WEBVTT - Surveillance: Taper Timing With Fed's Williams 0:00:05.120 --> 0:00:09.200 Welcome to the Bloombergs Surveillance Podcast Home. Tom Keene, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz jay Leie, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment and 0:00:17.280 --> 0:00:23.280 international relations, Fine Bloomberg Surveillance and Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.360 dot Com, and of course on the Bloomberg Tournament. Joining 0:00:30.400 --> 0:00:32.720 us on Bloomberg Television and on radio. I'm pleased to 0:00:32.760 --> 0:00:35.159 say the New York Fed President John Williams joins us 0:00:35.360 --> 0:00:39.080 alongside Bloomberg's Michael McKee. President Williams, always great to catch 0:00:39.120 --> 0:00:40.440 up with you, sir, and if you don't mind going 0:00:40.479 --> 0:00:42.920 to start the conversation with the quote of yours you 0:00:42.960 --> 0:00:44.440 went on to say, in the last day or so, 0:00:44.600 --> 0:00:47.560 from my perspective, we are quite a ways from achieving 0:00:47.600 --> 0:00:51.400 my interpretation of substantial further progress. So President Williams, I 0:00:51.400 --> 0:00:55.240 imagine you anticipated this trillion dollar question, what is substantial 0:00:55.440 --> 0:01:01.240 further progress? Well, you know that's something will be analyzed 0:01:01.280 --> 0:01:04.720 and I'll be studying very carefully looking at the progress 0:01:04.720 --> 0:01:08.880 we're making about getting back to maximum employment and also 0:01:08.959 --> 0:01:13.160 our goals around a two inflation on average over time. 0:01:13.240 --> 0:01:16.119 So it's really looking at all the data that indicators 0:01:16.200 --> 0:01:21.200 and really seeing that actual achieved progress both in terms 0:01:21.240 --> 0:01:25.199 of employment and also in terms of underlying inflation trans 0:01:25.240 --> 0:01:28.080 back to two. So it's really looking carefully at all 0:01:28.120 --> 0:01:32.679 the um data and indicators and assessing that to come 0:01:32.720 --> 0:01:35.360 to conclusion. President Williams, for the benefit of our audience 0:01:35.360 --> 0:01:37.920 on radio, as I asked that question, you smiled because 0:01:37.920 --> 0:01:41.640 clearly you anticipate to there. I just wonder why keeping 0:01:41.680 --> 0:01:45.480 what constitutes substantial further progress vague is a feature and 0:01:45.520 --> 0:01:51.960 not a bug of policy. Well, you know, it's we 0:01:52.200 --> 0:01:55.360 we are not following some mechanical formula for making monetary 0:01:55.400 --> 0:01:57.480 policy that we have to look at a wide range 0:01:57.480 --> 0:02:01.640 of information and different indicators, and we also have to 0:02:01.680 --> 0:02:04.920 think about where the uncertainties and risks to the outlook 0:02:04.920 --> 0:02:07.480 are too. So I wouldn't say it's a a. I 0:02:07.480 --> 0:02:10.440 think it's pretty clear. We've laid out very clear indicators 0:02:10.440 --> 0:02:14.480 about how we think about maximum employment and price stability UH. 0:02:14.760 --> 0:02:18.639 But it's there's no kind of a numerical UH threshold 0:02:18.760 --> 0:02:20.639 or something that we're looking at. We're really looking at 0:02:20.639 --> 0:02:24.400 the full set of data around around these goals and 0:02:24.520 --> 0:02:27.760 taking into count all the extreme you know, extraordinarily high 0:02:27.800 --> 0:02:31.200 levels of uncertainty uh in the economy that we've experienced 0:02:31.200 --> 0:02:33.080 for the past year and a half and uh and 0:02:33.120 --> 0:02:38.080 we're continue to experience as the economy reopens. Well, John 0:02:38.120 --> 0:02:41.960 the there's a lot of uncertainty, but that stern taskmaster J. 0:02:42.120 --> 0:02:44.640 Powell makes you write down your forecasts. And I'm just 0:02:44.680 --> 0:02:49.200 wondering on the FED spectrum from the Survey of Economic Projections, 0:02:49.800 --> 0:02:52.200 what you think growth will be this year and in 0:02:52.280 --> 0:02:54.640 two thousand twenty two, and what do you think PC 0:02:54.919 --> 0:03:00.320 inflation will be. Well, you know, we're seeing you know, 0:03:00.480 --> 0:03:03.440 great um, you know, signs of the reopening of the 0:03:03.440 --> 0:03:06.840 economy in the past several months. So I have an 0:03:06.960 --> 0:03:10.000 uh pretty optimistic view of what GDP growth will look 0:03:10.040 --> 0:03:12.079 like this year. Uh So my my view is the 0:03:12.160 --> 0:03:15.200 growth will be about seven percent on a Q four 0:03:15.200 --> 0:03:17.680 of a Q four basis for real GDP, which is 0:03:17.720 --> 0:03:20.600 the best number if you know that forecast is true, 0:03:20.560 --> 0:03:22.640 that will be the best number since nineteen eight four. 0:03:23.080 --> 0:03:25.200 So I feel very good about you know, the progress 0:03:25.280 --> 0:03:32.120 we're making on vaccinations, on growth supported by strong fiscal support. 0:03:32.639 --> 0:03:34.720 And so that's that's my forecast. And I see the 0:03:34.800 --> 0:03:37.119 unemployment rate coming down to around four and a half 0:03:37.120 --> 0:03:39.240 percent by the end of the year, which is again 0:03:39.320 --> 0:03:42.360 really great UM signs of progress. Looking to next year, 0:03:42.400 --> 0:03:45.000 I think growth will be uh GDP. Growth will probably 0:03:45.000 --> 0:03:47.040 be around three to three and a half percent UM 0:03:47.160 --> 0:03:49.080 slower than this year because we're not going to get 0:03:49.120 --> 0:03:51.640 as much of that reopening dynamic and some of the 0:03:51.960 --> 0:03:54.760 very strong fiscal support we saw last year and this 0:03:54.840 --> 0:03:57.480 year will be I mean uh next year in terms 0:03:57.480 --> 0:03:59.680 of its contribution to growth, I still see the end 0:04:00.000 --> 0:04:03.360 the labor market continuing to recover next year, and employment 0:04:03.880 --> 0:04:06.640 trending down. In terms of inflation, you know, I do 0:04:06.760 --> 0:04:10.600 see the very um you know shark rice and prices 0:04:10.600 --> 0:04:12.960 we've seen in the past few months is mostly temporary. 0:04:13.120 --> 0:04:17.839 So after inflation being at three percent or so this year, 0:04:17.880 --> 0:04:22.320 I expect both core and overall inflation rates to come 0:04:22.360 --> 0:04:26.800 back down next year to around two as some of 0:04:26.800 --> 0:04:30.320 the reopening dynamics you know UM play out and some 0:04:30.360 --> 0:04:32.680 of these big increases in some of these prices like 0:04:32.800 --> 0:04:37.840 used cars and things like that subside. Well, let's let 0:04:37.880 --> 0:04:40.000 me put it the way the FED has always put it. 0:04:40.080 --> 0:04:44.360 If the economy performs as you expect, would it be 0:04:44.640 --> 0:04:47.720 likely that we would see you begin to taper in 0:04:47.760 --> 0:04:52.120 the fourth quarter of this year or is that too early. Well, 0:04:52.160 --> 0:04:53.800 it's really going to be driven by the day to 0:04:54.120 --> 0:04:57.120 you know, Mike, you know, you know, I'm very data 0:04:57.200 --> 0:05:00.680 dependent in my views on policy, and right now we're 0:05:00.720 --> 0:05:04.599 still in the midst of just a really an extraordinary 0:05:04.920 --> 0:05:08.000 and positive set of developments in terms of the economy, 0:05:08.160 --> 0:05:10.520 in terms of vaccinations and other things. So right now 0:05:10.839 --> 0:05:13.680 it's really about watching the data, seeing how quickly this 0:05:13.760 --> 0:05:16.719 economy can recover and get back to you know, uh, 0:05:16.760 --> 0:05:20.000 to its full potential. And so any views I have 0:05:20.120 --> 0:05:22.320 about when, um, you know, when we'll get to that 0:05:22.320 --> 0:05:25.400 point that we can start uh slowing the pace of 0:05:25.400 --> 0:05:28.320 our asset purchases, that will be driven really like what 0:05:28.320 --> 0:05:31.360 what's happening in the data, the as I mentioned before, 0:05:31.480 --> 0:05:33.960 the kind of the risks they're out there, and in 0:05:34.040 --> 0:05:36.640 terms of the economic outlook, and and doing it in 0:05:36.680 --> 0:05:39.160 a way hope that you know, really will be uh 0:05:39.360 --> 0:05:44.039 communicated very transparently and done in a very orderly way. 0:05:44.160 --> 0:05:46.280 So that's that's how I view that the timings can 0:05:46.279 --> 0:05:49.800 be driven by the you know, how how the data evolved, 0:05:50.000 --> 0:05:53.559 and really my focus is on providing the appropriate amount 0:05:53.600 --> 0:05:57.560 of monetary support for full and complete economic recovery and 0:05:57.680 --> 0:06:01.479 with inflation averaging two person, Well, let's talk a little 0:06:01.520 --> 0:06:04.120 bit about what's appropriate. What do we get for a 0:06:04.160 --> 0:06:06.800 hundred and twenty billion dollars right now a month in 0:06:06.839 --> 0:06:10.120 purchases that we wouldn't get from less given the state 0:06:10.160 --> 0:06:13.760 of the economy. And are you worried that the minute 0:06:13.800 --> 0:06:16.479 you announced that you might begin tapering, we get a 0:06:16.560 --> 0:06:20.640 taper tantrum. Does that keep you pinned in place? Well, 0:06:20.680 --> 0:06:23.320 you know, we really, in my view, we need to 0:06:23.360 --> 0:06:26.560 focus on getting monte policy in the right place to 0:06:26.680 --> 0:06:30.240 support the very strong economic recovery. Um. And you know, 0:06:30.279 --> 0:06:33.000 the ur two percent inflation goal. I think, you know, 0:06:33.000 --> 0:06:35.960 one of the lessons from the experience of the taper 0:06:36.000 --> 0:06:39.520 from years ago is the importance of uh, you know, 0:06:39.680 --> 0:06:41.599 not only getting the right decision at the right time 0:06:41.640 --> 0:06:43.680 for the decision, but also you know, doing our very 0:06:43.680 --> 0:06:48.839 best to communicate that has transparently uh and um, you 0:06:48.880 --> 0:06:52.160 know kind of clearly to the public. I do think 0:06:52.200 --> 0:06:54.400 that you know, this is this time we have a 0:06:54.440 --> 0:06:58.240 really strong economy. Uh. In terms of the recovery, the 0:06:58.240 --> 0:07:00.040 pace of recovery is of a long ways to go 0:07:00.120 --> 0:07:02.680 to get to maximum employment. But we're on a very 0:07:02.720 --> 0:07:05.080 good track for that. And I think that in the 0:07:05.080 --> 0:07:08.440 context of a strong recovery UM and a good economic, 0:07:08.600 --> 0:07:10.960 very good economic outlook, then we can you know, we 0:07:11.000 --> 0:07:16.680 can adjust Monterey policy hopefully without any undo market um uh, 0:07:16.960 --> 0:07:20.520 you know, turmoil or things like that you just mentioned. 0:07:20.600 --> 0:07:23.320 President Williams might cast that question and already polite fashion, 0:07:23.360 --> 0:07:25.240 so I'll be a little bit more plund Does this 0:07:25.360 --> 0:07:29.680 housing market in America need the FED support? Well, you know, 0:07:29.880 --> 0:07:33.160 the obviously the housing market is one of the key drivers, 0:07:33.560 --> 0:07:36.720 along with consumer spending in business investment, of the strong 0:07:36.760 --> 0:07:40.280 growth UM. Now, my view is the monetary accommodation that 0:07:40.320 --> 0:07:42.560 we're providing, both in terms of little very low event 0:07:42.600 --> 0:07:46.280 funds rate and also our asset purchases is supporting overall 0:07:46.360 --> 0:07:49.680 financial conditions, really lowering the cost of um, you know, 0:07:49.960 --> 0:07:54.320 financing for households, for businesses in general. It's not you know, 0:07:54.640 --> 0:07:58.560 specifically targeted to you know, do the housing market UM 0:07:58.600 --> 0:08:00.440 in terms you know, My my view one this is 0:08:00.480 --> 0:08:03.080 we need to focus on our maximum employment and price 0:08:03.120 --> 0:08:06.360 stability goals and and as the economy um you know, 0:08:06.400 --> 0:08:09.080 makes this substantial, further progress on those goals, we can 0:08:09.760 --> 0:08:13.000 make decisions around adjusting asset purchases and and then further 0:08:13.080 --> 0:08:15.760 down the road in terms of our interest rates. So 0:08:15.800 --> 0:08:19.440 it's really my focus is on on those goals where 0:08:19.520 --> 0:08:22.680 it's not really about supporting or not supporting the housing 0:08:22.720 --> 0:08:26.200 market in particular. Just a little hint from you there 0:08:26.440 --> 0:08:28.600 on what your view might be when it does come 0:08:28.720 --> 0:08:31.920 the time to reduce asset purchases on the composition of 0:08:31.960 --> 0:08:35.960 that reduction, President is re biased to reduce say the 0:08:36.080 --> 0:08:40.199 purchase of mbs the treasuries or what I'm hearing from you, 0:08:40.280 --> 0:08:44.800 maybe not. Well, you know, those are the issues that 0:08:44.880 --> 0:08:47.400 we need to think about in terms of not only 0:08:47.440 --> 0:08:50.920 the timing of the adjustment of the of the purchase pace, 0:08:51.000 --> 0:08:53.839 but the timing over which that would happen, and also 0:08:53.880 --> 0:08:57.120 the composition of any adjustments that we, you know, we make. 0:08:57.200 --> 0:08:59.960 So those are issues that we need to analyze very careful, 0:09:00.040 --> 0:09:03.400 we um and think through in terms of again achieving 0:09:03.480 --> 0:09:06.440 or a maximum employment and price supportability. But you're talking 0:09:06.480 --> 0:09:08.560 about it right now because the chairman told us so, 0:09:08.600 --> 0:09:11.320 President Williams, from your standpoint, what is the optimal approach 0:09:11.360 --> 0:09:15.679 to that conversation? The optimal approach to the conversation around 0:09:15.920 --> 0:09:18.920 the asset purchases. Yeah, well I think we just you know, 0:09:18.960 --> 0:09:21.000 we do what we do, very are the best. We 0:09:21.400 --> 0:09:24.760 analyze all the data, analyze the options we have in 0:09:24.800 --> 0:09:27.320 front of us, and and really focus on the big 0:09:27.320 --> 0:09:30.160 picture of our the goals that we're trying to achieve, 0:09:30.200 --> 0:09:32.480 the progress for making on those, and how to best 0:09:32.920 --> 0:09:36.680 um set our policy, um, you know, instruments as we 0:09:36.760 --> 0:09:39.760 can to achieve those goals. Will forgive me for jumping 0:09:39.760 --> 0:09:41.720 in because you're too good at this. When it comes 0:09:41.720 --> 0:09:44.480 to the asset purchase program, do you view it as 0:09:44.480 --> 0:09:47.000 a hundred and twenty billion a month or a mix 0:09:47.000 --> 0:09:49.800 of purchases that needs to be reduced independent of one another. 0:09:50.000 --> 0:09:52.360 Would you hit focus on MBS of a treasuries treasury 0:09:52.480 --> 0:09:54.120 over MBS or do you just look at the whole 0:09:54.120 --> 0:09:56.640 package that needs to be reduced equally? What's the optimal 0:09:56.679 --> 0:09:59.400 approach to that? Oh? Yeah, so you know, I clearly 0:09:59.400 --> 0:10:04.160 see them the to supporting a comedy of financial conditions broadly. 0:10:04.400 --> 0:10:07.280 So that's that's how I think about thinking to your question, Now, 0:10:07.840 --> 0:10:10.680 can we do we have options in terms of adjusting them? 0:10:10.800 --> 0:10:14.520 Um in different ways? The different the purchases of nbs 0:10:14.600 --> 0:10:17.120 and and treasuries. Clearly we have options to do that. 0:10:17.720 --> 0:10:21.000 From my point of view, the main purpose of these 0:10:21.320 --> 0:10:26.040 is really to provide strong support for that kind of Well, John, 0:10:26.160 --> 0:10:29.880 if you do start the tapering process, do you go 0:10:30.000 --> 0:10:33.800 through tapering completely before you get to rate increases? Do 0:10:33.880 --> 0:10:40.079 you stop QUIE purchases altogether before you would consider raising rates? Well, 0:10:40.120 --> 0:10:42.520 mikecause you know, you know, last time, we we had 0:10:42.760 --> 0:10:47.320 a sequence of of UH decisions that were made around that. 0:10:47.480 --> 0:10:50.319 I think this time, you know, clearly we can UM. 0:10:50.360 --> 0:10:53.200 We've learned a lot from the experience of UH, the 0:10:53.240 --> 0:10:56.000 slowing of the asset purchases last time, and then eventually 0:10:56.040 --> 0:10:58.959 the normalization monetary policy. So those are lessons that I 0:10:59.000 --> 0:11:01.800 think are important to take. But you know, this time 0:11:01.880 --> 0:11:04.800 is very different to the economic of the recession, the recovery, 0:11:04.880 --> 0:11:07.720 or just very different from the global financial crisis because 0:11:07.760 --> 0:11:09.760 of the you know, the nature have been driven by 0:11:09.800 --> 0:11:13.079 the pandemic. So I think it's really important that we 0:11:13.120 --> 0:11:15.480 don't sit here and just think like what's going to 0:11:15.600 --> 0:11:18.640 happen necessarily a year or two years ahead and think 0:11:18.679 --> 0:11:21.320 through exactly all of those but really watch the data 0:11:21.480 --> 0:11:23.959 see how the economy evolves. And see how our policy 0:11:24.160 --> 0:11:27.200 you know, decisions can best support the achievement of our goals. 0:11:27.240 --> 0:11:30.240 So those are those are you know, issues that will 0:11:30.440 --> 0:11:33.719 obviously think about carefully, but also they're they're well off 0:11:33.720 --> 0:11:35.920 in the future, and we really should be based on 0:11:36.160 --> 0:11:38.719 how the economy is evolving rather than um, you know, 0:11:38.800 --> 0:11:43.160 kind of where where things are right now in June. Well, 0:11:43.240 --> 0:11:45.680 let's talk about the raising interest rates and your view 0:11:45.720 --> 0:11:47.920 on it. Where is your dot did you move it 0:11:48.440 --> 0:11:50.959 at the last meeting? Are you in two thousand twenty two, 0:11:51.040 --> 0:11:55.000 two thousand twenty three? And you're not going to be 0:11:55.080 --> 0:11:58.319 surprised by my answers. I'm not going to talk about 0:11:58.320 --> 0:12:00.880 my specific you know view. It's as the chair uh 0:12:01.120 --> 0:12:04.080 you know put uh you know has said on last 0:12:04.120 --> 0:12:06.680 week is um uh that you know, these are just 0:12:06.760 --> 0:12:10.160 projections based on a modal outlook. Each person comes into 0:12:10.160 --> 0:12:12.840 the meeting and has a view on that. And so 0:12:13.160 --> 0:12:16.080 you know, I don't think really right now that the 0:12:16.160 --> 0:12:19.320 key issue for the FMC is, you know, when when 0:12:19.440 --> 0:12:21.360 is the economy going to get to this point where 0:12:21.400 --> 0:12:25.160 we meet these um you know, these uh, these conditions 0:12:25.160 --> 0:12:27.920 that we've set out in the FMC statement about time 0:12:28.000 --> 0:12:30.679 for for the lift off of the funds rate, that's 0:12:30.720 --> 0:12:32.520 still a way off in the future right now. Really, 0:12:32.600 --> 0:12:34.600 I think the attention is on the on the table. 0:12:34.679 --> 0:12:37.120 In terms of my own views, my focus is really 0:12:37.160 --> 0:12:40.440 on the framework. Is our new policy framework introduced last 0:12:40.480 --> 0:12:43.560 year is I think positions is really well to deal 0:12:43.600 --> 0:12:46.840 with the situations that we're dealing with today and will 0:12:46.840 --> 0:12:49.360 over the next few years. And I think our FOMC 0:12:49.640 --> 0:12:53.080 guidance around the funds rate is is a very strong 0:12:53.120 --> 0:12:55.360 place to be. And that's you know, so when we 0:12:55.440 --> 0:12:57.960 get to that point where the economy is is meeting 0:12:58.000 --> 0:13:00.720 those um, you know, conditions we've laid out in the 0:13:00.800 --> 0:13:03.000 FROMC steam, you know, I think that's when we'll get 0:13:03.040 --> 0:13:05.880 to the discussion about whether the Fed funds right, Um, 0:13:06.080 --> 0:13:08.839 you know, what's the appropriate stance of the Fed funds right? 0:13:08.960 --> 0:13:12.600 That's still quite a waste off from today. Well, if 0:13:12.600 --> 0:13:13.959 you won't tell us where your dad is, let me 0:13:14.000 --> 0:13:16.400 ask it this way. You were quite bullish yesterday in 0:13:16.440 --> 0:13:19.880 your speech, and yet we're still quite a ways from 0:13:19.880 --> 0:13:23.640 substantial further progress. Are we getting to that substantial further 0:13:23.760 --> 0:13:28.480 progress more quickly than you thought? Does the economy's speed 0:13:28.679 --> 0:13:33.600 uh surprise you? And is the inflation number to you surprising, Well, 0:13:33.679 --> 0:13:36.040 let me start with the inflation. Clearly inflation, that recent 0:13:36.040 --> 0:13:39.480 inflation number has been very high. Um. That's and you 0:13:39.520 --> 0:13:43.000 know obviously get a lot of attention, uh from us 0:13:43.040 --> 0:13:45.440 and from everybody, and and really being we need to 0:13:45.440 --> 0:13:48.360 be very careful watching that data. See to what extent 0:13:48.360 --> 0:13:51.000 these are just you know, transitory temporary factors or or 0:13:51.080 --> 0:13:54.960 do they you know, still into underlying inflation over the 0:13:54.960 --> 0:13:57.960 next few years. So clearly inflation has moved up quite 0:13:58.000 --> 0:14:00.080 a bit. That's something that's um, you know, part of 0:14:00.120 --> 0:14:02.240 the picture. In terms of employment, you know, I do 0:14:02.360 --> 0:14:05.439 tend to go back to indicators like UM, the employment 0:14:05.480 --> 0:14:08.640 of population ratio UM and the unemployment rate and a 0:14:08.679 --> 0:14:11.520 lot of other indicators of the health of the labor market. 0:14:11.559 --> 0:14:14.880 And we have made you know, progress for sure since 0:14:15.120 --> 0:14:18.000 December of last year. But you know that progress is 0:14:18.040 --> 0:14:20.480 still I still don't think it's close to the substantial 0:14:20.880 --> 0:14:23.440 further progress that we set out on. And you know, 0:14:23.560 --> 0:14:25.440 really it's gonna you know, my views on this we 0:14:25.560 --> 0:14:29.360 depend on how the data evolve over you know, overcoming months. 0:14:29.440 --> 0:14:32.240 You know, see can the are we adding a large 0:14:32.320 --> 0:14:35.440 number of jobs? We see employment of population continue to 0:14:35.560 --> 0:14:38.680 move back up, and watching obviously all the other cares 0:14:38.680 --> 0:14:41.680 as well. So I'm really focused on employment because that's 0:14:41.680 --> 0:14:44.400 what our mandate is, and are we making really strong 0:14:44.520 --> 0:14:49.160 progress towards UH, the maximum employment goal that we have John. 0:14:49.160 --> 0:14:51.680 When it comes to the participation rate in the US 0:14:51.840 --> 0:14:53.720 labor market, do you have any conviction around what that 0:14:53.760 --> 0:14:56.120 looks like, how that progresses through the next twelve months. 0:14:56.160 --> 0:14:59.400 How unknown is that? Yeah, that's that's obviously a really 0:14:59.440 --> 0:15:03.560 hard quest. And UM participation changes for variety of reasons. 0:15:03.680 --> 0:15:05.720 We've seen a lot of churn in the labor market 0:15:05.720 --> 0:15:08.640 in the in the past few months, people exiting the 0:15:08.720 --> 0:15:12.600 labor market, coming in, you know, a lot happening with 0:15:12.640 --> 0:15:15.160 the reopening of the economy, UH and and all the 0:15:15.200 --> 0:15:17.200 events of the past year and a half of the pandemic. 0:15:17.280 --> 0:15:19.360 So I think right now it's hard to get a 0:15:19.400 --> 0:15:22.560 clear read on the underlying trends. I do tend to 0:15:22.600 --> 0:15:25.280 look at, you know, one category UM in the data, 0:15:25.360 --> 0:15:28.080 which is the employment of population for twenty five to 0:15:28.160 --> 0:15:30.360 fifty four year olds, which probably you know, more in 0:15:30.360 --> 0:15:34.160 the middle of people's careers. And you know, if you 0:15:34.200 --> 0:15:37.360 look back before the UM, you know, before the pandemic 0:15:37.400 --> 0:15:40.440 that was over eight percent, So I think that, you know, 0:15:40.600 --> 0:15:43.520 hopefully we can get back towards the number like that. 0:15:43.600 --> 0:15:46.040 But um, and you know, for the overall population, we 0:15:46.120 --> 0:15:50.000 have seen uh, some retirements from some older workers, where 0:15:49.960 --> 0:15:52.640 I think we have to carefully analyze that data to 0:15:52.680 --> 0:15:55.880 see if that's um, you know, shifted the trans somewhat 0:15:55.920 --> 0:15:58.800 in terms of lay before participation. So I think, you know, 0:15:58.800 --> 0:16:00.480 we have to just look at the data. Are employee 0:16:00.520 --> 0:16:04.400 analyze it, um, and you come to our best assessment 0:16:04.440 --> 0:16:07.000 of what you know, a maximum employment was. Now. One 0:16:07.000 --> 0:16:08.160 thing I just wanted to say is we had an 0:16:08.200 --> 0:16:10.920 unemployment rate of three and a half percent before the pandemic. 0:16:10.960 --> 0:16:14.680 We had very strong labor force participation UM. And I 0:16:14.680 --> 0:16:18.760 don't see any reason, um that our economy can't reattain 0:16:18.920 --> 0:16:21.960 a really strong labor market similar to that. It may 0:16:22.000 --> 0:16:24.200 be slightly different in terms of participation in some of 0:16:24.240 --> 0:16:26.720 the other issues, but it should still be an economy 0:16:26.760 --> 0:16:30.480 that is really a very strong one with maximum employment 0:16:30.480 --> 0:16:33.560 Indian with our two percentization. It coming forward from here, 0:16:33.840 --> 0:16:36.080 President Williams, as you know, you do get a lot 0:16:36.080 --> 0:16:39.240 of criticism over the current policy stance, and often the 0:16:39.280 --> 0:16:41.960 federal reserve will bring up the labor markets support the 0:16:42.000 --> 0:16:43.760 current policy stance. We had a story from the Wall 0:16:43.800 --> 0:16:46.280 Street Journal this morning on black Stone agreeing to buy 0:16:46.320 --> 0:16:48.600 a company that buys some rents single family homes and 0:16:48.640 --> 0:16:52.080 a six billion dollars deal. This is Wall Street competing 0:16:52.120 --> 0:16:56.280 with Main Street for single family homes. It's the Federal reserve. 0:16:56.320 --> 0:16:59.600 Part of the problem when it comes to this, Well, 0:16:59.800 --> 0:17:02.800 in know this we're doing, you know, conducting monetary policy, 0:17:02.840 --> 0:17:05.960 which is really just really about setting interest rates and 0:17:06.160 --> 0:17:09.840 supporting the strong economic recovery and our inflation goals. You know, 0:17:10.280 --> 0:17:14.000 there's always developments in the markets that um um, you know, 0:17:14.520 --> 0:17:16.800 or maybe they're affected somewhat by interest rates, but I 0:17:16.800 --> 0:17:19.919 think are really driven by other factors. And it just 0:17:19.960 --> 0:17:22.360 remind people to, you know, when we think about why 0:17:22.520 --> 0:17:25.200 interest rates are so low and maybe how people behaving 0:17:25.720 --> 0:17:28.280 around very low interest rates, I think, I keep part 0:17:28.280 --> 0:17:30.480 of this is is that this is a structural change 0:17:30.480 --> 0:17:32.960 in our the global economy. We have very low interest 0:17:33.080 --> 0:17:36.639 rates globally, not just because the FED is holding interest 0:17:36.720 --> 0:17:39.480 rates lower right now to support the recovery, which we're doing, 0:17:39.800 --> 0:17:43.800 but even once the economy is fully recovered, we've achieved 0:17:43.800 --> 0:17:46.640 our goals, the neutral or kind of longer run interest 0:17:46.760 --> 0:17:49.280 rate is still very low. So I think just when 0:17:49.280 --> 0:17:51.600 we watch, you know, kind of things like this, we 0:17:51.640 --> 0:17:53.840 have to keep in mind that part of low interest 0:17:53.920 --> 0:17:57.440 rates is is obviously the intentional by FED policy, but 0:17:57.560 --> 0:17:59.240 part of it is really a big part of the 0:17:59.280 --> 0:18:01.800 decline interests race over the past few decades is driven 0:18:01.840 --> 0:18:07.320 by more structural things like demographics and proctivity. Usage of 0:18:07.359 --> 0:18:11.800 the feds overnight reverse repo facility has surged to hit 0:18:11.800 --> 0:18:15.760 a record yesterday seven sixty five billion. Why isn't that 0:18:15.800 --> 0:18:18.239 a signal that there is too much cash in the 0:18:18.320 --> 0:18:22.399 markets and you don't need to add more. Well, the 0:18:22.440 --> 0:18:24.600 goal here is not to add cash to the markets. 0:18:24.600 --> 0:18:28.000 Markets is through uh you know, with our asset purchases, 0:18:28.359 --> 0:18:31.760 is to provide really strong um financial conditions to support 0:18:31.800 --> 0:18:35.760 economic growth. And effect of that is that um, you 0:18:35.800 --> 0:18:39.080 know that our purchases of assets, UM and other other 0:18:39.119 --> 0:18:42.080 developments tend have been pushing uh, you know, up the 0:18:42.119 --> 0:18:45.000 amount of reserves that would be in the banking system. 0:18:45.040 --> 0:18:48.240 Now we've we created the overnight reverse repo facility, which 0:18:48.240 --> 0:18:52.000 you just mentioned years ago, uh, specifically to make sure 0:18:52.040 --> 0:18:54.840 that interest rates are in the range that the FMC set. 0:18:54.880 --> 0:18:57.040 So the FMCS at a target range for the bed 0:18:57.080 --> 0:19:00.160 funds rate of zero tooint flap basis points, and it's 0:19:00.240 --> 0:19:01.880 you know, we want to make sure the interest rates 0:19:01.880 --> 0:19:04.560 stay well within that range and not all below it 0:19:04.640 --> 0:19:07.520 or not be above it. And so one of the 0:19:07.560 --> 0:19:09.960 ways that we do that is by through the overnight 0:19:09.960 --> 0:19:14.000 reverse repo putting a floor on on interest rates. So 0:19:14.040 --> 0:19:15.959 what we're seeing here is I think of the natural 0:19:16.280 --> 0:19:20.240 operation of of uh you know this UM kind of 0:19:20.320 --> 0:19:22.679 arrangements that we've set up to control interest rates. So 0:19:23.040 --> 0:19:26.920 you know, banks can hold reserves UH and do that. UM. 0:19:26.920 --> 0:19:29.920 We the FED UM and they offered you know, deposit 0:19:30.000 --> 0:19:33.640 rates and other services to their customers. UH. Customers look 0:19:33.680 --> 0:19:36.920 at what the banks are offering into terms and deposit rates. 0:19:37.040 --> 0:19:39.400 They also look at money market mutual funds and other 0:19:39.440 --> 0:19:42.160 investments and think about where is it best to park 0:19:42.680 --> 0:19:45.440 their cash. So we see a natural movement between these two. 0:19:45.600 --> 0:19:48.440 Especially with the large amount of reserves, we're seeing UH 0:19:48.600 --> 0:19:53.320 investors move finding the money market mutual fund UH, so UM, 0:19:53.359 --> 0:19:56.359 you know, option more advantageous, and so we're seeing a 0:19:56.359 --> 0:19:59.199 lot more money moving the overnight reverse repot facility. And 0:19:59.200 --> 0:20:02.200 that has shifted over time. That's exactly how the system 0:20:02.280 --> 0:20:05.200 is supposed to work. Interest rates well within the range, 0:20:05.640 --> 0:20:08.280 just as the FOMC wants, and we're not seeing any 0:20:08.440 --> 0:20:11.560 problems with market functioning or anything. It's it's working exactly 0:20:11.560 --> 0:20:14.240 it's assigned. And I'm not concerned about the large amount 0:20:14.240 --> 0:20:18.200 of overnight reverse reposess. That's exactly what you'd expect, even 0:20:18.359 --> 0:20:20.960 you know, conditions in money markets. So this is a 0:20:21.240 --> 0:20:23.520 I think a good sign. President Williams, You've been kind 0:20:23.520 --> 0:20:24.879 with your time and it's always try to catch up. 0:20:24.880 --> 0:20:27.280 We appreciate It's the President of the New York Fed, 0:20:27.400 --> 0:20:38.160 John Williams there alongside Mike McKay. It is the way 0:20:38.320 --> 0:20:40.760 it is gotten there. And of course this is all 0:20:40.800 --> 0:20:43.919 about the microeconomics and the underpinning of supply and demand. 0:20:44.000 --> 0:20:47.560 Someone expert on this and consistent in well written thought 0:20:47.600 --> 0:20:50.800 as Francisco blanche a Bank of America Securities head of 0:20:50.800 --> 0:20:54.760 Global Commodities and Derivative Research. I want to go right away, 0:20:55.680 --> 0:20:58.920 Francisco to what is less talked about, and that is 0:20:58.960 --> 0:21:01.800 a demand I MAC, what do you envision to be 0:21:01.880 --> 0:21:05.240 the demand dynamic that gets you to your acclaimed a 0:21:05.320 --> 0:21:09.800 hundred dollars of barrel. Hey Tom, Hey, thanks for having me. 0:21:09.920 --> 0:21:12.920 So three things are key here. First, there's a lot 0:21:12.920 --> 0:21:15.040 of pent up demand. We've all been looked up in 0:21:15.080 --> 0:21:18.920 our living rooms in my case, but really with very 0:21:18.920 --> 0:21:21.600 little movement, whether it's business or personal. There's a huge 0:21:21.600 --> 0:21:23.760