WEBVTT - Bloomberg Surveillance: Thomas Barkin on Interest Rates 0:00:00.160 --> 0:00:03.240 It is another good day in the jobless world. Two 0:00:03.360 --> 0:00:07.480 hundred and eighteen thousand jobless claims reported last month. Remember 0:00:07.480 --> 0:00:09.720 we had the big job last week. We had the 0:00:09.720 --> 0:00:11.879 big jump the week before up to two twenty four, 0:00:11.920 --> 0:00:14.520 and now we've gone backwards a little bit on that. 0:00:14.840 --> 0:00:18.840 I'm waiting to see the latest revisions to see what 0:00:18.960 --> 0:00:22.000 last week it was two twenty seven. So last week 0:00:22.120 --> 0:00:24.040 was revised up and this week we come way down 0:00:24.280 --> 0:00:27.160 to to eighteen on a continuing basis one million, eight 0:00:27.240 --> 0:00:30.480 hundred and seventy one thousand. That is down from one million, 0:00:30.520 --> 0:00:33.879 eight hundred ninety four thousand, So it does look like 0:00:34.560 --> 0:00:37.800 workers are still on the job, companies are still holding 0:00:37.800 --> 0:00:38.760 onto their employees. 0:00:38.880 --> 0:00:40.320 Yet it's a little bit higher off the back of 0:00:40.320 --> 0:00:42.360 this MIC. So we're up three or four basis points 0:00:42.360 --> 0:00:45.000 on a ten year to four fourteen on a thirty year, 0:00:45.080 --> 0:00:48.040 up three basis points at least at a four thirty five. 0:00:48.120 --> 0:00:51.520 You put this together with jobless claims and together with payrolls, 0:00:51.560 --> 0:00:55.040 together with the ISAM services manufacturing improving, it's pretty decent 0:00:55.080 --> 0:00:56.280 dates over the last couple of weeks. 0:00:56.360 --> 0:00:58.080 If you're looking for cracks, you're not finding it. When 0:00:58.120 --> 0:01:00.440 people say well, just fast forward, look at the real 0:01:00.480 --> 0:01:02.320 time data. Well, here we have the real time data, 0:01:02.360 --> 0:01:04.440 and it's confirming the strength that we saw last Friday 0:01:04.440 --> 0:01:06.560 in the ten year yield, I'm noting really taking a 0:01:06.640 --> 0:01:10.480 leg higher four point one percent rounded up. To me, 0:01:10.600 --> 0:01:13.040 that's what I'm watching longer term. What does that suggest 0:01:13.040 --> 0:01:16.000 about the neutral rate and about long term momentum underneath 0:01:16.040 --> 0:01:17.240 some of the recovery we've seen. 0:01:17.160 --> 0:01:19.479 Dunnas maye because we can have that conversation right now, 0:01:19.520 --> 0:01:22.800 realtime reaction with think Richmond Fed President Tompak and alongside 0:01:22.800 --> 0:01:25.720 Blimpecks Mike McKay president back in good morning, she say. 0:01:25.760 --> 0:01:27.840 Thanks for having me here, and I am having that 0:01:27.959 --> 0:01:28.800 data didn't surprise. 0:01:28.920 --> 0:01:31.240 Well, let's talk about this data. Let's talk about how 0:01:31.319 --> 0:01:33.520 much weight you're putting on it. It's really strong coming 0:01:33.520 --> 0:01:35.240 out of the gate for twenty twenty four. How much 0:01:35.280 --> 0:01:36.880 weight are you putting on this stuff at the moment? 0:01:37.520 --> 0:01:39.920 Well, I think the data has been remarkable, and it's 0:01:39.920 --> 0:01:43.520 been remarkable across the board. Yeah, the fourth quarter GDP 0:01:43.640 --> 0:01:47.520 three point three percent, the jobs numbers last month, and 0:01:47.600 --> 0:01:49.400 I think all of them do talk about an economy 0:01:49.400 --> 0:01:53.440 that's fundamentally healthy. That's a great thing. I am always 0:01:53.440 --> 0:01:55.640 cautious about numbers around the turn of the year. I mean, 0:01:55.680 --> 0:01:58.920 they're big seasonal adjustments. A great example would be the 0:01:59.240 --> 0:02:02.480 jobs numbers last month. The actual jobs were actually down 0:02:02.520 --> 0:02:04.040 two and a half million because a lot of the 0:02:04.160 --> 0:02:07.040 retail folks who were hired for Christmas, you know, then 0:02:07.200 --> 0:02:09.520 got laid off after. But the seasonal adjustments bring it 0:02:09.600 --> 0:02:12.080 up to a positive three hundred and fifty three. So 0:02:12.440 --> 0:02:15.880 that's a pretty big seasonal adjustment. I look hard at it. 0:02:15.919 --> 0:02:17.600 I'm glad to see it coming in. That's the best 0:02:17.639 --> 0:02:19.840 data we have, but I'm not sure I'm going to 0:02:19.880 --> 0:02:21.720 take too much out of any one month. 0:02:22.360 --> 0:02:25.600 Markets are obviously interested in if and when the FED 0:02:25.680 --> 0:02:28.440 is going to cut emphasis on the when, and I 0:02:28.480 --> 0:02:31.400 know you've said we don't have to be in any rush, 0:02:31.440 --> 0:02:35.720 but with the data like this, basically are you telling 0:02:35.760 --> 0:02:40.320 people you know, we're doing fine with rates where they are. 0:02:41.240 --> 0:02:42.959 Well, I have said you don't have to be in 0:02:43.000 --> 0:02:46.600 any particular hurry. You've got a dual mandate with employment 0:02:46.680 --> 0:02:50.359 and inflation. In the employment side of the mandate, I mean, 0:02:50.400 --> 0:02:53.440 it's actually operating at historic levels three point seven percent 0:02:53.480 --> 0:02:57.440 of employment, job gains. We talked about initial claims, job openings. 0:02:57.760 --> 0:03:01.720 It's a very strong labor market still, so gratified to 0:03:01.720 --> 0:03:04.200 see inflation coming down. Hoping it continues to come down. 0:03:04.280 --> 0:03:05.840 I think we've got some time to be patient. 0:03:06.000 --> 0:03:07.960 I know you said you don't have a roadmap for 0:03:08.080 --> 0:03:11.880 rate cuts. Yesterday, Carlisle Group chief executive Harvey Schwartz said 0:03:11.919 --> 0:03:15.600 investors should not be thinking the Fed would cut rates 0:03:15.639 --> 0:03:18.440 five times this year because that would imply something's wrong 0:03:18.560 --> 0:03:21.359 with the economy. I assume you would agree with him. 0:03:21.880 --> 0:03:24.040 Well, it's hard for me to get into the market 0:03:24.080 --> 0:03:27.560 forecast because there's always two elements going on in those forecasts. 0:03:27.639 --> 0:03:31.919 One is rate normalization under a healthy economy and inflation 0:03:32.280 --> 0:03:35.320 coming down. But the other, of course, the economy takes 0:03:35.320 --> 0:03:37.640 a wrong turn and you come down faster, and so 0:03:37.680 --> 0:03:39.960 those things are a weighted average. To me. There is 0:03:40.000 --> 0:03:42.520 certainly a model that you take rates down quickly. That's 0:03:42.520 --> 0:03:44.920 not a model that's good for the economy. That's just 0:03:45.320 --> 0:03:47.240 one of the things that could happen. And then there's 0:03:47.280 --> 0:03:50.800 the model where you toggle rates down as the economy 0:03:50.880 --> 0:03:52.120 comes back into balance. 0:03:52.360 --> 0:03:55.160 Underpinning this is really the mystery of the neutral rate 0:03:55.400 --> 0:03:58.600 sort of this vague, mysterious concept that people throw around. 0:03:58.680 --> 0:04:01.840 Mount Zeiover at Deutsch Bang changed his view recently, saying 0:04:01.880 --> 0:04:03.800 that he thinks the neutral rate, instead of being about 0:04:03.800 --> 0:04:06.000 three percent in the post pandemic reality, might be around 0:04:06.040 --> 0:04:08.640 three and a half percent or even four percent. Does 0:04:08.680 --> 0:04:09.800 that job with your thinking? 0:04:10.920 --> 0:04:13.440 It's certainly conceivable to me that it's come up from 0:04:13.480 --> 0:04:17.240 the estimates that we saw before COVID. The challenge with 0:04:17.279 --> 0:04:20.120 all these neutral rate estimates is the standard deviation's two 0:04:20.200 --> 0:04:23.400 hundred basis points, and so the center of the SEP 0:04:23.560 --> 0:04:25.000 I think in the last meeting was about two and 0:04:25.040 --> 0:04:27.479 a half, So it could be a half, it could 0:04:27.520 --> 0:04:29.479 be four and a half, and so I think you 0:04:29.560 --> 0:04:32.520 have to sort of make your decisions not based on 0:04:32.560 --> 0:04:34.919 trying to hit a theoretical neutral but based on what 0:04:34.960 --> 0:04:36.480 you see in the economy and what you learn about 0:04:36.480 --> 0:04:39.120 how the economy reacts to rates. And that's what I'm 0:04:39.120 --> 0:04:39.560 trying to do. 0:04:39.960 --> 0:04:42.479 I guess as I'm watching some of the data come 0:04:42.480 --> 0:04:45.120 in and I hear from all of these investors they're 0:04:45.120 --> 0:04:47.640 concerned about reaccelerating inflation later in the year, some of 0:04:47.640 --> 0:04:50.920 these comps change. Are you also starting to worry about 0:04:50.920 --> 0:04:51.799 that a little bit more. 0:04:52.680 --> 0:04:54.200 Well, we've already had a lot to worry about in 0:04:54.240 --> 0:04:56.760 today's conversation, so I won't focus on all of the 0:04:56.760 --> 0:05:00.200 worries I have got. I saw the shipping conversation. 0:04:59.760 --> 0:05:01.760 Ear today, at least it's specialized in worried. 0:05:02.040 --> 0:05:04.880 Yeah. No, there's a lot to worry about. Yeah, I mean, 0:05:05.279 --> 0:05:07.120 I think you have to acknowledge how good the inflation 0:05:07.240 --> 0:05:08.960 data has been for the last seven months. I mean, 0:05:09.000 --> 0:05:11.840 last seven months core inflation one point nine percent. That's 0:05:12.120 --> 0:05:14.760 right on target. That's terrific, right, And I'm not rooting 0:05:14.800 --> 0:05:18.320 against inflation, but I'm always you know, trust but verify, 0:05:18.680 --> 0:05:20.640 you know, let's make sure that's really right. And so 0:05:20.920 --> 0:05:23.479 we'll get a few more months. It would be I 0:05:23.480 --> 0:05:26.279 would very much like to see that trend continue and 0:05:27.000 --> 0:05:30.120 you know, broaden, because it's been disproportionately goods deflation that's 0:05:30.160 --> 0:05:33.159 been masking higher than normal prices and rents and shelter. 0:05:33.240 --> 0:05:35.920 So I'd love to see it broaden and maybe well, 0:05:36.440 --> 0:05:38.119 you know, the trend is good and you can't argue 0:05:38.120 --> 0:05:40.080 with that that trend. Let's just see how we go. 0:05:40.440 --> 0:05:43.400 How do you parse inflation these days? Those because yes, 0:05:43.440 --> 0:05:46.599 the PCE is down below three percent. But when you 0:05:46.640 --> 0:05:49.600 look at things like the Cleveland and Dallas trim means, 0:05:49.680 --> 0:05:55.479 the Atlanta Fed Sticky wage index, it all shows basically 0:05:55.640 --> 0:05:58.599 more inflation than your targeted index. 0:05:59.400 --> 0:06:03.080 Well, these numbers will converge over time, right, and so 0:06:03.680 --> 0:06:06.200 what's happening right now in inflation, as I said, is 0:06:06.520 --> 0:06:09.320 you've got a lot of clawback of goods price increases 0:06:09.360 --> 0:06:12.080 that happened during COVID, and so goods deflation, which has 0:06:12.080 --> 0:06:14.760 always been a factor, is even more significant than it 0:06:14.800 --> 0:06:18.120 has been over the last twenty years. Rents and services 0:06:18.200 --> 0:06:21.360 are higher. These trim mean measures look at the center 0:06:21.400 --> 0:06:23.839 of the distribution, and so they're looking at that center 0:06:23.880 --> 0:06:27.080 part which is higher as opposed to the weighted average, 0:06:27.440 --> 0:06:30.440 which is lower. If it broadens, everything will come down. 0:06:30.520 --> 0:06:32.640 If it doesn't, it won't, and we'll just see what happens. 0:06:32.680 --> 0:06:34.760 Well, how do you make a judgment then on when 0:06:34.839 --> 0:06:37.679 you think it'll be appropriate to cut? What are you 0:06:37.800 --> 0:06:40.960 looking for? The phrase I think that Chairman and others 0:06:40.960 --> 0:06:44.080 have used as measurable progress towards the two percent target? 0:06:44.279 --> 0:06:45.320 How would you define that? 0:06:46.360 --> 0:06:49.520 If I could get these kind of numbers sustained and 0:06:49.600 --> 0:06:53.440 even better broadened, that's what I'm looking for, sustained and broadening. 0:06:53.800 --> 0:06:55.560 It was a worry in the news conference, and you 0:06:55.600 --> 0:06:57.680 could sense that with jam and Pal that he wasn't 0:06:57.720 --> 0:07:00.240 comfortable yet. And I wonder if you will not to 0:07:00.279 --> 0:07:02.279 belie there just with this idea that maybe the improvement 0:07:02.320 --> 0:07:04.039 we've seen over the last six months is down to 0:07:04.480 --> 0:07:06.440 so called one off factors. Do you share that concern 0:07:06.440 --> 0:07:07.560 as well? 0:07:07.680 --> 0:07:10.760 Well? Another way to put it is that core inflat, 0:07:10.800 --> 0:07:13.840 I mean, headline inflation for last year was whatever two 0:07:13.880 --> 0:07:16.720 point six percent. There was a three point three percent 0:07:16.760 --> 0:07:19.160 six month period and a one point nine percent six 0:07:19.200 --> 0:07:21.760 month period, So which do you believe the three point 0:07:21.760 --> 0:07:24.360 three or the one point nine So we're rounding now 0:07:24.440 --> 0:07:27.080 over those three point three months. January last year was 0:07:27.120 --> 0:07:30.840 a very inflationary month. So everything is leaning in terms 0:07:30.880 --> 0:07:32.680 of the numbers should be coming down, and I expect 0:07:32.720 --> 0:07:34.840 them to come down over the next few months, but 0:07:35.080 --> 0:07:35.840 let's see if they do. 0:07:36.000 --> 0:07:38.480 It speaks to this risk that maybe we stabilize above 0:07:38.520 --> 0:07:41.480 target on inflation, and Mike, as you know, the worry 0:07:41.600 --> 0:07:44.000 is that we do stabilize above target. And if you've 0:07:44.000 --> 0:07:46.240 started to cut interest rates, you have to start hiking again. 0:07:46.520 --> 0:07:48.200 Is that a concern that you have that if you 0:07:48.240 --> 0:07:50.679 do start to move, you're stuck in that cycle then 0:07:50.800 --> 0:07:53.240 and you have to continue and you can't start hiking again. 0:07:53.640 --> 0:07:56.200 We're always trying to be cautious because you don't really 0:07:56.200 --> 0:07:59.800 want to reverse course. An interesting period to look at 0:08:00.160 --> 0:08:02.840 eighty six. In nineteen eighty six, after the end of 0:08:02.840 --> 0:08:06.280 the Vulgar era, inflation was actually under two percent, and 0:08:06.320 --> 0:08:10.000 the FED, which had tightened significantly, started loosening significantly. In 0:08:10.040 --> 0:08:13.160 eighty seven, inflation basically doubled from where it was in 0:08:13.240 --> 0:08:15.640 eighty six, and the FED started increasing again. So that 0:08:15.720 --> 0:08:18.680 stuff has happened in history, and you're certainly aware of that, 0:08:18.760 --> 0:08:20.560 and to the extent you could avoid it, you'd love 0:08:20.600 --> 0:08:20.960 to avoid. 0:08:21.000 --> 0:08:21.640 It's that way on. 0:08:21.560 --> 0:08:22.600 You as an official. 0:08:22.720 --> 0:08:26.160 Just the experience of Vulcaran cut well. 0:08:26.360 --> 0:08:28.680 A lot of people write about the history of FED tightening. 0:08:28.720 --> 0:08:31.680 Cycles don't end well, and so you know it'd be 0:08:31.720 --> 0:08:33.600 awesome for it to end well. But as you go 0:08:33.640 --> 0:08:35.680 study the past, it's not like you study the past, 0:08:35.720 --> 0:08:38.520 you see lots of great examples that you're just dying 0:08:38.520 --> 0:08:39.120 to duplicate. 0:08:39.800 --> 0:08:41.800 Let me take the other side of the argument, and 0:08:41.840 --> 0:08:44.320 that is that inflation is going to keep coming down, 0:08:44.600 --> 0:08:46.600 but you're not going to move fast enough, and the 0:08:46.640 --> 0:08:49.800 economy is going to slow more than it needed to, 0:08:50.240 --> 0:08:52.840 or even go into recession because the FED waited too long. 0:08:53.960 --> 0:08:55.880 That's the risk you're trying to balance. And like I said, 0:08:56.040 --> 0:08:58.240 I take a lot of signal about just how historically 0:08:58.280 --> 0:09:00.920 strong the labor market continue used to be, including the 0:09:00.920 --> 0:09:03.920 claims numbers we saw this morning, and so you are 0:09:03.960 --> 0:09:05.760 trying to balance the risk to the employment side of 0:09:05.760 --> 0:09:07.679 the mandate versus the risk to the inflation side of 0:09:07.720 --> 0:09:11.080 the mandate. Inflation still elevated, the unemployment side is still 0:09:11.160 --> 0:09:13.600 very strong. I think that's how I met out right now. 0:09:13.679 --> 0:09:15.560 We were in Jackson whole number of months ago. We 0:09:15.600 --> 0:09:17.439 would talking to some of your colleagues about some of 0:09:17.480 --> 0:09:20.720 the anecdotes they were hearing in that district. Remember that conversation, Lisa, 0:09:20.760 --> 0:09:22.920 And the guidance that we were getting from some FED 0:09:22.920 --> 0:09:25.079 officials is that what they're hearing in the district was 0:09:25.120 --> 0:09:27.679 different to what they were seeing in the data. Did 0:09:27.679 --> 0:09:30.560 the anecdotes conflict with the economic data? 0:09:31.760 --> 0:09:33.640 Well, I'll give you some anecdotes. I mean, I was 0:09:33.640 --> 0:09:36.160 in Western Carolina earlier this week just some things that 0:09:36.240 --> 0:09:40.640 might be interesting. One is that I saw great Clips 0:09:40.640 --> 0:09:42.600 had a sale on haircuts for nine to ninety nine, 0:09:42.720 --> 0:09:45.840 and so that's interesting that even some services are coming 0:09:45.840 --> 0:09:47.840 down in price. That would be consistent with the data. 0:09:48.360 --> 0:09:50.600 There's a big paper mill that laid off eleven hundred 0:09:50.640 --> 0:09:54.000 people in a county of seventeen thousand, and a year later, 0:09:54.080 --> 0:09:57.320 unemployment that county's down, not up, because there were so 0:09:57.360 --> 0:10:00.240 many openings for people in manufacturing positions that all of 0:10:00.280 --> 0:10:02.960 the people who were surplused, who didn't retire, you know, 0:10:03.000 --> 0:10:06.480 had jobs. So that's confirmatory of a strong labor market. 0:10:06.600 --> 0:10:09.480 I think the third quarter five percent GDP stuff that 0:10:09.559 --> 0:10:11.079 wasn't what I was hearing either, and I said the 0:10:11.120 --> 0:10:15.280 same thing. But today what I'm hearing is people aren't 0:10:15.360 --> 0:10:18.400 hiring as much, but they're not firing as much either. 0:10:19.080 --> 0:10:21.520 Price centers understand they're on the back end of the 0:10:21.679 --> 0:10:23.760 price curve. It's not over yet, but they're on the 0:10:23.800 --> 0:10:27.480 back end of it. And demand, especially on the consumer side, 0:10:27.559 --> 0:10:28.160 is still healthy. 0:10:28.679 --> 0:10:30.800 Do you trust the data? And I say this because 0:10:30.840 --> 0:10:33.600 some of the headline data people have been saying people 0:10:33.640 --> 0:10:36.439 aren't responding to the surveys to the same degree post 0:10:36.440 --> 0:10:39.080 pandemic as they were pre pandemic. Does that factor in? 0:10:40.120 --> 0:10:42.280 Well, you have to always take data with a grain 0:10:42.320 --> 0:10:44.199 of salt. You also have to accept it's all you've 0:10:44.200 --> 0:10:48.160 got right, and you have to be wary of confirmation bias. 0:10:48.280 --> 0:10:49.680 You know, I like the data when it agrees with 0:10:49.679 --> 0:10:51.079 what I think, and I don't like the data when 0:10:51.120 --> 0:10:53.079 it doesn't. So when the data comes in, I take 0:10:53.120 --> 0:10:54.760 it for what it is and I try to dig 0:10:54.760 --> 0:10:58.839 into it and understand, you know, does it what's behind 0:10:58.840 --> 0:11:01.200 the numbers? Like the seasonal since I was talking earlier, 0:11:01.240 --> 0:11:03.960 But I accept it and then try to test it 0:11:04.000 --> 0:11:06.360 as opposed to rejecting anything that doesn't agree with my 0:11:06.400 --> 0:11:07.559 prior hypothesis. 0:11:08.040 --> 0:11:11.680 I think that great clips offer was for mullets for 0:11:11.760 --> 0:11:13.040 the Super Bowl er, So did you see. 0:11:14.480 --> 0:11:16.360 You're nice to say it wasn't just because of my hairline. 0:11:16.400 --> 0:11:17.520 I've got a cheap offer. 0:11:19.200 --> 0:11:23.079 The hiring that we have seen in recent months that 0:11:23.320 --> 0:11:25.800 do you expect that? First of all, was it a 0:11:25.840 --> 0:11:29.240 surprise to see the December January numbers? And do you 0:11:29.240 --> 0:11:31.520 expect that to continue or are we going to fall 0:11:31.559 --> 0:11:34.240 off dramatically? And what we see unemployments start to go 0:11:34.360 --> 0:11:37.000 up to the four point one percent the SEP calls 0:11:37.000 --> 0:11:38.200 for I. 0:11:38.120 --> 0:11:40.800 Was surprised at how strong the numbers were in December 0:11:40.880 --> 0:11:44.439 and in January. December revised and in January. What I'm 0:11:44.480 --> 0:11:47.760 hearing is not as much hiring, but definitely not as 0:11:47.800 --> 0:11:50.400 much firing. That's that's how I put it. To labor hoarding, 0:11:52.240 --> 0:11:56.240 that's sort of the technical phrase. But especially with frontline people, 0:11:56.559 --> 0:11:59.080 if you have really fought hard over the COVID era 0:11:59.200 --> 0:12:01.840 to bring people in your factory or into your restaurant, 0:12:02.160 --> 0:12:04.640 you're just loath to take the risk of letting them 0:12:04.679 --> 0:12:06.560 go and try to go into that fight again. And 0:12:06.600 --> 0:12:08.840 so on the frontline side, people are being careful. To 0:12:08.880 --> 0:12:11.240 extent that I'm hearing anything on job cuts, it's actually 0:12:11.280 --> 0:12:15.840 the professional side. It's overhead and you're a business. Maybe 0:12:15.840 --> 0:12:17.480 your pricing power isn't going to be what you thought 0:12:17.480 --> 0:12:19.080 it was going to be. You're worried about the risk 0:12:19.200 --> 0:12:23.720 on the operation side to laying off operating people. Well, 0:12:23.800 --> 0:12:25.520 let's take a look at our overhead and dinner. That's 0:12:25.520 --> 0:12:27.400 where you see in some of the jobs announcements you've 0:12:27.440 --> 0:12:31.040 seen recently. I think disproportionately look like overhead as opposed 0:12:31.080 --> 0:12:31.960 to frontline. 0:12:32.000 --> 0:12:33.839 Interesting. Seeing a lot of that this morning. It's wow, 0:12:33.880 --> 0:12:35.880 we've talked about those companies too. It was a moment 0:12:35.880 --> 0:12:37.839 in the news conference last week where Chairman Power was 0:12:37.880 --> 0:12:39.600 asked about the month of March, and it felt like 0:12:39.679 --> 0:12:41.720 that kind of off the cuff. He just got freezing 0:12:41.760 --> 0:12:43.640 cold water and poured it all over March. We're trying 0:12:43.640 --> 0:12:45.719 to work out whether that was Chairman Powe's view or 0:12:45.760 --> 0:12:47.840 if that's the general view of the committee that you 0:12:47.960 --> 0:12:50.600 share as well. But perhaps March is just too soon. 0:12:51.320 --> 0:12:53.160 Well, I don't ever pre judge a meeting, and I 0:12:53.160 --> 0:12:56.160 don't prejudge the March meeting. We'll see where we get. 0:12:56.200 --> 0:12:59.000 But I always think Chairman Pal speaks for the committee. 0:12:59.160 --> 0:13:01.560 He was talking about the sheet too, and that sounded 0:13:01.640 --> 0:13:04.160 much more interesting. If they're not going to cut interest rates, 0:13:04.200 --> 0:13:07.640 maybe they make a decision about QT collectively the committee. 0:13:07.679 --> 0:13:09.720 You can we talk about that. The decision that you've 0:13:09.720 --> 0:13:13.199 got to make, is it independent of the interest rate decision? 0:13:13.240 --> 0:13:15.240 For you, what happens with the balance sheet from here? 0:13:15.280 --> 0:13:17.199 Can you do one and continue with the other. 0:13:17.559 --> 0:13:21.200 Independent of the the reinterest rate decision? Because you're talking 0:13:21.240 --> 0:13:24.520 about normalizing and when is the right time to start 0:13:24.880 --> 0:13:28.600 normalizing rates, and you're talking about normalizing the balance sheet. 0:13:28.640 --> 0:13:32.240 So we're still in the process of doing that. As 0:13:32.240 --> 0:13:35.120 Truman Pal said, well, we'll have a conversation about it, 0:13:35.120 --> 0:13:36.480 and I think it's great that we do that because 0:13:36.520 --> 0:13:39.000 you want to plan what you do. I still haven't 0:13:39.040 --> 0:13:41.240 seen any signals that you know, we're closing in a 0:13:41.440 --> 0:13:44.400 level of ample. You know, you know, at the end 0:13:44.440 --> 0:13:47.680 of the ample reserves regime A just a number that 0:13:47.760 --> 0:13:50.200 keeps hitting me. If you add up the overnight RP 0:13:50.360 --> 0:13:53.440 plus the reserves today, we're still over four trillion. And 0:13:53.520 --> 0:13:56.080 if you look at September twenty nineteen, we were in 0:13:56.120 --> 0:13:58.640 the one point two one point three trillion in reserves 0:13:58.640 --> 0:14:02.120 without an overnight RP and without a standing REPO facility. 0:14:02.200 --> 0:14:04.280 So I think we're a pretty long way from where 0:14:04.280 --> 0:14:07.160 we were then. And you know, times change, we'll see 0:14:07.200 --> 0:14:08.800 where we are. We've got to learn more, but I 0:14:08.840 --> 0:14:10.319 still think we're a long way from where we were. 0:14:10.280 --> 0:14:11.600 At you know where I'm going, because you do hear 0:14:11.640 --> 0:14:13.960 people say that if you start cunning interest rates but 0:14:14.000 --> 0:14:16.920 you're still doing QT, they're sort of running in opposition 0:14:17.040 --> 0:14:19.000 to each other. Do not see it that way, Don't 0:14:19.400 --> 0:14:21.520 Richmond Fed President Tom Barking with us around the table 0:14:21.520 --> 0:14:25.160 this morning together with Bloomberg's Michael McKee. It's fantastically continue 0:14:25.200 --> 0:14:28.080 this conversation. The worries of the banking sector of last 0:14:28.120 --> 0:14:31.600 year different this year. Last year was about working through 0:14:31.800 --> 0:14:35.040 interest rate sharks. Now it's about potentially credit stress. Is 0:14:35.040 --> 0:14:36.880 this coming up on the committee when you saw that 0:14:37.320 --> 0:14:40.280 in NYCB last week the day of the decision. Is 0:14:40.280 --> 0:14:42.400 this something you will talked about together collectively. 0:14:43.200 --> 0:14:46.520 Well, commercial real estate, as the Secretary said, is a 0:14:46.600 --> 0:14:48.640 known issue, and it's an important issue. I was in 0:14:48.720 --> 0:14:52.800 DC yesterday doing a round table with some real estate executives. 0:14:52.800 --> 0:14:55.480 That's a market that struggled to come back, and you 0:14:55.520 --> 0:14:58.200 can feel the stress in the commercial real estate area, 0:14:58.240 --> 0:15:01.320 particularly of course downtown off US. So that's a real 0:15:01.360 --> 0:15:03.520 thing in the banks many banks and non banks have 0:15:03.560 --> 0:15:06.200 exposure to. That's an important thing to take into account 0:15:06.280 --> 0:15:08.760 in terms of stability. But as I say, it's not 0:15:08.960 --> 0:15:10.600 a new kind of risk. I mean, we have had 0:15:10.680 --> 0:15:13.240 real estate shocks before, We've gone through real estate cycles. 0:15:13.560 --> 0:15:15.480 It wouldn't stun me if you know a bank or 0:15:15.520 --> 0:15:18.400 two ended up wrong footed in those things. But the 0:15:18.480 --> 0:15:21.520 system knows that real estate is a you know, asset 0:15:21.560 --> 0:15:23.680 with a certain amount of risk, and I hope, I 0:15:23.720 --> 0:15:25.840 hope and expect that you know, we've got enough capital 0:15:25.880 --> 0:15:27.120 to whether that. 0:15:27.480 --> 0:15:30.120 A lot of people have speculated that the FED would 0:15:30.120 --> 0:15:33.560 cut rates in response to another bank failure. Do you 0:15:33.560 --> 0:15:35.640 think that that's an accurate assessment or do you think 0:15:35.680 --> 0:15:38.320 that that is not the correct channel of response, because 0:15:38.320 --> 0:15:39.760 that's basically the base, it's the market. A lot of 0:15:39.800 --> 0:15:40.280 people are. 0:15:40.160 --> 0:15:43.200 Saying mandates employment and inflation. You've got to take an 0:15:43.200 --> 0:15:45.600 account what you think is going to happen to employment 0:15:45.640 --> 0:15:48.880 and inflation if the economy is to turn south. I mean, 0:15:48.880 --> 0:15:51.840 that's a case for trying to normalize rates faster, but 0:15:51.880 --> 0:15:54.440 the kind of we'd have to turn south as opposed 0:15:54.440 --> 0:15:57.560 to this being some sort of a bank oversight response. 0:15:58.120 --> 0:16:01.640 The Chairman said that this is a man problem commercial 0:16:01.760 --> 0:16:04.160 real estate. But I want to ask you if you 0:16:04.400 --> 0:16:07.920 think that in the context of FED officials, including the 0:16:08.000 --> 0:16:10.560 then chairman, telling us in two thousand and seven, that 0:16:10.600 --> 0:16:11.440 real estate. 0:16:11.200 --> 0:16:14.400 Was not going to collapse. Sorry, And your question is 0:16:16.240 --> 0:16:17.680 do you have a good handle on this? 0:16:18.000 --> 0:16:20.880 Can you be sure that this is something that's manageable well? 0:16:20.880 --> 0:16:23.280 And the banks that we supervise. I mean we're spending 0:16:23.400 --> 0:16:25.920 a lot of time with them and productively going through 0:16:26.120 --> 0:16:28.560 the real estate assets and trying to understand what the 0:16:28.640 --> 0:16:31.200 risks are and what the reserves are against those risks 0:16:31.400 --> 0:16:33.800 and making sure we've got those things appropriately handled. So 0:16:33.840 --> 0:16:36.800 in the scope that we've got, we're working hard on that. 0:16:36.960 --> 0:16:39.120 I think you never know what you don't know, and 0:16:39.200 --> 0:16:42.000 so you know what might happen in the non bank sector, 0:16:42.480 --> 0:16:44.360 don't know. You know what could happen, you know with 0:16:44.400 --> 0:16:47.000 these real estate assets. We'll see. But I think we've 0:16:47.000 --> 0:16:48.800 got our head down with the banks that we oversee 0:16:48.840 --> 0:16:50.080 trying to work through it. Well. 0:16:50.120 --> 0:16:52.680 Does this weigh on your thinking at all about when 0:16:52.720 --> 0:16:55.360 you might want to cut interest rates? The story that 0:16:55.600 --> 0:16:58.120 the real estate people tell is that this problem is 0:16:58.160 --> 0:17:01.080 only going to get worse over time time as companies 0:17:01.120 --> 0:17:02.640 get closer to their refinancing. 0:17:03.560 --> 0:17:05.919 I think it's important to take commercial real estate apart. 0:17:05.960 --> 0:17:07.840 I mean, there are huge parts of commercial real estate 0:17:07.920 --> 0:17:10.840 that are quite healthy. Data centers would be a good example. 0:17:10.920 --> 0:17:15.359 Retail is healthy, the holding part of multi family the 0:17:15.359 --> 0:17:18.159 building has its issues. We're really talking about office in 0:17:18.160 --> 0:17:21.600 a narrower B and C downtown office space. That's where 0:17:21.600 --> 0:17:23.439 the biggest risk is and I'm sure there will be 0:17:23.440 --> 0:17:26.080 losses there already have been and will be losses in 0:17:26.119 --> 0:17:29.320 that space. But as I said, it's a known variable. 0:17:29.320 --> 0:17:31.480 If you go back to our stress test assumptions, you'll 0:17:31.480 --> 0:17:36.199 see pretty significant stress on commercial real estate valuations, and 0:17:36.560 --> 0:17:38.200 you saw the outcomes for the bank. 0:17:38.320 --> 0:17:40.280 So there are a lot of known variables out there, 0:17:40.280 --> 0:17:41.880 which is the reason why we're so worried. And you said, 0:17:41.880 --> 0:17:43.479 there's a lot of worry around this table. We were 0:17:43.480 --> 0:17:45.240 worrying earlier with a bunch of credit people who are 0:17:45.280 --> 0:17:47.800 no longer worried because somehow some of these maturities are 0:17:47.840 --> 0:17:50.639 not an issue. How do you understand the fact that 0:17:50.680 --> 0:17:53.240