Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Cleveland Fed President Beth
Speaker 1: Hammock among those preferring to hold rates higher for longer,
Speaker 1: while our next guest is taking the other side, voting
Speaker 1: for a fifty basis point cut at the fed's last meeting.
Speaker 1: Joining us now is Federal Reserve Governor Stephen Myron. Very
Speaker 1: good morning to you, Steven. Thank you so much for
Speaker 1: joining us.
Speaker 2: Good morning, thanks for having me back.
Speaker 1: So let's start with Beth Ham actually came out over
Speaker 1: the weekend. Then we heard for Williams as well on Friday,
Speaker 1: saying that potentially where we are right now, rates should
Speaker 1: be steady and they're looking at what's going on inflation.
Speaker 1: Even the FED chair was talking about maybe you need
Speaker 1: to look at inflation the data we had with some
Speaker 1: grain of salt because of the government shutdown. How are
Speaker 1: you viewing that side of the FEDS mandate right now?
Speaker 3: Yeah, So I gave a speech on the inflation Netlook
Speaker 3: last week, you know, and I still believe everything I
Speaker 3: said last week in light of this week's print.
Speaker 2: Last week's print, I.
Speaker 3: Mean, look, there were a couple of anomalies in last
Speaker 3: week's print related to consequences of the government shutdown, which
Speaker 3: have distorted and delayed economic data that we need to
Speaker 3: make policy. But you know, in those consequences I think
Speaker 3: are not huge there when you sort of get to
Speaker 3: when you get to sort of the ultimate PCE print,
Speaker 3: which is what the FED, which is what the FED targets,
Speaker 3: it's probably ultimately going to be in the neighborhood of
Speaker 3: two tenths of a point, maybe a tenth of that
Speaker 3: is going to be shelter, and tenth of the other
Speaker 3: stuff is going to be you know, calendar stuff like prices,
Speaker 3: like data were collected in the second half of the
Speaker 3: month around Black Friday stuff. But we'll have to sort
Speaker 3: of see when we get the PC data. But it
Speaker 3: is true that the shelter stuff was somewhat distorted by
Speaker 3: some of the quirks of the of recovering from the shutdown.
Speaker 3: But it's also true that the shelter data were distorted
Speaker 3: for most of the year because of really long lands
Speaker 3: with which shelter inflation is calculated. If you look at
Speaker 3: market rents, they've been running at about a one percent
Speaker 3: rate for about two years now, right. That's not indicative
Speaker 3: of any price pressures in housing whatsoever, but it takes
Speaker 3: a really long time for measured shelter inflation to catch
Speaker 3: up to that, just because of various quirks of the
Speaker 3: statistical measurement process that I got into my speech last week.
Speaker 3: So I do think there was maybe someward bias in
Speaker 3: last week's print. But at the same time, there's been
Speaker 3: tons of upward bias in data for the entire year,
Speaker 3: and it's inappropriate to say, Okay, well, we have to
Speaker 3: adjust for the downward bias, but we're going to accept
Speaker 3: the upward bias that itself is a deeply biased position.
Speaker 2: We've got to be clear right about both. Well, do
Speaker 2: you feel like yourself included?
Speaker 1: But do you feel like members of the Fed are
Speaker 1: cherry picking what about inflation they like or dislike?
Speaker 3: Well, I mean, you know, I think that for the
Speaker 3: last few months, we've had data come out in accordance
Speaker 3: with I think my view of the world. The inflation
Speaker 3: data has steadily come in cooler than expectations, the unemployment
Speaker 3: rate has poked up potentially above where people thought it
Speaker 3: was going to go, and so we've had data that
Speaker 3: should push people into a duvish direction. And I think
Speaker 3: it's somewhat problematic if you see those data coming out
Speaker 3: and you don't adjust your policy prescriptions in the Duvish direction.
Speaker 3: What does that say about the reactiveness of policy to
Speaker 3: the economy? You know, I think it looks very it
Speaker 3: reflects very poorly upon the institution.
Speaker 4: At the end of that speech at Columbia, you nodded
Speaker 4: to the fact that recessions are inevitable. Fed's job, it's
Speaker 4: going to forestall them as much as they can. Policymaker's
Speaker 4: jobs are that. I'm very curious when you look at
Speaker 4: the labor market, in particularly the rise that we've seen
Speaker 4: in the unemployment rate, that's kind of rise we've seen
Speaker 4: customarily before recessions. How do you assess the risk of
Speaker 4: there being a recession here in the near term when
Speaker 4: you look at the labor market, for instance.
Speaker 3: So I don't see a recession in the near term,
Speaker 3: in part because we are adjusting our policy rate, belowering it,
Speaker 3: which is appropriate. You know.
Speaker 2: My view, as I've described, is that a variety.
Speaker 3: Of shocks that hit the economy, you know, including changes
Speaker 3: to the population growth rate due to the changes in
Speaker 3: the border policy, have pushed what we call the neutral
Speaker 3: rate down and that policy needs to adjust downward to
Speaker 3: reflect that downward shift in neutral. If we don't adjust
Speaker 3: policy down, then I think that we do run risks
Speaker 3: of rising recessions. I don't think it's too late to
Speaker 3: prevent that, and so I think it's important that we
Speaker 3: keep on adjusting our policy rate down. But at the
Speaker 3: moment it's not my base case, in part because I
Speaker 3: think that we ultimately will end up continuing to adjust
Speaker 3: interest raights down.
Speaker 4: I want to ask you about the utility of the
Speaker 4: Myrone descent. So we had the FED share asked that
Speaker 4: press conference about the increasing fractured nature of the FED Committee.
Speaker 4: We've talked about quiet descents as well. What are you
Speaker 4: achieving or so what's the reaction been to you dissenting
Speaker 4: as you have been kind of in the conversation among
Speaker 4: the committee.
Speaker 3: Yeah, so, look, I mean there's not really any strategy here.
Speaker 3: I'm just transparent and say what I think and always
Speaker 3: have and that gets me in a lot of trouble.
Speaker 4: And does it or is it a constructive So when
Speaker 4: you descend in the way in which you does is
Speaker 4: it a constructive descent? Do you find that others are
Speaker 4: willing to engage with you and your perspective on inflation?
Speaker 2: For instance.
Speaker 3: Yeah, well, my perspective on inflation is you know, look
Speaker 3: at my first speech, I talked about inflation a little bit,
Speaker 3: but I mostly was focused on neutral.
Speaker 2: My speech last week.
Speaker 3: I really drew out a lot about my outlook for
Speaker 3: inflation that was sort of implicit in the first speech
Speaker 3: and sort of just cursely curse, cursorily treated.
Speaker 2: And I really drew that out.
Speaker 3: So my views and inflation haven't been out there fully
Speaker 3: fleshed out for the committee for so long and now
Speaker 3: running into holiday season. But I have found that are
Speaker 3: that people are constructive, they want to discuss these things,
Speaker 3: and I think that's important. And you know, look, one
Speaker 3: positive benefit of me potentially dissenting like this is that
Speaker 3: it introduces more a wider variety of views. I think
Speaker 3: it's really really important to avoid groupthink. I think if
Speaker 3: you fall into group think, you stop questioning where you
Speaker 3: could be wrong, and then it just becomes much easier
Speaker 3: to be a complacent consensus that is in error.
Speaker 2: I think we've seen that over and over this year.
Speaker 2: For example, on tariffs.
Speaker 1: Let's talk potentially about tariffs. The President is pushing for
Speaker 1: this two thousand dollars tariff dividend the Church of secretary
Speaker 1: is talking about these tax refunds start of twenty twenty six.
Speaker 1: Is there potential that more money in consumers pockets could
Speaker 1: goose inflation?
Speaker 3: Yeah, so there is potential for some of these factors
Speaker 3: to boost economic growth. With respect to sort of tax refunds,
Speaker 3: you know, I think that sorry, with respect to tariff refunds,
Speaker 3: I think we need to sort of wait and see
Speaker 3: what the policy looks like before getting into analyzing its consequences.
Speaker 3: If there does end up being a policy with respect
Speaker 3: to tax refunds that are results of the already legislated
Speaker 3: tax bill, the One Be Beautiful Bill Act from last year,
Speaker 3: those are already baked into the forecast and they will
Speaker 3: provide a little bit of demand stimulus. But there's so
Speaker 3: much other stuff going on as result of policy Ino
Speaker 3: triple b in deregulation, in other things that are going
Speaker 3: on in econ policy that ultimately push out the supply
Speaker 3: side of the economy too. And my view is that
Speaker 3: if you push out the demand side while you're putting
Speaker 3: the brakes in the supply side, you get inflation.
Speaker 2: If you push out supply.
Speaker 3: And demand at the same time, it doesn't really have
Speaker 3: an effect on priceis But do.
Speaker 1: You think it was a mistake that when we had
Speaker 1: under the Biden administration the American Rescue Plan Inflation Reduction
Speaker 1: Act sending out checks to American consumers.
Speaker 2: Was that an error?
Speaker 3: Well, it's not appropriate for you know, for a member
Speaker 3: of the Federal Reserve.
Speaker 2: Do you think it described to there's an error or not?
Speaker 3: But I do think that if you hit if you
Speaker 3: hit the gas on demand while you're hitting the brakes
Speaker 3: on supply at the same time, it will result in
Speaker 3: higher prices.
Speaker 1: That is, that is an economic when two thousand dollars
Speaker 1: checks do a similar reaction as we saw on by
Speaker 1: the other checks during the American Rescue Plan, Well.
Speaker 3: It depends what's happening on the supply. So two things matter.
Speaker 3: One is the state of the demand, state of aggregate
Speaker 3: demand outside of those checks. And if you go back
Speaker 3: several years, the economy was recovering on its own from COVID. Right.
Speaker 3: What COVID was not like the Great the Financial Crisis,
Speaker 3: which had lingering deleveraging effects for a decade plus, which
Speaker 3: meant that demand was persistently depressed. After COVID, you know,
Speaker 3: we started getting vaccines, we started getting at virals, places
Speaker 3: started opening back up, the economy started returning to normal
Speaker 3: on its own, and so demand was growing quite healthily,
Speaker 3: and jobs numbers were beating every month, and so throwing
Speaker 3: more economic support on top of that wound up sort
Speaker 3: of pushing and already expanding demand side to expand even further.
Speaker 3: Right now, you see the unemployment rate is tilting up
Speaker 3: on its own, right, So demand is in a separate
Speaker 3: isn't a very different place than it was in twenty
Speaker 3: twenty one, but so is supply. And I think that
Speaker 3: if you're taking policy steps that are going to push
Speaker 3: out supply, or supply is moving out for reasons other
Speaker 3: than policy, for instance AI, which I find difficult to quantify,
Speaker 3: but a lot of people put a lot of faith
Speaker 3: in if supply is moving out for whatever reasons, it
Speaker 3: can accommodate increasing demand, and so the effect on prices
Speaker 3: could be very different.
Speaker 4: On higher goods inflation, there is a prevailing narrative that
Speaker 4: the terrorist policy has a lot to do with what's
Speaker 4: been pushing that up, and you kind of push back
Speaker 4: against that. You did that in the speech that you
Speaker 4: Live to Columbia as well. At the same time, you
Speaker 4: talk a lot about humility. How much uncertainty there is.
Speaker 4: I think you nodded to Mervin King in that speech
Speaker 4: and what he's written about uncertainty.
Speaker 2: What's it going to take for you?
Speaker 4: Do you feel like you have a grasp of the
Speaker 4: effect of the tariffs policy thus far? Or are you
Speaker 4: still waiting to figure out sort of what that's going
Speaker 4: to mean for the economy broadly? And yes, when it
Speaker 4: comes to goods inflation.
Speaker 3: Yeah, So look in the speech I did discuss how
Speaker 3: there's this consensus has emerged that tariffs are a significant
Speaker 3: driver of inflation in the same way consensus emerged earlier
Speaker 3: in the year the tariffs are going to drive some
Speaker 3: sort of crazy recession, you know that was there. And
Speaker 3: I think that consensus is wrong and and I think
Speaker 3: it's complacent.
Speaker 2: I described Charra factuals. Right.
Speaker 3: If you're describing a result in prices to tariffs, you
Speaker 3: need to say what the world would have been like
Speaker 3: without tariffs. Now, what most people do is they look
Speaker 3: at what we call the pre trends. What were the
Speaker 3: trends of various items before tariffs?
Speaker 2: Right?
Speaker 3: And most people select pre trends from the two decades
Speaker 3: before the pandemic. Right when the world was very very
Speaker 3: I don't think that that's really appropriate. Instead, the counterfactors
Speaker 3: that I want to look at that I describe in
Speaker 3: the speech and I include pictures for them, are two things.
Speaker 3: One what are imported goods imported core goods in the
Speaker 3: PC index doing relative to overall core goods?
Speaker 2: And two what are what's.
Speaker 3: Happening on an international basis? And in both of those cases,
Speaker 3: I don't see anything that would indicate to me that
Speaker 3: tariffs are the driver of core goods inflation. When you
Speaker 3: look at imported goods versus overall core goods, they're inflating
Speaker 3: at similar rates. Importive goods don't stick out. When you
Speaker 3: look at US core goods versus other countries. Again, US
Speaker 3: core goods are in the middle of the pack, and
Speaker 3: there hasn't been a change that would indicate to me
Speaker 3: that there's some sort of very significant tariff shop. So
Speaker 3: I think it's actually quite complacent for people to ascribe
Speaker 3: all this inflation to tariffs. And indeed, if you look
Speaker 3: at CPI, core goods in CPI bottomed out in the
Speaker 3: middle of last year, right seven or eight months before
Speaker 3: tariffs were implemented.
Speaker 1: I just want to get a sense before you leave us,
Speaker 1: how are you thinking about the next meeting, because it
Speaker 1: couldn't potentially be your last. Do you plan on dissenting
Speaker 1: in favor fifty basis point cut?
Speaker 3: Again, Look, I plan on pushing for the policy that
Speaker 3: I think is appropriate at the time. I will say,
Speaker 3: when I got to the FED, we hadn't cut rates
Speaker 3: at all this year, and so it was very important
Speaker 3: for us to move rates down quickly. Since then, we've
Speaker 3: pushed rates down three times, seventy five basis points of
Speaker 3: cuts to the policy rate, so the need for me
Speaker 3: to dissent for fifty becomes a little bit less as
Speaker 3: we come down. I haven't yet decided whether I'm going
Speaker 3: to push for twenty five or fifty next meeting. I
Speaker 3: think it depends on a variety of factors. So I
Speaker 3: could see voting for twenty five, but I do think
Speaker 3: it's important that we continue steadily reducing the policy rate.
Speaker 1: So basically, you'll vote for twenty five with the rest
Speaker 1: of the committee's there. If they're not going to push
Speaker 1: through twenty five, you may alert everyone of your dissatisfaction
Speaker 1: with them by going for fifty.
Speaker 3: Well, No, it depends. I think I want to see
Speaker 3: the data. You know, we're still witting on a lot
Speaker 3: of data because of the shutdown, right, so I want
Speaker 3: to see what the data do to my forecast going
Speaker 3: forward and they and how they change my forecast going forward.
Speaker 3: But the truth is that I think that it was
Speaker 3: really important to vote to sorry to cut in bigger
Speaker 3: clips when policy was very high. As we continue reducing policy,
Speaker 3: I think you sort of get into into territory where
Speaker 3: you can start micromanaging instead of big instead of big cuts.
Speaker 3: And I don't know whether we're here yet or it
Speaker 3: would sort of still take a couple more cuts to
Speaker 3: get there, but at some point you sort of start
Speaker 3: to become okay with sort of steady twenty five business
Speaker 3: point cuts instead of fifty business point cuts.
Speaker 2: Do you think it's going to be your last meeting?
Speaker 1: Has the White House reached out about whether or not
Speaker 1: you were going to stay on at the FED?
Speaker 2: I have no idea.
Speaker 3: I mean, look, you know, if nobody is confirmed in
Speaker 3: my seat by January thirty, first I assume that I
Speaker 3: will stay. I will stay in my seat. You know,
Speaker 3: you can stay in a seat until a successor is confirmed,
Speaker 3: and then beyond beyond that, you know, it all depend
Speaker 3: on who the President ultimately nominates to be the next
Speaker 3: Chairman of the FED, because it'll depend on, you know,
Speaker 3: what seats are available and who the President wants to
Speaker 3: fill them.
Speaker 1: When it comes to the next chairman of the Federal Reserve.
Speaker 1: There are two individuals that you've worked closely with just
Speaker 1: this year alone, Kevin Hassett of course when you were
Speaker 1: at the White House, and also Christopher Waller Government Waller
Speaker 1: of course with you at the FED. Can you just
Speaker 1: give us your valuation of both those individuals, given the
Speaker 1: fact that you have a very good, I imagine relationship
Speaker 1: with both of them.
Speaker 2: Yeah.
Speaker 3: Look, they're both supremely talented economists and extremely effective individuals
Speaker 3: that I have the utmost respect for, and I think
Speaker 3: the counture would be very lucky to have either of them.
Speaker 4: A quick question just about what you've witnessed in terms
Speaker 4: of the chairman's role at the FED. You've been there
Speaker 4: for a few months. Is there anything that's surprised you
Speaker 4: about the way that FED share Powell is able to
Speaker 4: kind of go to get people to galvanize themselves around
Speaker 4: any kind of unanimity, the way that he runs the committee.
Speaker 4: I think we think about the FED shaers this kind
Speaker 4: of principal position. The President kind of makes us think
Speaker 4: that way that this is going to be a highly
Speaker 4: persons have a lot of determinism himself. But the FED
Speaker 4: Chair's responsibility is to try to get everybody on board
Speaker 4: with decisions. What if you wuitness about FED share power's
Speaker 4: ability to do that, what would you say to the
Speaker 4: president down that facet A FED chair has to have
Speaker 4: to be effective.
Speaker 3: Look, you know, I think that there's obviously a lot
Speaker 3: of people on the committee who are not comfortable with
Speaker 3: rate cuts.
Speaker 2: And I think that's the wrong.
Speaker 3: Economic position at the moment, given the data that we
Speaker 3: have available to us, and the forecast that we have
Speaker 3: able to us, and the very well known, very well
Speaker 3: understood upward biases that are that are affecting inflation measurement
Speaker 3: at this moment in time, I think that's the wrong
Speaker 3: the wrong view, no question about it. Nevertheless, I think
Speaker 3: you have to give Chairman Powell, uh, you know, a
Speaker 3: credit for having wrangled uh, you know, wrangled three cuts
Speaker 3: out of these guys in succession. And and it's a
Speaker 3: it's a it's a it's a it's a cat herding task.
Speaker 2: Uh.
Speaker 3: And you know, and I think we have to. You know,
Speaker 3: we got to give a little credit for that.
Speaker 2: Well, it definitely is a cat herding task.
Speaker 1: We look forward to to the next meeting and see
Speaker 1: where you come up, whether fifty or twenty five basis points.
Speaker 1: Governor Stephen Myron, thank you so much for your time
Speaker 1: this morning.