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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.

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Speaker 3: I'm Tracy Alloway and I'm Joe Whysenthal.

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Speaker 2: Joe, how is your deep dish pizza?

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Speaker 4: It was so good?

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Speaker 3: You know, I actually don't know if I had ever

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Speaker 3: really had a proper Chicago deep dish pizza before, but

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Speaker 3: I went to this place, I think it's called Pea

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Speaker 3: Quads Pizza. Yeah, pea Quads, and they sort of burned

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Speaker 3: the crust a little bit, which I really like, highly recommended,

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Speaker 3: seemed pretty legit as far as I could tell.

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Speaker 2: You definitely did the right thing, because I just went

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Speaker 2: back to the airport to hop on a fly and

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Speaker 2: I got to say, O'Hare is kind of even worse

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Speaker 2: than I remember it. But anyway, Oh, in case you

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Speaker 2: haven't figured it out yet, we both just got back

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Speaker 2: from Chicago, where we interviewed the Chicago Fed President, Austin Gooldsby.

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Speaker 2: That's right.

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Speaker 3: First of all, Chicago's so nice this time of year.

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Speaker 3: I love visiting Chicago.

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Speaker 4: You know.

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Speaker 3: We could have talked to Austin over zoom or something,

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Speaker 3: I guess, but it was great to actually go there,

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Speaker 3: go to the Chicago FED at headquarters and talk to

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Speaker 3: the president of the Chicago FED. And what I have

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Speaker 3: to say is I think an extremely interesting sort of

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Speaker 3: moment for Macro right now.

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Speaker 2: Oh, it is so interesting. I know people over use

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Speaker 2: the term turning points. Yeah, but I really feel like

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Speaker 2: this is a very like specific moment in time where

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Speaker 2: we thought the labor market was weakening, the FED cut

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Speaker 2: by fifty bases points, and then we had that blowout

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Speaker 2: jobs report. Yes, and I have to say we recorded

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Speaker 2: this interview with Austin on Wednesday, October ninth, which was

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Speaker 2: the day before the latest CPI figure came out. Also,

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Speaker 2: we recorded it right when the FOMC minutes came out,

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Speaker 2: so not the best planning in terms of timing on

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Speaker 2: our part. But since then we've had CPI come in

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Speaker 2: ever so slightly hotter than expected as well.

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Speaker 4: Yes, that's right.

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Speaker 3: So as you mentioned, recorded this Wednesday, you're listening to

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Speaker 3: this presumably on a Friday. But even with the fact

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Speaker 3: that we couldn't talk about CPI, I think there's like

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Speaker 3: really two things that make this moment interesting. It's always

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Speaker 3: interesting because we're never you know, we live in a

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Speaker 3: world of incomplete information on a certainty. But the two

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Speaker 3: things are really and Austin talked about this in our interview.

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Speaker 3: The FED has changed focus.

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Speaker 4: Right.

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Speaker 3: For a couple of years, it was about inflation and

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Speaker 3: getting it down, and now the risks are balanced. So

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Speaker 3: it's a key thing that happened. And I would say

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Speaker 3: that Chairman Powell's speech at Jackson Hole in August officially

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Speaker 3: marked that moment of the pivot starting there. And then

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Speaker 3: the other thing is like, Okay, maybe there's this pivot,

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Speaker 3: but things right now are still really uncertain and we

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Speaker 3: really don't know what it's going to happen. And you

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Speaker 3: mentioned the hot inflation number and the strong jobs report

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Speaker 3: and all this stuff. So we're at a moment where

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Speaker 3: pivot meets new uncertainty.

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Speaker 2: Yes, and who better to explain some of that uncertainty

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Speaker 2: than Austin. So why don't we go ahead and take

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Speaker 2: a listen. Here's Austin Goolsby from the Chicago Fed. Thank

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Speaker 2: you so much for coming back on odd thoughts.

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Speaker 4: Welcome to where the magic happens.

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Speaker 2: We're very excited to be in Chicago. I have to say,

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Speaker 2: being in the FED building. It's a gorgeous building. The architecture, Yeah.

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Speaker 4: It's a landmark. It's great. Yeah, it's it's over one

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Speaker 4: hundred years old.

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Speaker 2: I heard you were celebrating one hundred year anniversary this year,

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Speaker 2: right last.

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Speaker 4: Yeah, it was yeah last year.

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Speaker 3: Also, we probably could have caught up with you via zoom.

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Speaker 3: But it's just such a great time to be in Chicago.

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Speaker 5: Yeah, this is the moment.

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Speaker 2: It's actually warmer in Chicago right now than it is

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Speaker 2: in New York, which is kind of surprising. Okay, speaking

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Speaker 2: of stuff that's warmer. We had a pretty hot jobs

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Speaker 2: report recently ICs transition. Yeah, thank you, thank you. I'm

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Speaker 2: a professional. Okay, blowout jobs report? What does that mean

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Speaker 2: for you? Did it cause you to take pause? Maybe

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Speaker 2: think about that fifty basis point cut?

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Speaker 4: Well, look, you know my thing is always let's take

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Speaker 4: the long arc and find the through line, not overreact

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Speaker 4: to one number. It's sixty days before that we got

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Speaker 4: a disappointing number, and you had people going on publicly

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Speaker 4: and saying by the time of the next FED meeting,

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Speaker 4: they need to have one hundred and fifty basis point cut.

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Speaker 4: Then we get a positive jobs number, and then we

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Speaker 4: have a positive job number, and then people are saying,

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Speaker 4: maybe we should raise I don't fault the market. That's

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Speaker 4: the market's business model. They got to react to every

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Speaker 4: little Twitter and blip that happens. In my view, the

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Speaker 4: fes not on a timetable like that. We got to

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Speaker 4: take the broad view. So far, I think the broadview

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Speaker 4: shows inflation come way down, the the job market has

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Speaker 4: cooled from overly hot to something like sustainable full employment

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Speaker 4: where we would like it to be. And if we

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Speaker 4: could freeze it right there, that'd be a lovely picture.

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Speaker 4: And so then the question is can you freeze it

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Speaker 4: there or is it going to get worse? If we

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Speaker 4: got multiple months that showed big positives like what we

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Speaker 4: just saw in the job's number, that would all I

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Speaker 4: would alter my view. That would affect my view, But

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Speaker 4: I don't think that. I think people can take that

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Speaker 4: too far from one month.

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Speaker 3: That all makes sense to me. But I'm going to

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Speaker 3: try to attack the present the same question and attack

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Speaker 3: it in a slightly different way. A few of these. Okay,

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Speaker 3: If I think about Chrman Powell's Jackson Hole speech, and

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Speaker 3: I think about that fifty basis point right cut in

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Speaker 3: mid September, intotality, like the basic way I think about

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Speaker 3: it is like you at FMC, the fan is trying

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Speaker 3: to cut off the left tail of a hard landing,

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Speaker 3: and things are in a good spot currently, the levels

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Speaker 3: are good. By trying to cut off that hard landing

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Speaker 3: outcome with us with a sort of strong beginning of

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Speaker 3: the rate cut cycle, by going fifty, does that strong

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Speaker 3: jobs report change it all? How you think about the

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Speaker 3: risks today of hard landing.

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Speaker 4: I'm in the data dog caucus, one of the core

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Speaker 4: members of the Kennel, so I'm never going to ignore

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Speaker 4: any data point. I want all the data that we

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Speaker 4: can get. If you take a step back and look

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Speaker 4: at the dot plot in the SEPs, they ask independently.

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Speaker 4: We don't talk about it, but they ask independently everybody,

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Speaker 4: and the mass bulk of the dots say that the

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Speaker 4: FOMC members think inflation's going to keep coming in close

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Speaker 4: to the two percent target, They think unemployment is going

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Speaker 4: to stay somewhere around full employment benchmark, and that the

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Speaker 4: Fed funds rate is one hundred and fifty two hundred

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Speaker 4: basis points above where they see it settling down. So

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Speaker 4: the broad mass of people thinking the long run Fed

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Speaker 4: funds would be two and a half to three and

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Speaker 4: a half. You know, something in that range, and we're

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Speaker 4: even with the cut, we're well above that. So I

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Speaker 4: kind of think that's by far the biggest and even

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Speaker 4: with information content. So the focusing too much on the

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Speaker 4: short run, I was kind of teasing the market, but

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Speaker 4: I guess I'll tease you. It sounds like you have

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Speaker 4: the same You have that same short run focus that

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Speaker 4: whether it was twenty five basis points at the first

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Speaker 4: meeting versus zero or twenty five vers of fifty at

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Speaker 4: the next meeting, and what does that mean for the

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Speaker 4: meeting after that? That's smallish potatoes. The big pigture is

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Speaker 4: inflation is way down, unemployment is up to a level

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Speaker 4: that we're happy with, and the rates are well above

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Speaker 4: what almost everyone on the FOMC is saying they think

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Speaker 4: is the steady state. And as I keep saying, you

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Speaker 4: just got to think about your restrictive and that includes me,

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Speaker 4: and you got to think about how restrictive you want

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Speaker 4: to be. If you got the dual mandate where you

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Speaker 4: want it, do you want to have rates be that

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Speaker 4: much higher than where you think they're going to settle

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Speaker 4: or does that endanger the pretty picture? And so that's

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Speaker 4: kind of where my head is it's not even technical.

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Speaker 4: There's a ticki tac argument that I would just remind

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Speaker 4: people that, A, you know, we meet every six weeks, okay,

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Speaker 4: so we're constantly going back over the data and forecast

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Speaker 4: of what's to come to try not to get behind

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Speaker 4: the curve, or if we get behind the curve, not

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Speaker 4: to be too far behind the curve. It's why the

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Speaker 4: FED is the tip of the spear for economic stabilization.

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Speaker 4: And there was a meeting where we had a meeting

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Speaker 4: and there was no rate increase. Let's say it was

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Speaker 4: between zero and twenty five. There are no twelve point fives,

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Speaker 4: but if there could be a twelve point five, it

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Speaker 4: was kind of a twelve point five meeting. And then

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Speaker 4: we have a meeting where that's there's an argument in

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Speaker 4: the market is are they twenty five or they fifty?

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Speaker 4: There's no thirty seven point five move, but.

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Speaker 2: I think I've joked about that.

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Speaker 4: And over two meetings, Yeah, seven point five is a

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Speaker 4: fifty point move, Okay, So over some longer period it

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Speaker 4: doesn't feel it doesn't feel like if you're trying not

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Speaker 4: to fall behind the curve. We move in discrete increments,

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Speaker 4: And so I still think is taking a long view

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Speaker 4: is the right way to think about what's happening. And

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Speaker 4: I don't know why we don't do thirty seven point five?

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Speaker 4: Why is it continuous? Why can't we picked like thirty three?

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Speaker 4: I know what I know?

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Speaker 5: Is there a rule?

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Speaker 2: Actually, I'm really interested in the questions people realize thatous.

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Speaker 4: So I don't know.

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Speaker 2: I don't know, but I think maybe some of the

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Speaker 2: confusion comes around because the FED has emphasized data dependency

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Speaker 2: so much in recent years, and data, by its very

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Speaker 2: nature is backward looking. And then we we can talk

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Speaker 2: about that, okay, But then you get to turning points

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Speaker 2: in the business cycle, and now it kind of feels

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Speaker 2: like you're shifting more into You talked about being behind

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Speaker 2: the curve. It feels like you're trying to get ahead

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Speaker 2: of something. And so I think there's that tension.

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Speaker 4: There is some tension between how much do you want

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Speaker 4: to look back how much do you want to look forward?

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Speaker 4: You got to do both. If you want a soft landing,

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Speaker 4: you can't be behind the curve. And the hardest thing,

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Speaker 4: as I say that that Central Bank has to do

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Speaker 4: is to get the timing exactly right when there are

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Speaker 4: moments of transition. It's why we meet every six weeks,

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Speaker 4: so that you don't have to make one decision and

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Speaker 4: figure out the thing. My only objection to the characterization

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Speaker 4: is that to be data dependent I do not think

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Speaker 4: means you commit I won't make any forward looking judgments.

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Speaker 4: I only want to look backward. I think it's a

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Speaker 4: mistake to do that, and especially because there are lags

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Speaker 4: to monetary policy, and the lags, if anything, were even

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Speaker 4: longer for this weird business cycle. And so if your

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Speaker 4: decision rule was going to be I'm just gonna wait

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Speaker 4: until we see, say, the job market start falling apart before.

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Speaker 2: Once we're in recession.

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Speaker 4: Well no, exactly. By that point it's too late to

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Speaker 4: do anything about that. So I do think there's a

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Speaker 4: risk management argument for being in a being in a

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Speaker 4: more nimble spot.

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Speaker 3: Since you mentioned lags, I want to ask you a

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Speaker 3: question about that. When the FED started jacking up rates aggressively,

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Speaker 3: one of the theories for why it didn't have a

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Speaker 3: sharper impact on the economy is that so many households

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Speaker 3: and corporations had in say twenty twenty first half of

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Speaker 3: twenty one turned out their debt, and so there was

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Speaker 3: not a lot of sensitivity to debt. The flip side

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Speaker 3: of that now, and people have been writing about this,

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Speaker 3: is that even though the FED has now commenced a

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Speaker 3: cutting cycle, that the weighted average cost of debt is

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Speaker 3: probably going to rise in twenty twenty five basically just

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Speaker 3: mathematically right, because eventually they'll have to be refired at

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Speaker 3: higher rates and so forth. How do you think about

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Speaker 3: that dynamic now when you're thinking about these lags, you're

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Speaker 3: starting a cutting cycle, but at the same time, probably

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Speaker 3: cost of debt is actually going to rise for a

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Speaker 3: fair number of economic actors in this economy.

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Speaker 4: You have remarked on this subject and thought it through.

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Speaker 4: In my world, that goes into the economic conditions, and

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Speaker 4: that's there are many things that have made this a hairy,

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Speaker 4: strange time for central banks because the business cycle, both

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Speaker 4: down and up, looked almost nothing like the historical precedence.

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Speaker 4: This is one aspect of that. We've analyzed this specifically

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Speaker 4: thinking about mortgages. Okay, So if I had told you

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Speaker 4: the premise of your question one hundred percent agree with

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Speaker 4: six years ago, if you said the FED is going

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Speaker 4: to raise five hundred basis points in a single year,

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Speaker 4: what is going to happen. I think most all economists

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Speaker 4: would say, yikes, there's going to be a major, major contraction,

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Speaker 4: and it's going to be concentrated. Autos down the tubes,

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Speaker 4: consumer durables bye bye, business, fixed investment, construction all going

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Speaker 4: to collapse because they're very interest rate sensitive. We didn't

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Speaker 4: really see the economy go into the steepness of collapse

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Speaker 4: that you would have expected. And so that brings us

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Speaker 4: back to this question. It's kind of a twofold. Is

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Speaker 4: there something about this unusual business cycle that makes economic

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Speaker 4: activity less sensitive to the interest rate or is there

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Speaker 4: something strange about this moment that the lag effect is longer,

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Speaker 4: And it can be both and they can run together.

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Speaker 4: But in the case of mortgages, one of the things

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Speaker 4: that has made monetary policy transmission less direct is the

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Speaker 4: fact that a vastly higher share of mortgages are thirty

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Speaker 4: year fixed mortgages now than they were in two thousand

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Speaker 4: and five, two thousand and nine, whenever you want to

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Speaker 4: look at and so when they change the interest rate,

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Speaker 4: in some countries, virtually all mortgages are adjustable rate mortgage.

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Speaker 4: So when their central bank raises rates, they bring out

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Speaker 4: parents onto TV. The Central Bank is killing us. You know,

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Speaker 4: our mortgage payment went up in the US. If everybody's

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Speaker 4: on a thirty year fixed in a way, that's just

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Speaker 4: a delay. But it's a thirty year delay. So I

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Speaker 4: do think that notion that there are companies that don't

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Speaker 4: have a lot of the debt, so they aren't as

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Speaker 4: especially sense of the interest rate, that the term structure

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Speaker 4: of their debt may be such that the average rates

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Speaker 4: they're paying might even be higher as a FED cuts,

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Speaker 4: I think that's not a problem. That's just a fact,

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Speaker 4: and we just need to we need to understand it

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Speaker 4: and see what the magnitude is.

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Speaker 2: Let me ask you the same question in an extremely yeah,

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Speaker 2: but my question is going to be ultra simplistic. Can

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Speaker 2: you explain to us in excruciating detail, what exactly you

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Speaker 2: expect happens in the economy now as you cut interest rates?

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Speaker 2: How does that cut get transmitted?

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Speaker 4: Okay? As a general matter, the FED has only one tool, really,

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Speaker 4: which is a screwdriver that can tighten or can loosen.

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Speaker 4: And I always say, if you're problem is a loose fender,

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Speaker 4: that's great. If your problem is can you make breakfast, no,

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Speaker 4: you kind of can't do that. With a screwdriver. So

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Speaker 4: the main channels of monetary policy impact on the economy,

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Speaker 4: I think are on the real economy side, and they

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Speaker 4: are on interest rates sensitive parts of the economy like

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Speaker 4: consumer durables, business, fixed investment, construction, things like that. Now

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Speaker 4: there are other channels of monetary transmission where there's a

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Speaker 4: lot of argument how important are they, and they are. Well,

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Speaker 4: if you change the value of assets like the value

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Speaker 4: of housing, the value of stocks, et cetera, is there

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Speaker 4: a wealth effect so that consumer spending might go up

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Speaker 4: as the asset values go up, or if you contract

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Speaker 4: and asset values go down, would that limit spending. There's

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Speaker 4: a dollar chance that if rates in the US are

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Speaker 4: moving relative to how rates are moving in other places,

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Speaker 4: can affect the currency, and that could affect imports and exports.

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Speaker 4: Those are probably a lot of the of the main channels,

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Speaker 4: and it's always in the counterfactual what would be happening

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Speaker 4: if we didn't do this, So to the extent that

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Speaker 4: there's already a debt structure, or to the extent that

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Speaker 4: we went through a business cycle that, for the first

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Speaker 4: time ever was not driven by cyclical industries but was

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Speaker 4: driven by services because nobody could spend money on that,

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Speaker 4: and services aren't especially interest rates sensitive. That's another reason

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Speaker 4: why you might think monetary transmission, the monetary transmission mechanism,

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Speaker 4: which is actually a whole bunch of different transmission mechanisms,

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Speaker 4: just looks different this time than before. Now, well, everything

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Speaker 4: that looks different is not bad. Okay. In a way,

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Speaker 4: this is frustrating that monetary policy doesn't have the same impact.

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Speaker 4: But at the same time, in twenty twenty three, we

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Speaker 4: hit what I called the golden path. Inflation came down

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Speaker 4: almost as much as it ever came down in a

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Speaker 4: single year, and there was no recession, and that never

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Speaker 4: happened before. And so the unusualness of this thing sometimes

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Speaker 4: it is good.

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Speaker 3: Well, this gets to by a question, and I sort

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Speaker 3: of wonder whether us in the media or you and

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Speaker 3: economics are going to be cursed with debating the transitory

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Speaker 3: verse non transitory debate of twenty twenty two for literally

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Speaker 3: the rest of our lives. But at this point in

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Speaker 3: I guess October twenty twenty four, okay, and we talked

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Speaker 3: with you when you first started talking about the golden path,

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Speaker 3: and that looks great. It's even more golden today than

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Speaker 3: it was at the time we were talking, but like

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Speaker 3: why like how much credit like for you know, if

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Speaker 3: like how much credit do you give yourselves at the

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Speaker 3: FED versus like how much of it was were weird

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Speaker 3: and then got normal?

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Speaker 4: I think mostly things were weird and then got normal.

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Speaker 4: We made the mistake. And look, I made the mistake.

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Speaker 4: I was in the declare. I wasn't on the FED

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Speaker 4: at that time. But team Transitory, I, like many people

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Speaker 4: in the market, thought it would be transitory if we

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Speaker 4: had it to do over. I think you would call

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Speaker 4: it team supply shock. Okay, and they're in life take

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Speaker 4: the victory, just with a slightly different Well, so Steve

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Speaker 4: Lessman said, well, it turns out team Tradessa Tory was right,

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Speaker 4: you know, and there is a sense in which the

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Speaker 4: language should have been about what's the nature of the

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Speaker 4: shock that's happening, not the how long is that going

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Speaker 4: to last? It was. I was wrong. I thought if

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Speaker 4: you get a supply shock, that's going to heal itself

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Speaker 4: pretty quickly. It didn't. It lasted. The supply shocks we

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Speaker 4: learned last did a lot longer because if the ports

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Speaker 4: are messed up and the chips are not getting produced,

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Speaker 4: then they can't get cars. But then the people who

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Speaker 4: are buying the cars to use for delivery, they're delayed,

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Speaker 4: and so this supply chain having more steps in it

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Speaker 4: ended up being a bigger deal.

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Speaker 3: Just real quickly on this point, though, If this is

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Speaker 3: the story, then does that mean labor market strength now

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Speaker 3: does not necessarily pose renewed inflation risk?

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Speaker 4: Yes, does not necessarily. I agree with it. So let

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Speaker 4: me finish two Sorry, two thoughts is not a one.

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Speaker 4: Did the FED have anything to do with it? That's

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Speaker 4: kind of the question. If it was all supply shocks,

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Speaker 4: then the FED didn't really. Yes, the FED can't be

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Speaker 4: blamed for the inflation going up, but then the FED

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Speaker 4: shouldn't take credit for coming down. There is some component

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Speaker 4: that as supply shocks heel you get immaculate disinflation. I

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Speaker 4: do think that the fundamentally different thing that happened this

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Speaker 4: time than the last time we were getting supply shocks,

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Speaker 4: like at the end of the seventies, is that the

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Speaker 4: market expectations of inflation basically never went up in the seventies.

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Speaker 4: As actual inflation went up, the expectations went up. And

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Speaker 4: part of what made the Voger experience so hard is

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Speaker 4: You didn't have to just slay the inflation dragon. You

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Speaker 4: had to go convince everyone that we will hold this

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Speaker 4: thing underwater for as long as it takes until it surrenders.

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Speaker 4: And that's a brutal that's a brutal process. I do

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Speaker 4: think that the that expectations stayed even as actual inflation

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Speaker 4: was almost double digit, stayed exactly at PC two percent

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Speaker 4: as the inflation target said, was fundamentally the FED making

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Speaker 4: a promise. It may look bad, but we're going to

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Speaker 4: get it back, and that the market to facto believed it,

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Speaker 4: and that is to the FED, is about FED credibility,

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Speaker 4: and I do think it made a big difference it.

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Speaker 2: I want to ask one more question on the Golden

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Speaker 2: Path and the interview we did with you about I

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Speaker 2: guess it was almost a little over a.

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Speaker 3: Year ago, like a year and a half. Yeah.

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Speaker 2: In that conversation, you talked about housing costs coming down

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Speaker 2: being essential to the Golden Path scenario. And yet here

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Speaker 2: we are, as we discussed earlier, mortgage rates aren't really

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Speaker 2: coming down. In fact, some people expect them to, you know,

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Speaker 2: either stay where they are or go higher from here.

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Speaker 2: Shelter costs in CPI still you know kind of high.

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Speaker 2: How did we manage to get here without housing costs

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Speaker 2: really substantially coming down?

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Speaker 4: Okay, now I'm afraid you're remembering, you know each thing

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Speaker 4: I said back from over a year ago, but my

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Speaker 4: emphasis was about the shelter costs and the inflation aspect.

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Speaker 4: And to our previous discussion, I had just given this

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Speaker 4: speech at the Peterson Institute in which I said, we

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Speaker 4: were getting a series of very strong jobs numbers, yet

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Speaker 4: inflation was coming down, and I was arguing, don't lose

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Speaker 4: sight of if you're getting positive supply shocks, labor force

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Speaker 4: participation coming back after a severe drops that is a

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Speaker 4: supply shock. If you see the supply chain's healing, all

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Speaker 4: of those would be reasons. And I wasn't fully cognizant

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Speaker 4: of the impact of immigration that it was going to

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Speaker 4: have at that time, but all of those supply shocks

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Speaker 4: mean don't just take at face value if you got

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Speaker 4: a big aggregate GDP growth number, or you got a

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Speaker 4: big monthly payroll job gain number, that doesn't mean that

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Speaker 4: doesn't have to mean that the economy is overheating. And

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Speaker 4: if you're seeing inflation falling while that's happening, and you

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Speaker 4: know there are supply shocks. Tone it back a little

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Speaker 4: in the argument that it's demand overheating, because this is

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Speaker 4: just the inverse of the thing that made it so

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Speaker 4: strange on the way up. That lesson, I kind of

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Speaker 4: think is a little bit applicable now too, potentially. And

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Speaker 4: the question that you asked, how do we do that

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Speaker 4: if inflation housing didn't come down, you said it was essential.

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Speaker 4: Housing inflation has come down a bit, But the real

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Speaker 4: answer is services inflation came down even more than we

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Speaker 4: thought it would be able to, and goods inflation has

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Speaker 4: come down and stayed down into the mild deflation that

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Speaker 4: it was before COVID, And I kind of think that's

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Speaker 4: how we did it, and the market rents say that

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Speaker 4: it did happen. The inflation rate of shelter in the

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Speaker 4: market is down to something like what it was before COVID.

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Speaker 4: It just hasn't yet been fully reflected in the CPI,

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Speaker 4: which I think it is, but is you know, every

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Speaker 4: month it's not, we again say what in the world

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Speaker 4: is happening.

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Speaker 3: We've been hearing that those Zillow market rented disease are

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Speaker 3: going to feed through in the next three months. For

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Speaker 3: about two years, and now two years, I know some

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Speaker 3: people have figured out the I'm still.

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Speaker 2: Trying to use them to negotiate with my landlord. I

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Speaker 2: can say it's been mildly effective.

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Speaker 4: Yeah, how did it work?

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Speaker 2: Since a little bit? I think I managed to negotiate

437
00:26:40,160 --> 00:26:42,880
Speaker 2: like a ten percent increase down to a five percent increase.

438
00:26:43,200 --> 00:26:45,080
Speaker 2: So I guess that's a win for New York.

439
00:26:45,440 --> 00:26:48,680
Speaker 3: But since you've actually tuned me off here on another question,

440
00:26:48,720 --> 00:26:50,600
Speaker 3: I had you off. Thank you, no, in like a

441
00:26:50,600 --> 00:26:51,119
Speaker 3: good way.

442
00:26:52,840 --> 00:26:53,520
Speaker 4: You said it.

443
00:26:53,280 --> 00:26:58,040
Speaker 3: On housing starts, multi family in particular have come way down,

444
00:26:58,160 --> 00:27:00,119
Speaker 3: and some people would blame the FED, just in the

445
00:27:00,119 --> 00:27:02,760
Speaker 3: strict sense that higher rates project finance it comes down.

446
00:27:03,119 --> 00:27:05,000
Speaker 3: Do you worry about the effect that that has on

447
00:27:05,080 --> 00:27:08,520
Speaker 3: housing supply in the coming years and therefore on the

448
00:27:08,560 --> 00:27:09,880
Speaker 3: effect of shelter inflation?

449
00:27:10,160 --> 00:27:10,719
Speaker 5: A little?

450
00:27:10,840 --> 00:27:14,280
Speaker 4: I mean, I do think we've seen that housing markets

451
00:27:14,280 --> 00:27:18,479
Speaker 4: are complicated markets, and A it's not just one housing

452
00:27:18,520 --> 00:27:21,080
Speaker 4: market for the whole nation. It's very different in different

453
00:27:21,119 --> 00:27:23,199
Speaker 4: parts of the country, and there's a supply and a

454
00:27:23,240 --> 00:27:27,800
Speaker 4: demand component. But that's always true, Okay, It's always true

455
00:27:28,200 --> 00:27:33,600
Speaker 4: that when the FED raises interest rates that the impact

456
00:27:33,720 --> 00:27:38,760
Speaker 4: on housing demand, the demand goes down because it's more expensive,

457
00:27:39,040 --> 00:27:42,239
Speaker 4: but there is also a supply component. And now we

458
00:27:42,280 --> 00:27:44,640
Speaker 4: add on top of it. Because we got so many

459
00:27:44,680 --> 00:27:47,679
Speaker 4: people with thirty or fixed mortgages, there is on the

460
00:27:47,720 --> 00:27:49,600
Speaker 4: margin a group of people who don't want to leave

461
00:27:49,640 --> 00:27:52,639
Speaker 4: their house. I'm not gonna move because I got a

462
00:27:52,640 --> 00:27:55,639
Speaker 4: three and a half percent mortgage and I would have

463
00:27:55,760 --> 00:27:59,240
Speaker 4: to have an eight percent mortgage if I moved, So

464
00:28:00,040 --> 00:28:03,199
Speaker 4: we have to think about that. But this is the

465
00:28:03,240 --> 00:28:07,120
Speaker 4: only tool we have. We have balance sheet and interest rate,

466
00:28:07,520 --> 00:28:11,240
Speaker 4: but it's basically just we can tighten, we can loosen that.

467
00:28:11,240 --> 00:28:12,240
Speaker 4: That's what we can different.

468
00:28:28,119 --> 00:28:32,719
Speaker 2: You mentioned the importance of inflation expectations earlier on and

469
00:28:32,920 --> 00:28:34,919
Speaker 2: I have to say, in the course of preparing for

470
00:28:35,000 --> 00:28:37,879
Speaker 2: this interview, I think I did just a search on

471
00:28:37,960 --> 00:28:42,120
Speaker 2: my phone of my inbox going inflation, and one thing

472
00:28:42,160 --> 00:28:44,960
Speaker 2: that came up from yesterday was there is a JP

473
00:28:45,080 --> 00:28:48,240
Speaker 2: Morgan note talking about the potential for a reflation trade

474
00:28:48,320 --> 00:28:51,000
Speaker 2: now that the FED has cut and China is stimulating.

475
00:28:51,720 --> 00:28:54,200
Speaker 2: I know you're not in control of what Wall Street

476
00:28:54,240 --> 00:28:56,760
Speaker 2: banks recommend their clients do, but it is kind of

477
00:28:56,800 --> 00:28:59,840
Speaker 2: interesting that in the course of the FED cutting in

478
00:29:00,000 --> 00:29:03,560
Speaker 2: trust rates, some people are pitching well, inflation's going to

479
00:29:03,560 --> 00:29:04,560
Speaker 2: come back in this scenario.

480
00:29:05,920 --> 00:29:09,280
Speaker 4: Look, don't believe everything you get in an email. And

481
00:29:09,520 --> 00:29:15,520
Speaker 4: the market gives you actual estimates of what do they

482
00:29:15,600 --> 00:29:18,600
Speaker 4: think inflation is going to be over the next year,

483
00:29:18,920 --> 00:29:21,440
Speaker 4: over the next five years, the five years after that.

484
00:29:21,680 --> 00:29:24,840
Speaker 4: So there's some survey based measures and there are market

485
00:29:24,880 --> 00:29:28,040
Speaker 4: based measures. You don't have to rely on a newsletter

486
00:29:28,440 --> 00:29:31,520
Speaker 4: to say, well, is this a sign that expectations have

487
00:29:31,600 --> 00:29:34,960
Speaker 4: become unhinged? Tip spread?

488
00:29:35,680 --> 00:29:39,800
Speaker 2: Sure, But the question is more generally, as you cut,

489
00:29:39,960 --> 00:29:42,640
Speaker 2: is there the potential that inflation somehow comes back?

490
00:29:43,480 --> 00:29:48,040
Speaker 4: Of course, and the job of central bank is to

491
00:29:48,120 --> 00:29:52,640
Speaker 4: be paranoid about everything, and that's why the through line

492
00:29:52,880 --> 00:29:57,800
Speaker 4: is the main line. Overall, inflation's way down over a

493
00:29:57,920 --> 00:30:01,120
Speaker 4: long period. And we had one ump and Q one

494
00:30:01,600 --> 00:30:05,400
Speaker 4: of this year, but you had six months where inflation

495
00:30:05,680 --> 00:30:09,920
Speaker 4: was at or below two percent. Then we have a bump,

496
00:30:10,120 --> 00:30:15,080
Speaker 4: and now we've had four. I will see tomorrow what

497
00:30:15,160 --> 00:30:20,440
Speaker 4: happens with CPI, But on the implied PCEE, we've been

498
00:30:20,480 --> 00:30:24,040
Speaker 4: coming in the new months at or below two percent.

499
00:30:25,320 --> 00:30:30,800
Speaker 4: The only thing I'd say for the scare scenario that

500
00:30:30,920 --> 00:30:37,600
Speaker 4: inflation's coming back is expectations for a five year inflation

501
00:30:38,040 --> 00:30:43,960
Speaker 4: are actually down if you think PCEE inflation is like

502
00:30:44,160 --> 00:30:50,040
Speaker 4: CPI minus two tenths. If anything, the expectations are that

503
00:30:50,760 --> 00:30:54,640
Speaker 4: PCE inflation would be below two percent as it was

504
00:30:54,720 --> 00:31:02,080
Speaker 4: before COVID, and the three month actual headline has been

505
00:31:02,360 --> 00:31:05,160
Speaker 4: like one and a half percent. So there is now

506
00:31:05,440 --> 00:31:11,480
Speaker 4: opened us a window that seemed inconceivable not that long ago,

507
00:31:11,520 --> 00:31:16,920
Speaker 4: where inflation is actually undershooting the two percent target. So

508
00:31:17,520 --> 00:31:19,880
Speaker 4: it could be it could come back and be high,

509
00:31:20,360 --> 00:31:24,200
Speaker 4: it could come back and be low. And my my

510
00:31:25,280 --> 00:31:29,320
Speaker 4: is it my read is my statement about doing a

511
00:31:29,360 --> 00:31:33,200
Speaker 4: fifty basis point cut to start what looks to me

512
00:31:33,520 --> 00:31:37,440
Speaker 4: like a cycle over a twelve to eighteen month period

513
00:31:38,280 --> 00:31:42,280
Speaker 4: is I think it's fine to have a demarcation when

514
00:31:42,360 --> 00:31:46,880
Speaker 4: something has changed. And the demarcation is we went through

515
00:31:46,920 --> 00:31:50,720
Speaker 4: a long period since I've been on the Fed, we've

516
00:31:50,800 --> 00:31:54,960
Speaker 4: had an almost exclusive focus on the inflation side of

517
00:31:54,960 --> 00:32:00,360
Speaker 4: the mandate, as we should have, and now I like

518
00:32:00,400 --> 00:32:04,520
Speaker 4: that's changed. Now we're back to thinking about both sides

519
00:32:04,560 --> 00:32:06,960
Speaker 4: of the mandate and thinking about the trade offs and

520
00:32:07,080 --> 00:32:10,640
Speaker 4: trying to stabilize the picture. Pretty much exactly where we

521
00:32:10,680 --> 00:32:13,880
Speaker 4: are right now that the new months of inflation are

522
00:32:14,000 --> 00:32:17,520
Speaker 4: at two percent, and the unemployment rate is kind of

523
00:32:18,120 --> 00:32:21,960
Speaker 4: stable around four point two four point three some some

524
00:32:22,320 --> 00:32:26,240
Speaker 4: measure of full employment. And when you're in that circumstance,

525
00:32:26,280 --> 00:32:28,440
Speaker 4: you got to think about both sides. You can't just

526
00:32:28,480 --> 00:32:29,320
Speaker 4: think about inflation.

527
00:32:29,600 --> 00:32:32,360
Speaker 3: This is good because we'll get one of those headlines,

528
00:32:32,520 --> 00:32:35,840
Speaker 3: you know, Chicago Feds risk to both sides. Yeah, this

529
00:32:35,920 --> 00:32:37,640
Speaker 3: will be a nice This will be a nice like

530
00:32:37,720 --> 00:32:40,240
Speaker 3: pippy headline. We cannot shoot out when this comes out

531
00:32:40,520 --> 00:32:42,800
Speaker 3: on this episode. But I take your point. I think

532
00:32:42,840 --> 00:32:44,640
Speaker 3: the job of a central banker, as you said, to

533
00:32:44,640 --> 00:32:47,800
Speaker 3: sort of be paranoid. The risk management. It's always risk

534
00:32:47,840 --> 00:32:50,640
Speaker 3: management that's probably never going to change, right, It's always

535
00:32:50,720 --> 00:32:53,280
Speaker 3: about thinking about risks. And did you mentioned okay, maybe

536
00:32:53,280 --> 00:32:57,120
Speaker 3: there's risks to both sides. Just to delve deeper on this,

537
00:32:57,240 --> 00:33:00,440
Speaker 3: and it kind of relates to Tracy's question. If you're

538
00:33:00,440 --> 00:33:04,080
Speaker 3: thinking about inflation risks, if let's say six months from now,

539
00:33:04,120 --> 00:33:06,840
Speaker 3: we come back and we're talking to and we'd love

540
00:33:06,880 --> 00:33:09,320
Speaker 3: to visit again in the spring, if we're out here in.

541
00:33:09,320 --> 00:33:14,400
Speaker 4: The springtime in Chicago is only fourteen days and they're

542
00:33:14,400 --> 00:33:15,040
Speaker 4: not in a row.

543
00:33:16,560 --> 00:33:18,680
Speaker 3: That's the only part to stick with fall visits, let's

544
00:33:18,680 --> 00:33:21,560
Speaker 3: stick with all of positis. Then if an inflation were

545
00:33:21,600 --> 00:33:23,239
Speaker 3: to be higher, like you know, when you're like up

546
00:33:23,280 --> 00:33:26,120
Speaker 3: at night and you're paranoid, thinking is your job is

547
00:33:26,400 --> 00:33:29,120
Speaker 3: what would concern you? Is it the say China stimulus,

548
00:33:29,640 --> 00:33:32,080
Speaker 3: is it the wars that we're seeing.

549
00:33:32,880 --> 00:33:37,560
Speaker 4: I was going to distinguish demand overheating is the kind

550
00:33:37,760 --> 00:33:43,680
Speaker 4: of inflation that we want to be the most attuned to.

551
00:33:46,360 --> 00:33:52,080
Speaker 4: But that's not necessarily either. That's not a supply shock inflation.

552
00:33:52,200 --> 00:33:55,479
Speaker 4: That's much more complicated. And so if you had war

553
00:33:55,600 --> 00:33:58,120
Speaker 4: in the Middle East spreading to a big run up

554
00:33:58,280 --> 00:34:02,040
Speaker 4: in the price of oil. We know, we've seen that

555
00:34:02,120 --> 00:34:07,480
Speaker 4: movie several times and it stinks. You know, the original

556
00:34:07,600 --> 00:34:10,719
Speaker 4: was bad and all the sequels are bad. It's a

557
00:34:10,760 --> 00:34:17,240
Speaker 4: stagflationary impulse, and that's what would happen. You would get

558
00:34:17,360 --> 00:34:22,200
Speaker 4: the economy turning sour and inflation rising. But it's not

559
00:34:22,360 --> 00:34:27,360
Speaker 4: obvious what the central banks response to a supply shock

560
00:34:27,640 --> 00:34:30,759
Speaker 4: would be. For sure, you'd have to think through is

561
00:34:30,800 --> 00:34:34,359
Speaker 4: this a temporary or is it a permanent It's going

562
00:34:34,440 --> 00:34:38,480
Speaker 4: to be uncomfortable, but that doesn't automatically mean the FED

563
00:34:38,520 --> 00:34:40,799
Speaker 4: should tighten or the fed should loosen them. It would

564
00:34:41,080 --> 00:34:45,040
Speaker 4: very much depend on conditions. So I'm thinking more on

565
00:34:45,080 --> 00:34:49,880
Speaker 4: the demand excess demand, and if you started to see that,

566
00:34:50,080 --> 00:34:52,800
Speaker 4: then you'd have to react.

567
00:34:52,560 --> 00:34:55,560
Speaker 3: And just right now. And I kind of I tried

568
00:34:55,560 --> 00:34:58,120
Speaker 3: to interject this earlier and didn't get it because you

569
00:34:58,120 --> 00:34:59,520
Speaker 3: were completing a train of thought.

570
00:35:00,560 --> 00:35:03,120
Speaker 4: We have seen it right now, Maybe just ignor it.

571
00:35:04,280 --> 00:35:09,040
Speaker 3: But okay, like this with if the labor market continues strong,

572
00:35:09,400 --> 00:35:12,560
Speaker 3: does that give you any pause or anxiety about demander

573
00:35:12,560 --> 00:35:13,160
Speaker 3: of an inflation.

574
00:35:13,440 --> 00:35:18,920
Speaker 4: It could give pause if A it's sustained and b

575
00:35:19,200 --> 00:35:21,799
Speaker 4: you see it in all the measures. Okay, so that's

576
00:35:21,840 --> 00:35:26,600
Speaker 4: the long If you take now vacancies to unemployed, ratio,

577
00:35:27,040 --> 00:35:35,160
Speaker 4: hiring rates, quit rates, the UI claims coming in all

578
00:35:35,239 --> 00:35:38,920
Speaker 4: of the measures broadly have been showing a labor market

579
00:35:38,960 --> 00:35:43,440
Speaker 4: that is cooling from a white hot level to something

580
00:35:43,600 --> 00:35:48,799
Speaker 4: like sustainable full employment. I haven't seen anything that is

581
00:35:48,960 --> 00:35:51,640
Speaker 4: yet convincing that there's a new trend that we're not

582
00:35:53,160 --> 00:35:55,879
Speaker 4: stabilizing at full employment, that we are in fact going

583
00:35:55,960 --> 00:36:00,400
Speaker 4: back to white hot, overly overheated. But I'm that you

584
00:36:00,560 --> 00:36:04,160
Speaker 4: never as a core member of the data dog kennel,

585
00:36:04,320 --> 00:36:07,640
Speaker 4: you will never hear me say, oh, data came in.

586
00:36:07,719 --> 00:36:09,759
Speaker 4: Do you just ignore it? No, I don't ignore it.

587
00:36:09,840 --> 00:36:11,560
Speaker 4: That's but it's only one data.

588
00:36:11,400 --> 00:36:14,919
Speaker 2: Point, the data dog kennel. Is this why you've sort

589
00:36:14,920 --> 00:36:18,520
Speaker 2: of become the go to FED speaker on big data days?

590
00:36:18,560 --> 00:36:21,080
Speaker 2: So I know you were. You were on Bloomberg TV

591
00:36:21,200 --> 00:36:23,560
Speaker 2: when that jobs report came out. Why why do you

592
00:36:23,640 --> 00:36:26,319
Speaker 2: do that out of curiosity? Because you know you put

593
00:36:26,360 --> 00:36:28,719
Speaker 2: yourself out there at a time when.

594
00:36:29,000 --> 00:36:29,759
Speaker 3: You talk to the media.

595
00:36:29,920 --> 00:36:33,600
Speaker 2: Oh no, I don't think I'm a sensitive days.

596
00:36:33,640 --> 00:36:40,640
Speaker 4: The thing is you are more interested in opinion on

597
00:36:40,800 --> 00:36:43,600
Speaker 4: the days when it is salient, like when the data

598
00:36:43,600 --> 00:36:49,319
Speaker 4: come out. I feel like at moments of transition, like

599
00:36:50,040 --> 00:36:54,120
Speaker 4: kind of this spirit we're in here, I feel like

600
00:36:54,480 --> 00:36:58,480
Speaker 4: it behooves us. And it is our responsibility in the

601
00:36:58,520 --> 00:37:02,360
Speaker 4: FED to give a description of here's what we're seeing,

602
00:37:02,640 --> 00:37:06,640
Speaker 4: to remind people we're not on a day trader's timetable.

603
00:37:06,800 --> 00:37:08,919
Speaker 4: You know, the market is up, the market is down.

604
00:37:09,040 --> 00:37:12,680
Speaker 4: Let's take the through line. I don't think I'm the

605
00:37:12,719 --> 00:37:15,920
Speaker 4: only one going out. I certainly see my colleagues and

606
00:37:15,960 --> 00:37:19,840
Speaker 4: I value their their views quite a lot. But I

607
00:37:19,960 --> 00:37:25,640
Speaker 4: think an openness and transparency this is the field guide

608
00:37:25,680 --> 00:37:29,600
Speaker 4: to openness and transparency, talking about our reaction function and

609
00:37:29,640 --> 00:37:32,920
Speaker 4: the data, not just releasing SEP dots.

610
00:37:33,000 --> 00:37:36,840
Speaker 3: My takeaway is that Austin thinks that the market is

611
00:37:36,920 --> 00:37:39,239
Speaker 3: too attuned to the short term and therefore they need

612
00:37:39,239 --> 00:37:42,040
Speaker 3: to remind us every single I was.

613
00:37:42,719 --> 00:37:46,279
Speaker 4: I'm gonna run through my maybe let's pull down.

614
00:37:50,040 --> 00:37:50,520
Speaker 5: Don't do that.

615
00:37:51,239 --> 00:37:53,719
Speaker 2: I have one more weird media related question though, but

616
00:37:53,760 --> 00:37:56,880
Speaker 2: since you mentioned filibustering, if you were going to filibuster

617
00:37:57,000 --> 00:37:59,920
Speaker 2: this entire interview, like say you had to, you had

618
00:37:59,960 --> 00:38:01,560
Speaker 2: to speak for at least two hours, what would you

619
00:38:01,600 --> 00:38:02,040
Speaker 2: talk about?

620
00:38:02,160 --> 00:38:05,200
Speaker 4: I appreciate that you don't think that's what I did.

621
00:38:05,360 --> 00:38:08,000
Speaker 2: No, you didn't, but I'm curious what I would talk.

622
00:38:07,800 --> 00:38:12,840
Speaker 4: About would be the cash department at the Chicago Fed

623
00:38:13,360 --> 00:38:16,560
Speaker 4: and the way that we have a lot of money

624
00:38:16,640 --> 00:38:21,120
Speaker 4: and this is a this is a live operational bank.

625
00:38:21,400 --> 00:38:24,520
Speaker 4: We are the bank to other banks, and I would

626
00:38:24,600 --> 00:38:27,200
Speaker 4: love to give your well listeners insight.

627
00:38:27,360 --> 00:38:30,759
Speaker 2: We promise we will have Austin give us as a

628
00:38:30,960 --> 00:38:33,480
Speaker 2: very detailed breakdown of the cash ops here at the

629
00:38:33,520 --> 00:38:34,120
Speaker 2: Chicago Fed.

630
00:38:34,200 --> 00:38:36,760
Speaker 3: There is a follow up episode to this lend coming

631
00:38:36,840 --> 00:38:40,080
Speaker 3: in the coming weeks, all about the Chicago Feds. Cash operation.

632
00:38:40,560 --> 00:38:42,359
Speaker 3: It's so great of Austin. They give a little tease

633
00:38:42,400 --> 00:38:43,320
Speaker 3: for that next episode.

634
00:38:43,320 --> 00:38:46,240
Speaker 2: That's perfect. Can I ask one more serious question before

635
00:38:46,280 --> 00:38:49,600
Speaker 2: we wind it down? But you talked about restrictiveness earlier

636
00:38:49,640 --> 00:38:52,600
Speaker 2: in this conversation, and you know, I get where that

637
00:38:52,640 --> 00:38:55,160
Speaker 2: comes from. And people look at things like real yields

638
00:38:55,160 --> 00:38:57,440
Speaker 2: and stuff. But if you look at stock market prices

639
00:38:57,520 --> 00:39:00,640
Speaker 2: we're recording this on October ninth, I think stock indices

640
00:39:00,680 --> 00:39:03,440
Speaker 2: are at records. Again, if you look at credit spreads,

641
00:39:03,680 --> 00:39:08,880
Speaker 2: those are like at multi year lows. Where's the restrictiveness

642
00:39:09,040 --> 00:39:11,880
Speaker 2: Because I don't see it in the financial parts of

643
00:39:11,920 --> 00:39:13,480
Speaker 2: the financial market. Let me put it that.

644
00:39:13,480 --> 00:39:18,640
Speaker 4: Way, I'd say two things. I told you my focus

645
00:39:18,840 --> 00:39:21,920
Speaker 4: is primarily on the real side of the economy. I

646
00:39:21,960 --> 00:39:25,360
Speaker 4: think those are the biggest, most impactful parts of the

647
00:39:25,400 --> 00:39:30,480
Speaker 4: monetary policy transmission mechanism historically. So I'm less of a

648
00:39:30,520 --> 00:39:36,920
Speaker 4: fan of interpreting financial conditions in dioses as a measure

649
00:39:37,080 --> 00:39:42,680
Speaker 4: of monetary restrictiveness or what monetary policy should do, because

650
00:39:44,120 --> 00:39:48,279
Speaker 4: in my view, it's got a major reflection problem that

651
00:39:49,160 --> 00:39:53,520
Speaker 4: let's say the market, which is forward looking, decides they

652
00:39:53,560 --> 00:39:56,040
Speaker 4: think it's going to work, that there will be a

653
00:39:56,080 --> 00:39:59,280
Speaker 4: soft landing that rates are going to come down because

654
00:39:59,320 --> 00:40:03,839
Speaker 4: inflation has been tamed and is at two percent, then

655
00:40:04,360 --> 00:40:09,399
Speaker 4: equity markets go up. Long rates would come down, and

656
00:40:09,520 --> 00:40:12,880
Speaker 4: that would then be interpreted as a loosening of financial conditions,

657
00:40:12,880 --> 00:40:15,920
Speaker 4: and it would be like, oh, you better stop cutting,

658
00:40:15,960 --> 00:40:19,520
Speaker 4: you better raise But that's just self referential. So I

659
00:40:19,560 --> 00:40:25,600
Speaker 4: think that's a little problematic. And the inverted yield curve

660
00:40:26,040 --> 00:40:29,960
Speaker 4: for two years, which everybody has been saying, is an

661
00:40:30,040 --> 00:40:33,840
Speaker 4: indication that there's about to be a recession. That's not normal.

662
00:40:34,080 --> 00:40:37,880
Speaker 4: It's not if we go back to a regularly shaped

663
00:40:37,960 --> 00:40:41,480
Speaker 4: yield curve like we're in more normal conditions, that's not

664
00:40:41,560 --> 00:40:45,880
Speaker 4: the end of the world. My view of restrictiveness is

665
00:40:45,920 --> 00:40:50,040
Speaker 4: we set the Fed funds rate, We set it high

666
00:40:50,440 --> 00:40:53,359
Speaker 4: and held it there for more than a year, and

667
00:40:53,440 --> 00:40:56,480
Speaker 4: as inflation came down, the real Fed funds rate just

668
00:40:56,600 --> 00:41:01,200
Speaker 4: kept going up, passive tightening. As a highest the real

669
00:41:01,280 --> 00:41:03,480
Speaker 4: Fed funds rate it have been in decades, and so

670
00:41:03,600 --> 00:41:05,440
Speaker 4: to me, that's where the restrictiveness is.

671
00:41:05,719 --> 00:41:06,120
Speaker 5: All right.

672
00:41:06,200 --> 00:41:07,879
Speaker 2: Austin Woolsby, thank you so much for.

673
00:41:07,840 --> 00:41:11,480
Speaker 4: Coming back online and thanks for coming out Todan, thanks

674
00:41:11,520 --> 00:41:13,799
Speaker 4: for having us here, thanks for we're the guests this time.

675
00:41:14,000 --> 00:41:27,240
Speaker 6: That's right, Joe.

676
00:41:27,560 --> 00:41:30,920
Speaker 2: That was so interesting, And I really appreciate Austin sitting

677
00:41:30,960 --> 00:41:33,560
Speaker 2: down with us for like forty five minutes and really

678
00:41:33,600 --> 00:41:35,480
Speaker 2: explaining how he's thinking about these things.

679
00:41:35,840 --> 00:41:39,640
Speaker 3: Austin is really game to chat and he really likes it,

680
00:41:39,680 --> 00:41:43,360
Speaker 3: and I appreciate that he sort of he seems to

681
00:41:43,520 --> 00:41:45,640
Speaker 3: enjoy it quite a bit, just sort of going back

682
00:41:45,680 --> 00:41:48,560
Speaker 3: and forth and thinking things out, and he's very energetic.

683
00:41:49,000 --> 00:41:51,040
Speaker 3: You know, in the intro we talked about it is

684
00:41:51,040 --> 00:41:54,120
Speaker 3: it very This is a very interesting, uncertain moment for Macro,

685
00:41:54,239 --> 00:41:56,799
Speaker 3: and of course that's always true. But part of what

686
00:41:56,960 --> 00:41:59,359
Speaker 3: makes the moment interesting is that the last four years

687
00:41:59,360 --> 00:42:02,960
Speaker 3: have been really interesting, and to this day we're still

688
00:42:03,000 --> 00:42:06,680
Speaker 3: trying to piece together the puzzle of why inflation surged

689
00:42:06,760 --> 00:42:09,160
Speaker 3: as it did and why inflation came down as it did.

690
00:42:09,440 --> 00:42:12,520
Speaker 2: Yeah, and going back to that tension between the data

691
00:42:12,560 --> 00:42:15,480
Speaker 2: dependency and the sort of forward looking stuff, it does

692
00:42:15,560 --> 00:42:17,720
Speaker 2: feel to me like the FED is trying to get

693
00:42:17,840 --> 00:42:21,040
Speaker 2: ahead of something right now, which is slightly at odds

694
00:42:21,080 --> 00:42:23,800
Speaker 2: with this idea of data dependency. But on the other hand,

695
00:42:24,160 --> 00:42:28,600
Speaker 2: to Austin's point, if it's been a really weird business cycle,

696
00:42:28,760 --> 00:42:31,880
Speaker 2: then maybe it makes sense to you know, deviate a

697
00:42:31,920 --> 00:42:35,640
Speaker 2: little bit and try new things and maybe try to

698
00:42:35,640 --> 00:42:38,920
Speaker 2: be more forward looking getting ahead of labor market weakness.

699
00:42:39,200 --> 00:42:42,319
Speaker 3: Totally, you know. I think it's interesting too, the sort

700
00:42:42,360 --> 00:42:46,759
Speaker 3: of revisiting of the transitory debate, and I think a

701
00:42:46,840 --> 00:42:50,600
Speaker 3: very compelling point is just objectively, it might have made

702
00:42:50,719 --> 00:42:53,080
Speaker 3: more sense to describe the whole thing as sort of

703
00:42:53,080 --> 00:42:54,000
Speaker 3: team supply.

704
00:42:54,160 --> 00:42:56,680
Speaker 2: Set this before. In fact, I think I asked someone,

705
00:42:57,000 --> 00:42:59,960
Speaker 2: possibly from the FED, if they regret kind of calling

706
00:43:00,080 --> 00:43:02,839
Speaker 2: it transitory and if it should have been called something else.

707
00:43:03,280 --> 00:43:05,680
Speaker 3: I think I remember who you asked? Who I asked? Well,

708
00:43:06,120 --> 00:43:09,200
Speaker 3: it might have been an off the record conversation. Oh oops, okay,

709
00:43:09,239 --> 00:43:10,839
Speaker 3: well no, no, no, it's okay. But we could say

710
00:43:10,840 --> 00:43:13,879
Speaker 3: our part, but we can't say who was okay. And

711
00:43:13,920 --> 00:43:16,239
Speaker 3: it's funny because when I tell you afterwards who it was,

712
00:43:16,280 --> 00:43:18,160
Speaker 3: it'll make it better.

713
00:43:18,800 --> 00:43:21,160
Speaker 2: I feel so bad that you remember this and I don't.

714
00:43:21,520 --> 00:43:24,240
Speaker 2: But anyway, it's funny that that came up again.

715
00:43:24,560 --> 00:43:28,320
Speaker 3: Well, totally. And then so like transitory to some people

716
00:43:28,600 --> 00:43:30,280
Speaker 3: is a specific amount of time.

717
00:43:30,560 --> 00:43:33,200
Speaker 2: Yeah, well it implies that it's going to be like

718
00:43:33,360 --> 00:43:34,480
Speaker 2: fairly short lived.

719
00:43:34,600 --> 00:43:37,280
Speaker 3: So that was wrong, but the idea that it's still

720
00:43:37,280 --> 00:43:39,399
Speaker 3: the big thing. So there's two things still. The big

721
00:43:39,440 --> 00:43:42,480
Speaker 3: thing is maybe, as we put it in the conversation,

722
00:43:42,560 --> 00:43:44,440
Speaker 3: things were weird and then got normal, which is a

723
00:43:44,440 --> 00:43:48,359
Speaker 3: big part of the story. But also, and I think

724
00:43:48,360 --> 00:43:50,160
Speaker 3: there will be a lot of debate about this question,

725
00:43:50,560 --> 00:43:53,759
Speaker 3: is Austin put it, maybe why things got weird and

726
00:43:53,840 --> 00:43:56,280
Speaker 3: normal but then things didn't keep getting weirder and weirder.

727
00:43:56,440 --> 00:43:59,960
Speaker 3: Is this idea of inflation expectations having remained well anchored,

728
00:44:00,440 --> 00:44:03,600
Speaker 3: which is sort of a vindication of the sort of

729
00:44:03,920 --> 00:44:07,560
Speaker 3: fed's traditional approach to dealing with this, or you know,

730
00:44:07,640 --> 00:44:11,920
Speaker 3: it's an idea, law, it's a it is a logical vindication.

731
00:44:12,040 --> 00:44:14,840
Speaker 3: If you buy that, then that explains why, regardless of

732
00:44:14,880 --> 00:44:17,200
Speaker 3: the causes of the inflation, the right thing to do

733
00:44:17,280 --> 00:44:18,320
Speaker 3: is to hike so aggressively.

734
00:44:18,440 --> 00:44:21,920
Speaker 2: Yeah, all right, Well, lots to mole over, for sure,

735
00:44:22,040 --> 00:44:24,439
Speaker 2: and obviously there's going to be more data coming out

736
00:44:24,480 --> 00:44:27,239
Speaker 2: relatively soon. But shall we leave it there for now?

737
00:44:27,320 --> 00:44:28,040
Speaker 3: Let's leave it there.

738
00:44:28,200 --> 00:44:30,880
Speaker 2: This has been another episode of the aud Thoughts podcast.

739
00:44:31,000 --> 00:44:34,319
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.

740
00:44:34,280 --> 00:44:37,120
Speaker 3: I'm Jill Wisenthal. You can follow me at the Stalwart.

741
00:44:37,320 --> 00:44:41,160
Speaker 3: Follow our guest Austin Goulesby. He's at Austin Goulesby. Follow

742
00:44:41,200 --> 00:44:45,200
Speaker 3: our producers Carmen Rodriguez at Carmen Arman, dash Ol Bennett

743
00:44:45,200 --> 00:44:48,600
Speaker 3: at Dashbot and kel Brooks at kel Brooks. And thank

744
00:44:48,640 --> 00:44:51,040
Speaker 3: you to our producer Moses On and form our odd

745
00:44:51,080 --> 00:44:54,040
Speaker 3: Lots content. Go to Bloomberg dot com slash odd lots.

746
00:44:54,080 --> 00:44:56,600
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747
00:44:56,640 --> 00:44:59,680
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748
00:44:59,680 --> 00:45:02,480
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749
00:45:02,480 --> 00:45:05,480
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750
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752
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753
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755
00:45:17,160 --> 00:45:20,879
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756
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757
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760
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762
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764
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765
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