 1: So you're absolutely right. You have a budget line for shelter,

1235
01:03:28,720 --> 01:03:31,480
Speaker 1: but it doesn't include you've already sort of right, it's

1236
01:03:31,480 --> 01:03:32,280
Speaker 1: already in your budget.

1237
01:03:32,280 --> 01:03:34,760
Speaker 2: It's already in your budget exactly. So I think this

1238
01:03:34,880 --> 01:03:37,320
Speaker 2: is one reason why the Fed puts more emphasis on

1239
01:03:37,400 --> 01:03:41,400
Speaker 2: the personal consumption expenditure deflator because it has a much

1240
01:03:41,640 --> 01:03:44,880
Speaker 2: lower weight for shelter. But you're right, the legs here

1241
01:03:44,920 --> 01:03:47,080
Speaker 2: are sort of crazy. So one reason why we're going

1242
01:03:47,160 --> 01:03:50,640
Speaker 2: to see lower core PC deflator and lower core CPI

1243
01:03:50,720 --> 01:03:54,200
Speaker 2: over the next twelve months is because rents did come

1244
01:03:54,240 --> 01:03:56,800
Speaker 2: down and then with a lag of about a year

1245
01:03:56,920 --> 01:03:57,120
Speaker 2: or so.

1246
01:03:57,600 --> 01:03:59,120
Speaker 1: Is it that much? I always thought it was a

1247
01:03:59,120 --> 01:04:00,960
Speaker 1: couple of six months months, quarter or two.

1248
01:04:01,120 --> 01:04:03,880
Speaker 2: It's six months at least six months, like, because the

1249
01:04:03,920 --> 01:04:08,040
Speaker 2: rent's only repriced periodically, right every year or two, every

1250
01:04:08,080 --> 01:04:10,160
Speaker 2: year or two, and so they have to reprice before

1251
01:04:10,200 --> 01:04:13,560
Speaker 2: they get into the So it's that lag because you

1252
01:04:13,560 --> 01:04:17,680
Speaker 2: know rents repriced instantaneously, then everything would be sort of

1253
01:04:17,760 --> 01:04:20,680
Speaker 2: up to date. But rents price slowly when you know,

1254
01:04:20,720 --> 01:04:24,800
Speaker 2: the least comes due, and so it's lagging behind reality.

1255
01:04:25,120 --> 01:04:26,960
Speaker 2: So this is something that's going to probably feed into

1256
01:04:26,960 --> 01:04:29,640
Speaker 2: the core PC deflator and keep inflation a little bit

1257
01:04:29,680 --> 01:04:31,280
Speaker 2: lower over the next six to twelve months.

1258
01:04:31,720 --> 01:04:34,360
Speaker 1: But is it really you know, real.

1259
01:04:34,160 --> 01:04:36,520
Speaker 2: In terms of what's actually actually happening to inflation on

1260
01:04:36,560 --> 01:04:38,640
Speaker 2: the ground, it's probably you know, going to be a

1261
01:04:38,640 --> 01:04:39,560
Speaker 2: little bit misleading.

1262
01:04:39,720 --> 01:04:42,160
Speaker 1: So there are a couple of real estate entities, the

1263
01:04:42,200 --> 01:04:45,160
Speaker 1: Apartment List Index or Zillow does the real time in

1264
01:04:45,640 --> 01:04:48,280
Speaker 1: K Shiller, right, So even k Shiller is a little

1265
01:04:48,320 --> 01:04:51,479
Speaker 1: bit of a lag, not as much as owner's equivalent rent.

1266
01:04:51,800 --> 01:04:55,320
Speaker 1: But the interesting thing is the real time indicies have

1267
01:04:55,440 --> 01:04:58,680
Speaker 1: showed falling real estate prices the past, i don't know,

1268
01:04:58,760 --> 01:05:01,720
Speaker 1: three months, four months hasn't gotten into the CPI yet, right,

1269
01:05:01,800 --> 01:05:05,320
Speaker 1: And so it's interesting it's coming, it's coming. That's that's

1270
01:05:05,360 --> 01:05:10,040
Speaker 1: got to be very optimistic to think, Hey, even all

1271
01:05:10,080 --> 01:05:14,880
Speaker 1: these people are concerned about reacceleration of inflation, we know

1272
01:05:14,960 --> 01:05:18,360
Speaker 1: the biggest part of CPI is going to keep drifting lower.

1273
01:05:18,760 --> 01:05:21,800
Speaker 1: That's got to be positive for future Fed policy.

1274
01:05:21,840 --> 01:05:24,280
Speaker 2: Right, But the question is is it temporary or is

1275
01:05:24,280 --> 01:05:27,120
Speaker 2: it more persistent? So to figure that out. To figure

1276
01:05:27,120 --> 01:05:28,600
Speaker 2: that out, we have to look at the housing market.

1277
01:05:28,680 --> 01:05:30,840
Speaker 2: So how is the housing market performing? Well, the housing

1278
01:05:30,840 --> 01:05:33,200
Speaker 2: market actually looks like it's starting to come back. Why

1279
01:05:33,240 --> 01:05:35,280
Speaker 2: is it coming back? Because mortgage rates have fallen by

1280
01:05:35,760 --> 01:05:38,320
Speaker 2: you know, one percentage point, and so that's actually stimming

1281
01:05:38,320 --> 01:05:40,840
Speaker 2: in the housing sector. So I think the interesting question is.

1282
01:05:40,800 --> 01:05:43,320
Speaker 1: Not like just what's the next chapter as this stuff

1283
01:05:43,360 --> 01:05:46,560
Speaker 1: feeds through the CPI, it's what's the chapter after that?

1284
01:05:47,200 --> 01:05:50,160
Speaker 2: Based on how quickly does the housing market recover in

1285
01:05:50,200 --> 01:05:51,800
Speaker 2: response to lower interest rates.

1286
01:05:52,120 --> 01:05:55,320
Speaker 1: So so Powell was asked, I think it was on

1287
01:05:55,400 --> 01:05:59,680
Speaker 1: sixty minutes about the commercial real estate. So as opposed

1288
01:05:59,680 --> 01:06:02,520
Speaker 1: to up every year or two, you have leases that

1289
01:06:02,600 --> 01:06:05,480
Speaker 1: go five, ten, twenty years. So this seems to be

1290
01:06:05,520 --> 01:06:09,960
Speaker 1: taking place in slow motion. But it seems like commercial

1291
01:06:09,960 --> 01:06:14,120
Speaker 1: real estate is a genuine risk factor, certainly for some

1292
01:06:14,200 --> 01:06:17,720
Speaker 1: of the regional and community banks. How should we be

1293
01:06:17,880 --> 01:06:22,240
Speaker 1: contextualizing what's been taking place with remote work and work

1294
01:06:22,280 --> 01:06:27,240
Speaker 1: from home and the return to office process that still

1295
01:06:27,280 --> 01:06:30,440
Speaker 1: has lots of vacancies in urban centers.

1296
01:06:30,960 --> 01:06:33,080
Speaker 2: Yeah, I mean I would define it more nearly than

1297
01:06:33,080 --> 01:06:35,480
Speaker 2: commercial real estate. I would just find it as office

1298
01:06:35,520 --> 01:06:39,600
Speaker 2: building space because that's really where you have very high vacancies, rates,

1299
01:06:39,680 --> 01:06:44,360
Speaker 2: very underutilized resource, and prices are coming down, especially for

1300
01:06:44,640 --> 01:06:47,600
Speaker 2: you know, class B and Class C buildings, not the

1301
01:06:47,600 --> 01:06:51,200
Speaker 2: best stuff coming down quite significantly. You know, you're absolutely right.

1302
01:06:51,280 --> 01:06:53,000
Speaker 2: This is sort of a slow burn rather than a

1303
01:06:53,000 --> 01:06:55,960
Speaker 2: fast burn, because the problem typically arises, not you know,

1304
01:06:56,000 --> 01:07:00,880
Speaker 2: immediately arises when the mortgage has to be the commercial

1305
01:07:00,960 --> 01:07:05,040
Speaker 2: real estate loan has to be refinanced. As long as

1306
01:07:05,120 --> 01:07:07,720
Speaker 2: the income on the property covers the interest on the loan,

1307
01:07:08,680 --> 01:07:11,840
Speaker 2: the borrower isn't going to default when the loan comes due,

1308
01:07:11,840 --> 01:07:14,640
Speaker 2: though the lender typically says, hey, your building is worth

1309
01:07:14,920 --> 01:07:18,240
Speaker 2: forty percent less than it was before. I'm sorry, we're

1310
01:07:18,240 --> 01:07:19,760
Speaker 2: not going to lend you as much money. You need

1311
01:07:19,760 --> 01:07:22,400
Speaker 2: to come up with more collateral. And at that point

1312
01:07:22,480 --> 01:07:26,280
Speaker 2: the borrow might say, I don't have the collateral. The

1313
01:07:26,320 --> 01:07:30,880
Speaker 2: building's yours, and so then that crystallizes in the loss

1314
01:07:30,920 --> 01:07:34,680
Speaker 2: for the commercial bank. I think there are definitely commercial

1315
01:07:34,680 --> 01:07:37,680
Speaker 2: banks that are going to have trouble due to their

1316
01:07:37,840 --> 01:07:43,000
Speaker 2: concentrated commercial office building portfolio, But I don't view this

1317
01:07:43,120 --> 01:07:47,920
Speaker 2: as big enough or fast enough to really be you know,

1318
01:07:48,000 --> 01:07:50,320
Speaker 2: systemic from a financial stability perspective.

1319
01:07:50,560 --> 01:07:53,560
Speaker 1: Huh really interesting. All right. We've talked about the housing market,

1320
01:07:53,880 --> 01:07:57,440
Speaker 1: the office spased market. One question we really haven't gotten

1321
01:07:57,480 --> 01:08:01,000
Speaker 1: to has been the stock and bond market. They've been

1322
01:08:01,160 --> 01:08:04,680
Speaker 1: very chaotic the past couple of years. How does the

1323
01:08:04,680 --> 01:08:08,680
Speaker 1: FED think about stock or bond market volatility? How does

1324
01:08:08,720 --> 01:08:10,400
Speaker 1: that impact decision making?

1325
01:08:11,080 --> 01:08:13,720
Speaker 2: Well, I think, as Paul has said many times, you know,

1326
01:08:13,880 --> 01:08:17,400
Speaker 2: monitary policy in the US works through financial conditions, and

1327
01:08:17,520 --> 01:08:20,680
Speaker 2: two key components of financial conditions are the bond and

1328
01:08:20,720 --> 01:08:24,280
Speaker 2: stock market. So if the bond market eels are low,

1329
01:08:24,520 --> 01:08:27,799
Speaker 2: the stock prices are high and rising, that's making financial

1330
01:08:27,800 --> 01:08:31,479
Speaker 2: conditions more accommodative and that's actually supporting the economy. So

1331
01:08:31,520 --> 01:08:34,240
Speaker 2: the FED is going to take that into consideration. So,

1332
01:08:34,760 --> 01:08:36,679
Speaker 2: you know, we talked earlier about why the FED isn't

1333
01:08:36,720 --> 01:08:39,080
Speaker 2: moving yet because they want to be confident they're going

1334
01:08:39,120 --> 01:08:42,040
Speaker 2: to actually achieve their two percent objective. They're not moving

1335
01:08:42,160 --> 01:08:44,840
Speaker 2: yet because the labor market is strong. But they're also

1336
01:08:44,920 --> 01:08:48,719
Speaker 2: not moving yet because financial conditions have eased a lot,

1337
01:08:48,960 --> 01:08:50,640
Speaker 2: and so the market is doing quite a bit of

1338
01:08:50,680 --> 01:08:53,040
Speaker 2: work for the FED. Even before the Fed actually has

1339
01:08:52,800 --> 01:08:56,040
Speaker 2: cut interest rates, So the FED, you know, I don't

1340
01:08:56,040 --> 01:08:58,000
Speaker 2: think I think it's important to understand that the FED

1341
01:08:58,080 --> 01:09:02,800
Speaker 2: doesn't really target financial market prices. So people sometimes say, well,

1342
01:09:02,800 --> 01:09:04,600
Speaker 2: if the stock market goes down, the Federal Reserve is

1343
01:09:04,600 --> 01:09:07,080
Speaker 2: going to react to that. No, the Fed's going to

1344
01:09:07,080 --> 01:09:09,200
Speaker 2: react to the stock market if the FED thinks the

1345
01:09:09,200 --> 01:09:12,960
Speaker 2: stock market has gone down far enough, persistently enough to

1346
01:09:12,960 --> 01:09:15,760
Speaker 2: affect the real economy to impede the ability of the

1347
01:09:15,800 --> 01:09:19,280
Speaker 2: FED to achieve its its inflation and employment objectives. Fed

1348
01:09:19,280 --> 01:09:22,040
Speaker 2: doesn't care about the stock market itself. It cares about

1349
01:09:22,040 --> 01:09:24,080
Speaker 2: how the stock market affects the real economy.

1350
01:09:24,400 --> 01:09:27,439
Speaker 1: So sometimes you get a market crash and the economy

1351
01:09:27,479 --> 01:09:31,799
Speaker 1: shrugs it off. Nineteen eighty seven, one day, twenty three percent,

1352
01:09:31,920 --> 01:09:35,000
Speaker 1: the economy couldn't care less. And then even the dot

1353
01:09:35,040 --> 01:09:39,840
Speaker 1: com implosion, which was modest on the Dow and the

1354
01:09:40,000 --> 01:09:44,120
Speaker 1: SMP if you consider thirty percent modest, it was brutal

1355
01:09:44,160 --> 01:09:47,120
Speaker 1: on the Nasdaq, which was something like eighty one percent.

1356
01:09:47,560 --> 01:09:51,719
Speaker 1: But we had a very mild recession in two thousand

1357
01:09:51,720 --> 01:09:58,560
Speaker 1: and one. So does that basically argue for less intervention

1358
01:09:58,760 --> 01:10:02,479
Speaker 1: by the FED, or does the subsequent FED intervention. Is

1359
01:10:02,479 --> 01:10:06,000
Speaker 1: that what prevented this like A one, from becoming much worse.

1360
01:10:06,520 --> 01:10:09,240
Speaker 2: Well, I think one was really you know, also nine

1361
01:10:09,320 --> 01:10:12,280
Speaker 2: eleven was really a significant event, and that I think

1362
01:10:12,320 --> 01:10:16,280
Speaker 2: provoked a more and more much more aggressive FED. I

1363
01:10:16,280 --> 01:10:19,519
Speaker 2: think the Fed, you know, is aware what the bond

1364
01:10:19,600 --> 01:10:21,680
Speaker 2: market is doing and where what the stock market is doing,

1365
01:10:21,680 --> 01:10:24,360
Speaker 2: because that affects the transmission of monetary policy. The real

1366
01:10:24,360 --> 01:10:26,439
Speaker 2: e commy, but they don't have a view that we

1367
01:10:26,520 --> 01:10:28,760
Speaker 2: need to target a particular level of the stock market

1368
01:10:28,840 --> 01:10:31,040
Speaker 2: or the bond market. That never comes up as an issue,

1369
01:10:32,000 --> 01:10:33,680
Speaker 2: you know. It's not like the Fed. You know, if

1370
01:10:33,720 --> 01:10:35,800
Speaker 2: the stock market went down ten percent tomorrow, it's not

1371
01:10:35,840 --> 01:10:37,320
Speaker 2: like this the Fed would go, oh, we need to

1372
01:10:37,400 --> 01:10:40,360
Speaker 2: change monetary policy. If it went down twenty five to

1373
01:10:40,479 --> 01:10:43,840
Speaker 2: thirty percent and stayed persistently lower, that would probably have

1374
01:10:44,000 --> 01:10:47,160
Speaker 2: implications for the economic growth, and that would then affect

1375
01:10:47,360 --> 01:10:50,519
Speaker 2: monetary policy. But it's all through the effects on economic growth.

1376
01:10:50,720 --> 01:10:53,600
Speaker 2: Paul has talked about this. It's it's the persistence of

1377
01:10:53,640 --> 01:10:56,760
Speaker 2: the change in financial conditions that matters. It's not what

1378
01:10:56,800 --> 01:10:58,679
Speaker 2: the stock market does over a day or a week.

1379
01:10:58,720 --> 01:11:00,800
Speaker 2: It's what the stock market does over six months or

1380
01:11:00,840 --> 01:11:02,400
Speaker 2: a year that really matters.

1381
01:11:03,120 --> 01:11:06,680
Speaker 1: So before I get to my favorite questions, I just

1382
01:11:06,720 --> 01:11:10,960
Speaker 1: have to ask, really, what you're focusing on today. You

1383
01:11:11,120 --> 01:11:16,280
Speaker 1: join the Princeton Griswold Center as a senior advisor, You

1384
01:11:16,479 --> 01:11:19,120
Speaker 1: chair the Bretton Woods Committee, you serm on the Group

1385
01:11:19,160 --> 01:11:22,360
Speaker 1: of thirty and Council form relations. Are you still doing

1386
01:11:22,360 --> 01:11:26,200
Speaker 1: all those actively today? Tell us what's keeping you busy

1387
01:11:26,240 --> 01:11:26,759
Speaker 1: these days?

1388
01:11:27,840 --> 01:11:30,559
Speaker 2: Those things the Brenton Woods Committee, I'm the chair and

1389
01:11:30,840 --> 01:11:32,960
Speaker 2: we've been broadening out the work that we do at

1390
01:11:32,960 --> 01:11:34,760
Speaker 2: the Brendon Woods Committee. I mean to just give to

1391
01:11:34,800 --> 01:11:37,240
Speaker 2: tell you what the Brenton Wicks Committee is about. It's

1392
01:11:37,280 --> 01:11:40,720
Speaker 2: basically dedicated to the notion that international cooperation and coordination

1393
01:11:41,160 --> 01:11:43,559
Speaker 2: lead to better outcomes. So along the lines of what

1394
01:11:43,600 --> 01:11:47,639
Speaker 2: Paul said in a sixty minutes interview and basically trying

1395
01:11:47,640 --> 01:11:53,320
Speaker 2: to build strong international institutions that can facilitate cooperation on

1396
01:11:53,680 --> 01:12:00,000
Speaker 2: important issues like you know, financial stability, climate change, digital finance,

1397
01:12:00,080 --> 01:12:05,519
Speaker 2: it's health trade where countries working together can lead to

1398
01:12:05,560 --> 01:12:08,880
Speaker 2: better outcomes. So the Bretonwitz Committee, uh, you know, we

1399
01:12:09,200 --> 01:12:12,679
Speaker 2: it's been growing, the work has been expanding or doing

1400
01:12:12,720 --> 01:12:17,040
Speaker 2: work on digital finance, climate finance, sovereign debt future of

1401
01:12:17,080 --> 01:12:20,759
Speaker 2: the multilateral of financial institutions like the World Bank and IMF,

1402
01:12:20,760 --> 01:12:23,400
Speaker 2: what should their role be going forward. So it's pretty

1403
01:12:23,439 --> 01:12:26,360
Speaker 2: exciting and I spend you know, quite a bit of

1404
01:12:26,360 --> 01:12:26,880
Speaker 2: time on it.

1405
01:12:27,280 --> 01:12:28,400
Speaker 1: What's the Group of thirty?

1406
01:12:28,720 --> 01:12:30,760
Speaker 2: Group of thirty is a is a group of people.

1407
01:12:31,000 --> 01:12:32,800
Speaker 2: It's a it's a It's an organization that was set

1408
01:12:32,880 --> 01:12:34,480
Speaker 2: up several decades.

1409
01:12:34,160 --> 01:12:35,439
Speaker 1: Ago of.

1410
01:12:36,920 --> 01:12:41,360
Speaker 2: People that are either currently very senior in academia policy

1411
01:12:42,120 --> 01:12:45,200
Speaker 2: or we're involved in academy and policy at a very

1412
01:12:45,240 --> 01:12:47,680
Speaker 2: senior level. You know, people like Paul Volker was a

1413
01:12:47,680 --> 01:12:50,800
Speaker 2: member of the of the Group of thirty. Jean Clautchochet

1414
01:12:50,960 --> 01:12:52,600
Speaker 2: is a is a current member of the of the

1415
01:12:52,640 --> 01:12:57,000
Speaker 2: Group of thirty. People of you know, Mark Karney is

1416
01:12:57,520 --> 01:13:01,000
Speaker 2: is the is the person who's in charge of running

1417
01:13:01,040 --> 01:13:04,120
Speaker 2: the Group of thirty from from a member of perspective,

1418
01:13:04,160 --> 01:13:07,719
Speaker 2: so a lot of senior people that focus on important

1419
01:13:07,760 --> 01:13:10,800
Speaker 2: issues of the day. So, for example, a number of

1420
01:13:10,840 --> 01:13:12,639
Speaker 2: months ago, the Group of thirty asked me to lead

1421
01:13:12,680 --> 01:13:17,880
Speaker 2: a project on you know, financial supervision reform. You know,

1422
01:13:17,880 --> 01:13:20,320
Speaker 2: what we do in terms of the regulatory policy with

1423
01:13:20,400 --> 01:13:22,719
Speaker 2: respect to the banking system in light of what happened

1424
01:13:23,000 --> 01:13:27,160
Speaker 2: in March of twenty twenty three with respect to Silicon

1425
01:13:27,240 --> 01:13:29,800
Speaker 2: Valley Bank and a number of other banks. And in

1426
01:13:29,880 --> 01:13:33,519
Speaker 2: January we published a report and we basically argued for

1427
01:13:33,720 --> 01:13:36,479
Speaker 2: a number of reforms that need to be made. And

1428
01:13:36,640 --> 01:13:38,400
Speaker 2: you know, I've been talking to the people at the

1429
01:13:38,400 --> 01:13:40,920
Speaker 2: FED nails. We're trying to get some traction for some

1430
01:13:41,000 --> 01:13:42,519
Speaker 2: of the proposals that we've made.

1431
01:13:43,040 --> 01:13:45,479
Speaker 1: Really interesting, all right, I know I only have you

1432
01:13:45,560 --> 01:13:47,760
Speaker 1: for so much time, so let me jump to my

1433
01:13:47,840 --> 01:13:51,000
Speaker 1: favorite questions that we ask all of our guests, starting

1434
01:13:51,040 --> 01:13:53,840
Speaker 1: with what's keeping you entertained these days? What are you

1435
01:13:53,960 --> 01:13:55,120
Speaker 1: watching or listening to?

1436
01:13:56,760 --> 01:13:58,559
Speaker 2: I usually want, you know, stream things to you know,

1437
01:13:58,600 --> 01:14:02,479
Speaker 2: television series that strike my fancy, you know right now,

1438
01:14:02,479 --> 01:14:03,720
Speaker 2: you know, right now, it's a little bit of a

1439
01:14:03,760 --> 01:14:05,439
Speaker 2: you know, sometimes it's a little bit of science fiction

1440
01:14:05,720 --> 01:14:07,280
Speaker 2: like Foundation.

1441
01:14:07,960 --> 01:14:10,200
Speaker 1: Or are you do you watching the second or third

1442
01:14:10,200 --> 01:14:11,439
Speaker 1: season of fa I'm.

1443
01:14:11,320 --> 01:14:15,320
Speaker 2: In the second season right Sometimes it's things like poker Face,

1444
01:14:15,360 --> 01:14:19,960
Speaker 2: which is on Peacock. Another one I'm watching my wife

1445
01:14:20,000 --> 01:14:22,560
Speaker 2: and I now mister and Missus Smith.

1446
01:14:22,600 --> 01:14:24,400
Speaker 1: Just started on Amazon, just started, so.

1447
01:14:24,479 --> 01:14:27,400
Speaker 2: You know, it's you know, we usually watch one show

1448
01:14:27,439 --> 01:14:31,960
Speaker 2: at night and that's us also tolerance. I never It's

1449
01:14:31,960 --> 01:14:33,200
Speaker 2: a great way to just errow and wind.

1450
01:14:33,240 --> 01:14:34,840
Speaker 1: At the end of the day, I would not have

1451
01:14:35,080 --> 01:14:38,120
Speaker 1: pegged you as a sci fi fan. And I'm going

1452
01:14:38,160 --> 01:14:41,240
Speaker 1: to give you the two recommendations I give everybody. Okay,

1453
01:14:41,840 --> 01:14:45,559
Speaker 1: one is on Amazon Prime, the expanse, which is, Yeah,

1454
01:14:45,560 --> 01:14:47,960
Speaker 1: I did I did read. I did watch about five

1455
01:14:48,280 --> 01:14:49,880
Speaker 1: five of did you like it? It got a little

1456
01:14:49,880 --> 01:14:50,559
Speaker 1: wacky at the end.

1457
01:14:50,760 --> 01:14:53,439
Speaker 2: I sartainly ran out of gas after about yeah, fifth season.

1458
01:14:53,479 --> 01:14:55,720
Speaker 2: I did watch a lot of a lot of.

1459
01:14:55,680 --> 01:15:00,240
Speaker 1: That fascinating political US. And then the other one was

1460
01:15:00,280 --> 01:15:04,240
Speaker 1: it's only two seasons altered Carbon It's really good. I

1461
01:15:04,320 --> 01:15:08,920
Speaker 1: haven't seen that one. Fascinating story and filled with all

1462
01:15:08,960 --> 01:15:12,559
Speaker 1: sorts of really interesting as a sci fi geek, those

1463
01:15:12,560 --> 01:15:14,599
Speaker 1: are my two favs. Do you liked? For all Mankind?

1464
01:15:16,000 --> 01:15:17,040
Speaker 1: I haven't seen it?

1465
01:15:17,320 --> 01:15:17,439
Speaker 2: So?

1466
01:15:17,479 --> 01:15:18,040
Speaker 1: That one is.

1467
01:15:18,040 --> 01:15:21,000
Speaker 2: About the sort of alternate space race between Russia and

1468
01:15:21,120 --> 01:15:23,479
Speaker 2: the US where Russia actually gets a man on the

1469
01:15:23,479 --> 01:15:26,080
Speaker 2: moon first, and then it follows sort of the develop

1470
01:15:26,160 --> 01:15:29,360
Speaker 2: of the NASA program over the subsequent.

1471
01:15:29,760 --> 01:15:32,080
Speaker 1: How is the series? It's quite good? Oh really, I'm

1472
01:15:32,080 --> 01:15:34,920
Speaker 1: gonna I'm going to add that to my list. I

1473
01:15:34,960 --> 01:15:39,040
Speaker 1: am a soccer for a great space venture. Let's talk

1474
01:15:39,080 --> 01:15:42,799
Speaker 1: about some of your mentors who helped shape your career.

1475
01:15:43,800 --> 01:15:46,639
Speaker 2: So the most important one, by far, I think, was

1476
01:15:47,320 --> 01:15:51,160
Speaker 2: my professor at Berkeley, James PEARSK. He worked at Yale,

1477
01:15:51,160 --> 01:15:53,080
Speaker 2: then he went to work at the Federal Reserve Board

1478
01:15:53,160 --> 01:15:56,280
Speaker 2: in Washington. He was the social director of research, and

1479
01:15:56,280 --> 01:15:58,120
Speaker 2: then he went to Berkeley. And I was his research

1480
01:15:58,120 --> 01:16:01,280
Speaker 2: assistant at Berkeley for five years, wow, which is a

1481
01:16:01,360 --> 01:16:04,760
Speaker 2: very long stretch as being someone's research assistant. And he

1482
01:16:04,880 --> 01:16:07,800
Speaker 2: sort of got me interested in policy and got me

1483
01:16:07,920 --> 01:16:09,080
Speaker 2: sort of knowledgeable about what the.

1484
01:16:09,040 --> 01:16:10,280
Speaker 1: Federal Reserve was all about.

1485
01:16:10,280 --> 01:16:12,680
Speaker 2: And so I think the reason why I went to

1486
01:16:12,720 --> 01:16:15,839
Speaker 2: the feder Reserve rather than went into academy is because

1487
01:16:15,880 --> 01:16:21,120
Speaker 2: of his counseling. And he became a really good friend.

1488
01:16:21,280 --> 01:16:22,479
Speaker 2: But there are a lot of you know, there's a lot

1489
01:16:22,520 --> 01:16:24,519
Speaker 2: of other people along the way, but he's the one

1490
01:16:24,560 --> 01:16:27,160
Speaker 2: that sort of, you know, stands out.

1491
01:16:27,520 --> 01:16:30,080
Speaker 1: Huh. Let's talk about books. What are some of your

1492
01:16:30,080 --> 01:16:32,160
Speaker 1: favorites and what are you reading right now?

1493
01:16:33,240 --> 01:16:36,160
Speaker 2: Right now, I haven't really gotten into anything particularly that's

1494
01:16:36,200 --> 01:16:41,240
Speaker 2: like grabbed me. I just finished Andy Wear's a book,

1495
01:16:41,439 --> 01:16:44,120
Speaker 2: Hail Mary I don't know if you've had science fiction one.

1496
01:16:44,439 --> 01:16:46,559
Speaker 2: I don't read a lot of science fiction, but every

1497
01:16:46,600 --> 01:16:48,800
Speaker 2: once in a while I get a hankering for it.

1498
01:16:49,600 --> 01:16:53,120
Speaker 2: I typically read more things that are like thriller detective

1499
01:16:53,200 --> 01:16:55,840
Speaker 2: kind of things. But you know, I'm not a I

1500
01:16:55,840 --> 01:16:58,320
Speaker 2: took a lot of literaually in college, but I don't

1501
01:16:58,320 --> 01:17:00,679
Speaker 2: read a lot of heavy literature now because I usually

1502
01:17:00,680 --> 01:17:02,880
Speaker 2: by the end of the day i'm I'm I'm a

1503
01:17:02,920 --> 01:17:05,879
Speaker 2: little wiped out and and and to read really good literature,

1504
01:17:05,960 --> 01:17:08,479
Speaker 2: it takes it takes focus, takes a lot of attention.

1505
01:17:08,600 --> 01:17:11,759
Speaker 2: So I like things like Dennis Lane. I think he's

1506
01:17:11,560 --> 01:17:15,800
Speaker 2: he does really good stuff. Uh don Winslow, I know

1507
01:17:15,840 --> 01:17:17,479
Speaker 2: the name for sure, it does some.

1508
01:17:17,400 --> 01:17:18,160
Speaker 1: Really good stuff.

1509
01:17:18,760 --> 01:17:22,000
Speaker 2: Uh So I like the stuff that's like a little

1510
01:17:22,000 --> 01:17:26,200
Speaker 2: bit you know better than you know, sort of Lee

1511
01:17:26,320 --> 01:17:27,519
Speaker 2: Child's you know a little bit deeper.

1512
01:17:27,840 --> 01:17:30,639
Speaker 1: Sure, Lee Child's. My wife is a giant. Lee Child

1513
01:17:31,040 --> 01:17:31,880
Speaker 1: read everything.

1514
01:17:31,840 --> 01:17:34,600
Speaker 2: Lee Child is entertaining, but every story is sort of

1515
01:17:34,640 --> 01:17:39,960
Speaker 2: along the same same lines. So so that's the sort

1516
01:17:40,000 --> 01:17:41,760
Speaker 2: of stuff that I like to read, and I read.

1517
01:17:42,080 --> 01:17:44,840
Speaker 1: I read a fair amount the sci fi book I

1518
01:17:44,880 --> 01:17:49,320
Speaker 1: have sitting on my nightstand that I'm almost afraid to start.

1519
01:17:49,439 --> 01:17:52,760
Speaker 1: Is the three body problem, and it's each book is

1520
01:17:52,840 --> 01:17:57,120
Speaker 1: nine hundred pages. Three books is it's actually by a

1521
01:17:57,280 --> 01:18:03,400
Speaker 1: Chinese author and references. Is the inability to forecast the

1522
01:18:03,479 --> 01:18:08,840
Speaker 1: location of heavenly bodies of planets moon stars. We can

1523
01:18:08,920 --> 01:18:11,639
Speaker 1: calculate too once you bring a third one in. It's

1524
01:18:11,760 --> 01:18:15,280
Speaker 1: just the outcomes. I'll take a look at that. It's fascinating.

1525
01:18:15,360 --> 01:18:19,320
Speaker 2: Have you read Tediang. He's a short story writer. He

1526
01:18:19,360 --> 01:18:23,840
Speaker 2: writes short story of fiction. He's got two books science fiction.

1527
01:18:24,479 --> 01:18:25,400
Speaker 2: It's fabulous.

1528
01:18:25,520 --> 01:18:29,599
Speaker 1: What's it's very intellectual stuff. It's he writes. He writes

1529
01:18:29,640 --> 01:18:32,920
Speaker 1: sometimes in the New Yorker magazine. So there's a book

1530
01:18:33,000 --> 01:18:36,880
Speaker 1: of his. I'm trying to remember. I think he's had

1531
01:18:36,920 --> 01:18:42,640
Speaker 1: two volumes of all stories. Yeah, all short stories. The

1532
01:18:42,680 --> 01:18:45,559
Speaker 1: movie The Arrival was based on was based on his

1533
01:18:45,600 --> 01:18:48,000
Speaker 1: short So the one I just got is Stories of

1534
01:18:48,040 --> 01:18:51,120
Speaker 1: your Life and other tells. But the one before that

1535
01:18:51,280 --> 01:18:54,720
Speaker 1: is Revelation Ascendancy. Yeah, it's so funny you mentioned that

1536
01:18:54,840 --> 01:18:57,200
Speaker 1: literally just and I gave that to a few friends

1537
01:18:57,439 --> 01:19:00,000
Speaker 1: for holidays and stuff. Is great because really I'm excited.

1538
01:19:00,000 --> 01:19:04,200
Speaker 1: That is like the book I Bring on Planes where

1539
01:19:04,280 --> 01:19:06,160
Speaker 1: all I go Now to read. Let me let me

1540
01:19:06,200 --> 01:19:10,320
Speaker 1: go through a chapter. Really, and there's this really fascinating

1541
01:19:10,360 --> 01:19:13,439
Speaker 1: collection of short stories. I'll never remember it, but i'll

1542
01:19:13,479 --> 01:19:17,720
Speaker 1: but I'll email it to you. Diary of an interstellar

1543
01:19:17,880 --> 01:19:23,160
Speaker 1: refrigerator repairman, something along those lines. And it's it's brilliant

1544
01:19:23,200 --> 01:19:27,920
Speaker 1: science fiction, but it's also surprisingly amusing and funny. It's

1545
01:19:28,000 --> 01:19:30,639
Speaker 1: it's out. If you like those, I think you'll you'll

1546
01:19:31,040 --> 01:19:35,040
Speaker 1: appreciate that they're not it's not all the same story.

1547
01:19:35,240 --> 01:19:38,160
Speaker 1: They're kind of like just very loose set in the

1548
01:19:38,200 --> 01:19:41,880
Speaker 1: same universe, but unrelated type of uh stuff, but really

1549
01:19:41,920 --> 01:19:45,680
Speaker 1: really fascinating. And our final two questions, what sort of

1550
01:19:45,720 --> 01:19:49,080
Speaker 1: advice would you give a college grad who is interested

1551
01:19:49,160 --> 01:19:53,720
Speaker 1: in a career in either economics or central banking or

1552
01:19:54,080 --> 01:19:55,680
Speaker 1: monetary policy.

1553
01:19:56,400 --> 01:20:00,400
Speaker 2: Find an interesting job, build your human capital. You find

1554
01:20:00,400 --> 01:20:03,519
Speaker 2: that your human capital is no longer going up at

1555
01:20:03,560 --> 01:20:07,240
Speaker 2: a particularly rapid rate, find a new job. I mean,

1556
01:20:07,280 --> 01:20:09,400
Speaker 2: I was very lucky because I jumped around in my career,

1557
01:20:09,439 --> 01:20:12,280
Speaker 2: and I feel like every place I moved, I learned

1558
01:20:12,280 --> 01:20:15,600
Speaker 2: a new set of skills and information which sort of

1559
01:20:15,600 --> 01:20:19,160
Speaker 2: helped me do better at the next endeavor. So I

1560
01:20:19,160 --> 01:20:23,240
Speaker 2: think it's really important not to get stale and you know,

1561
01:20:23,680 --> 01:20:26,280
Speaker 2: and the second really most important thing is find something

1562
01:20:26,280 --> 01:20:28,080
Speaker 2: that you that you can be you know, that really

1563
01:20:28,080 --> 01:20:30,240
Speaker 2: interests you, that you can be enthusiastic about it. Because

1564
01:20:30,240 --> 01:20:33,160
Speaker 2: if you can't go to work and be enthusiastic about it,

1565
01:20:33,400 --> 01:20:35,479
Speaker 2: you're not going to do very well and you're not gonna.

1566
01:20:35,240 --> 01:20:35,880
Speaker 1: Be very happy.

1567
01:20:36,360 --> 01:20:38,759
Speaker 2: I mean, ideally, you know, you like your work, and

1568
01:20:39,360 --> 01:20:42,120
Speaker 2: the difference between work and pleasure so starts to blur

1569
01:20:42,680 --> 01:20:45,920
Speaker 2: and you don't really aren't resentful when there's more, you know,

1570
01:20:46,320 --> 01:20:48,759
Speaker 2: demands for your work. I mean, during the financial crisis,

1571
01:20:48,800 --> 01:20:52,200
Speaker 2: you can imagine I worked pretty long hours, but I

1572
01:20:52,200 --> 01:20:53,680
Speaker 2: wouldn't have had it any other way. I mean, it

1573
01:20:53,680 --> 01:20:56,000
Speaker 2: was absolutely a fascinating period of time, and yeah it

1574
01:20:56,040 --> 01:20:59,080
Speaker 2: was work, but but I got a lot out of it.

1575
01:20:59,520 --> 01:21:03,840
Speaker 1: My wife describes me as being gainfully unemployed, which is

1576
01:21:04,160 --> 01:21:06,439
Speaker 1: exactly along those things. I would do it if I

1577
01:21:06,439 --> 01:21:09,360
Speaker 1: was getting paid or not. So it works out really well.

1578
01:21:09,400 --> 01:21:12,280
Speaker 1: And our final question, what do you know about the

1579
01:21:12,320 --> 01:21:17,000
Speaker 1: world of investing today, markets, investing, monetary policy that you

1580
01:21:17,040 --> 01:21:19,800
Speaker 1: wish you knew thirty or forty years ago when you

1581
01:21:19,840 --> 01:21:21,040
Speaker 1: were first getting started.

1582
01:21:22,200 --> 01:21:24,599
Speaker 2: Well, I mean when I first started investing. I started

1583
01:21:24,640 --> 01:21:28,040
Speaker 2: investing in nineteen seventy four, seventy five, and I have

1584
01:21:28,160 --> 01:21:31,080
Speaker 2: to say I was so naive about investing at that time.

1585
01:21:31,640 --> 01:21:35,880
Speaker 2: I didn't really understand you know, you know what really

1586
01:21:35,960 --> 01:21:41,759
Speaker 2: drove stock market evaluation, you know, what determined the success

1587
01:21:41,800 --> 01:21:45,600
Speaker 2: of companies. You know, you'll learn a lot by doing it.

1588
01:21:46,160 --> 01:21:48,680
Speaker 2: And I personally think a lot of people over overinvest

1589
01:21:48,960 --> 01:21:51,559
Speaker 2: in the sense of making transaction. I found over time

1590
01:21:51,600 --> 01:21:54,160
Speaker 2: that you know, I have good ideas once every like

1591
01:21:54,560 --> 01:21:58,519
Speaker 2: five ten years, and you know you have to wait

1592
01:21:58,520 --> 01:22:01,200
Speaker 2: for that good idea to to and then implement that

1593
01:22:01,320 --> 01:22:04,200
Speaker 2: investment thesis. You know, well, one thing I'm good at

1594
01:22:04,200 --> 01:22:07,160
Speaker 2: it coming out with ideas, but I'm terrible at trading

1595
01:22:07,200 --> 01:22:07,719
Speaker 2: on them.

1596
01:22:08,080 --> 01:22:09,200
Speaker 1: You know, like Bob Rubin a.

1597
01:22:09,200 --> 01:22:10,960
Speaker 2: Number of years ago at Goldman's you know, you know,

1598
01:22:11,200 --> 01:22:13,400
Speaker 2: you know, suggested that, well maybe you should, you know,

1599
01:22:13,520 --> 01:22:17,479
Speaker 2: should actually start trading things trying try that. I said, no, Bob,

1600
01:22:17,520 --> 01:22:20,120
Speaker 2: I don't think my my risk tolerance is right for that.

1601
01:22:20,200 --> 01:22:22,040
Speaker 2: And the second reason not to do it is that

1602
01:22:22,080 --> 01:22:24,040
Speaker 2: if you start trading things, then it sort of leaks

1603
01:22:24,040 --> 01:22:29,040
Speaker 2: into your interpretation of information and events, because then you

1604
01:22:29,080 --> 01:22:32,040
Speaker 2: start to talk your book and try to contribute. You know,

1605
01:22:32,400 --> 01:22:35,200
Speaker 2: this is the reason why the ten year bond yield.

1606
01:22:34,920 --> 01:22:37,320
Speaker 1: Should fall, because well, I have a position.

1607
01:22:37,439 --> 01:22:40,160
Speaker 2: I have a position, you know, And I said to me, now,

1608
01:22:40,200 --> 01:22:42,040
Speaker 2: you don't really want me to do that, because when

1609
01:22:42,040 --> 01:22:43,600
Speaker 2: I wouldn't be very good at it, and then I

1610
01:22:43,680 --> 01:22:46,679
Speaker 2: might lose some of my you know, objectivity with quotes

1611
01:22:46,720 --> 01:22:47,120
Speaker 2: around it.

1612
01:22:47,439 --> 01:22:50,479
Speaker 1: I do like the idea of low frequency trading as a.

1613
01:22:50,800 --> 01:22:53,519
Speaker 2: Yeah, I mean, I think for most people, buying an

1614
01:22:53,600 --> 01:22:56,240
Speaker 2: ETF on a broad based stock market and then putting

1615
01:22:56,240 --> 01:22:59,000
Speaker 2: it away for twenty years is the right approach.

1616
01:22:59,160 --> 01:23:02,479
Speaker 1: Can't really just agree, Bill, Thank you for being so

1617
01:23:02,720 --> 01:23:05,960
Speaker 1: generous with your time. This has just been absolutely delightful.

1618
01:23:06,720 --> 01:23:09,360
Speaker 1: We have been speaking with Bill Dudley. He is the

1619
01:23:09,400 --> 01:23:13,640
Speaker 1: former US economist for Goldman Sachs and head of the

1620
01:23:13,680 --> 01:23:16,240
Speaker 1: New York Fed, as well as his many policy roles

1621
01:23:16,840 --> 01:23:20,760
Speaker 1: at the Federal Reserve. If you enjoy this conversation, well,

1622
01:23:20,880 --> 01:23:22,960
Speaker 1: be sure and check out any of the five hundred

1623
01:23:23,160 --> 01:23:26,200
Speaker 1: or so we've done over the past. Hey, it's almost

1624
01:23:26,280 --> 01:23:30,320
Speaker 1: ten years. You can find those at iTunes, Spotify, YouTube,

1625
01:23:30,400 --> 01:23:34,800
Speaker 1: wherever you find your favorite podcasts. Sign up for my

1626
01:23:34,920 --> 01:23:37,720
Speaker 1: daily reading list at Ridhelts dot com. Follow me on

1627
01:23:37,760 --> 01:23:41,960
Speaker 1: Twitter at Ridolts. Check out my new podcast At the Money,

1628
01:23:42,320 --> 01:23:47,160
Speaker 1: short ten minute conversations with experts about the most important

1629
01:23:47,200 --> 01:23:51,920
Speaker 1: elements of your earning money, spending money, and most importantly,

1630
01:23:52,080 --> 01:23:55,040
Speaker 1: investing money. I would be remiss if I did not

1631
01:23:55,160 --> 01:23:58,479
Speaker 1: thank the crack team of people who help us put

1632
01:23:58,520 --> 01:24:02,960
Speaker 1: these conversations together each week. Kayla Lapara is my audio engineer.

1633
01:24:03,040 --> 01:24:06,640
Speaker 1: Attika val Bron is my project manager. Anna Luke is

1634
01:24:06,680 --> 01:24:11,759
Speaker 1: my producer. Sean Russo is my researcher. I'm Rid Holts.

1635
01:24:12,000 --> 01:24:15,559
Speaker 1: You've been listening to Masters in Business on key birth

1636
01:24:15,640 --> 01:24:16,760
Speaker 1: ratio