WEBVTT - Austan Goolsbee on How This Cycle Turned Out to Be So Different 0:00:03.160 --> 0:00:19.800 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:20.280 --> 0:00:23.520 Hello and welcome to another episode of the All Thoughts podcast. 0:00:23.600 --> 0:00:25.840 I'm Tracy Alloway and I'm Joe Whysenthal. 0:00:26.160 --> 0:00:29.600 Joe, how is your deep dish pizza? 0:00:29.760 --> 0:00:30.480 It was so good? 0:00:30.520 --> 0:00:32.400 You know, I actually don't know if I had ever 0:00:32.720 --> 0:00:38.519 really had a proper Chicago deep dish pizza before, but 0:00:38.600 --> 0:00:40.680 I went to this place, I think it's called Pea 0:00:40.800 --> 0:00:44.840 Quads Pizza. Yeah, pea Quads, and they sort of burned 0:00:44.880 --> 0:00:48.520 the crust a little bit, which I really like, highly recommended, 0:00:48.720 --> 0:00:50.480 seemed pretty legit as far as I could tell. 0:00:50.640 --> 0:00:52.879 You definitely did the right thing, because I just went 0:00:53.000 --> 0:00:55.360 back to the airport to hop on a fly and 0:00:55.440 --> 0:00:58.320 I got to say, O'Hare is kind of even worse 0:00:58.480 --> 0:01:01.040 than I remember it. But anyway, Oh, in case you 0:01:01.080 --> 0:01:03.800 haven't figured it out yet, we both just got back 0:01:03.800 --> 0:01:08.039 from Chicago, where we interviewed the Chicago Fed President, Austin Gooldsby. 0:01:08.560 --> 0:01:09.000 That's right. 0:01:09.120 --> 0:01:11.560 First of all, Chicago's so nice this time of year. 0:01:11.760 --> 0:01:12.920 I love visiting Chicago. 0:01:13.360 --> 0:01:13.520 You know. 0:01:13.560 --> 0:01:16.240 We could have talked to Austin over zoom or something, 0:01:16.319 --> 0:01:18.320 I guess, but it was great to actually go there, 0:01:18.760 --> 0:01:21.520 go to the Chicago FED at headquarters and talk to 0:01:21.840 --> 0:01:24.039 the president of the Chicago FED. And what I have 0:01:24.120 --> 0:01:27.200 to say is I think an extremely interesting sort of 0:01:27.440 --> 0:01:28.800 moment for Macro right now. 0:01:28.880 --> 0:01:31.679 Oh, it is so interesting. I know people over use 0:01:31.800 --> 0:01:34.920 the term turning points. Yeah, but I really feel like 0:01:35.000 --> 0:01:38.319 this is a very like specific moment in time where 0:01:38.319 --> 0:01:41.400 we thought the labor market was weakening, the FED cut 0:01:41.640 --> 0:01:45.120 by fifty bases points, and then we had that blowout 0:01:45.319 --> 0:01:49.760 jobs report. Yes, and I have to say we recorded 0:01:49.800 --> 0:01:54.240 this interview with Austin on Wednesday, October ninth, which was 0:01:54.640 --> 0:01:59.040 the day before the latest CPI figure came out. Also, 0:01:59.120 --> 0:02:02.840 we recorded it right when the FOMC minutes came out, 0:02:03.120 --> 0:02:06.240 so not the best planning in terms of timing on 0:02:06.320 --> 0:02:10.200 our part. But since then we've had CPI come in 0:02:10.320 --> 0:02:12.959 ever so slightly hotter than expected as well. 0:02:13.400 --> 0:02:14.440 Yes, that's right. 0:02:14.560 --> 0:02:18.160 So as you mentioned, recorded this Wednesday, you're listening to 0:02:18.200 --> 0:02:21.239 this presumably on a Friday. But even with the fact 0:02:21.280 --> 0:02:23.560 that we couldn't talk about CPI, I think there's like 0:02:23.639 --> 0:02:27.480 really two things that make this moment interesting. It's always 0:02:27.480 --> 0:02:29.880 interesting because we're never you know, we live in a 0:02:29.919 --> 0:02:33.600 world of incomplete information on a certainty. But the two 0:02:33.720 --> 0:02:37.160 things are really and Austin talked about this in our interview. 0:02:37.360 --> 0:02:38.680 The FED has changed focus. 0:02:38.760 --> 0:02:38.959 Right. 0:02:39.200 --> 0:02:41.560 For a couple of years, it was about inflation and 0:02:41.600 --> 0:02:44.240 getting it down, and now the risks are balanced. So 0:02:44.919 --> 0:02:47.040 it's a key thing that happened. And I would say 0:02:47.040 --> 0:02:50.720 that Chairman Powell's speech at Jackson Hole in August officially 0:02:50.760 --> 0:02:53.680 marked that moment of the pivot starting there. And then 0:02:53.840 --> 0:02:56.240 the other thing is like, Okay, maybe there's this pivot, 0:02:56.480 --> 0:02:58.960 but things right now are still really uncertain and we 0:02:59.000 --> 0:03:01.120 really don't know what it's going to happen. And you 0:03:01.240 --> 0:03:04.200 mentioned the hot inflation number and the strong jobs report 0:03:04.240 --> 0:03:06.400 and all this stuff. So we're at a moment where 0:03:06.560 --> 0:03:08.079 pivot meets new uncertainty. 0:03:08.400 --> 0:03:11.959 Yes, and who better to explain some of that uncertainty 0:03:12.080 --> 0:03:14.840 than Austin. So why don't we go ahead and take 0:03:14.880 --> 0:03:18.400 a listen. Here's Austin Goolsby from the Chicago Fed. Thank 0:03:18.480 --> 0:03:20.200 you so much for coming back on odd thoughts. 0:03:20.400 --> 0:03:22.280 Welcome to where the magic happens. 0:03:22.480 --> 0:03:25.359 We're very excited to be in Chicago. I have to say, 0:03:25.480 --> 0:03:29.040 being in the FED building. It's a gorgeous building. The architecture, Yeah. 0:03:28.919 --> 0:03:31.600 It's a landmark. It's great. Yeah, it's it's over one 0:03:31.639 --> 0:03:32.400 hundred years old. 0:03:32.560 --> 0:03:35.400 I heard you were celebrating one hundred year anniversary this year, 0:03:35.520 --> 0:03:37.080 right last. 0:03:36.840 --> 0:03:39.200 Yeah, it was yeah last year. 0:03:39.200 --> 0:03:41.280 Also, we probably could have caught up with you via zoom. 0:03:41.320 --> 0:03:43.200 But it's just such a great time to be in Chicago. 0:03:43.360 --> 0:03:46.720 Yeah, this is the moment. 0:03:49.280 --> 0:03:51.400 It's actually warmer in Chicago right now than it is 0:03:51.440 --> 0:03:54.160 in New York, which is kind of surprising. Okay, speaking 0:03:54.200 --> 0:03:57.280 of stuff that's warmer. We had a pretty hot jobs 0:03:57.320 --> 0:04:00.520 report recently ICs transition. Yeah, thank you, thank you. I'm 0:04:00.520 --> 0:04:03.880 a professional. Okay, blowout jobs report? What does that mean 0:04:03.920 --> 0:04:06.960 for you? Did it cause you to take pause? Maybe 0:04:07.080 --> 0:04:09.120 think about that fifty basis point cut? 0:04:09.360 --> 0:04:12.520 Well, look, you know my thing is always let's take 0:04:12.560 --> 0:04:17.240 the long arc and find the through line, not overreact 0:04:17.240 --> 0:04:22.400 to one number. It's sixty days before that we got 0:04:22.400 --> 0:04:27.640 a disappointing number, and you had people going on publicly 0:04:27.680 --> 0:04:29.840 and saying by the time of the next FED meeting, 0:04:29.880 --> 0:04:32.240 they need to have one hundred and fifty basis point cut. 0:04:32.480 --> 0:04:35.520 Then we get a positive jobs number, and then we 0:04:35.560 --> 0:04:37.919 have a positive job number, and then people are saying, 0:04:38.320 --> 0:04:42.159 maybe we should raise I don't fault the market. That's 0:04:42.200 --> 0:04:45.280 the market's business model. They got to react to every 0:04:45.320 --> 0:04:49.839 little Twitter and blip that happens. In my view, the 0:04:49.839 --> 0:04:52.440 fes not on a timetable like that. We got to 0:04:52.520 --> 0:04:56.400 take the broad view. So far, I think the broadview 0:04:56.640 --> 0:05:01.400 shows inflation come way down, the the job market has 0:05:01.760 --> 0:05:07.960 cooled from overly hot to something like sustainable full employment 0:05:08.600 --> 0:05:11.760 where we would like it to be. And if we 0:05:11.800 --> 0:05:14.160 could freeze it right there, that'd be a lovely picture. 0:05:14.360 --> 0:05:17.440 And so then the question is can you freeze it 0:05:17.480 --> 0:05:19.560 there or is it going to get worse? If we 0:05:19.640 --> 0:05:24.520 got multiple months that showed big positives like what we 0:05:24.640 --> 0:05:27.400 just saw in the job's number, that would all I 0:05:27.400 --> 0:05:30.159 would alter my view. That would affect my view, But 0:05:30.520 --> 0:05:34.120 I don't think that. I think people can take that 0:05:34.200 --> 0:05:35.640 too far from one month. 0:05:35.880 --> 0:05:37.360 That all makes sense to me. But I'm going to 0:05:37.400 --> 0:05:40.599 try to attack the present the same question and attack 0:05:40.640 --> 0:05:43.560 it in a slightly different way. A few of these. Okay, 0:05:43.839 --> 0:05:47.360 If I think about Chrman Powell's Jackson Hole speech, and 0:05:47.400 --> 0:05:50.000 I think about that fifty basis point right cut in 0:05:50.040 --> 0:05:52.520 mid September, intotality, like the basic way I think about 0:05:52.520 --> 0:05:55.080 it is like you at FMC, the fan is trying 0:05:55.080 --> 0:05:57.200 to cut off the left tail of a hard landing, 0:05:57.400 --> 0:06:00.880 and things are in a good spot currently, the levels 0:06:00.960 --> 0:06:03.359 are good. By trying to cut off that hard landing 0:06:03.360 --> 0:06:06.640 outcome with us with a sort of strong beginning of 0:06:06.680 --> 0:06:10.679 the rate cut cycle, by going fifty, does that strong 0:06:10.880 --> 0:06:14.919 jobs report change it all? How you think about the 0:06:15.040 --> 0:06:16.839 risks today of hard landing. 0:06:17.360 --> 0:06:20.880 I'm in the data dog caucus, one of the core 0:06:20.960 --> 0:06:24.679 members of the Kennel, so I'm never going to ignore 0:06:24.800 --> 0:06:27.479 any data point. I want all the data that we 0:06:27.560 --> 0:06:30.320 can get. If you take a step back and look 0:06:30.520 --> 0:06:37.120 at the dot plot in the SEPs, they ask independently. 0:06:37.240 --> 0:06:41.160 We don't talk about it, but they ask independently everybody, 0:06:41.200 --> 0:06:47.480 and the mass bulk of the dots say that the 0:06:47.600 --> 0:06:52.839 FOMC members think inflation's going to keep coming in close 0:06:52.920 --> 0:06:56.880 to the two percent target, They think unemployment is going 0:06:56.960 --> 0:07:05.000 to stay somewhere around full employment benchmark, and that the 0:07:05.040 --> 0:07:08.880 Fed funds rate is one hundred and fifty two hundred 0:07:08.920 --> 0:07:12.520 basis points above where they see it settling down. So 0:07:13.240 --> 0:07:16.160 the broad mass of people thinking the long run Fed 0:07:16.200 --> 0:07:18.600 funds would be two and a half to three and 0:07:18.600 --> 0:07:21.840 a half. You know, something in that range, and we're 0:07:22.120 --> 0:07:25.360 even with the cut, we're well above that. So I 0:07:25.440 --> 0:07:28.840 kind of think that's by far the biggest and even 0:07:28.880 --> 0:07:33.760 with information content. So the focusing too much on the 0:07:33.800 --> 0:07:37.800 short run, I was kind of teasing the market, but 0:07:37.840 --> 0:07:39.720 I guess I'll tease you. It sounds like you have 0:07:39.840 --> 0:07:44.640 the same You have that same short run focus that 0:07:44.760 --> 0:07:48.040 whether it was twenty five basis points at the first 0:07:49.000 --> 0:07:52.200 meeting versus zero or twenty five vers of fifty at 0:07:52.200 --> 0:07:55.480 the next meeting, and what does that mean for the 0:07:55.560 --> 0:08:00.600 meeting after that? That's smallish potatoes. The big pigture is 0:08:00.800 --> 0:08:04.760 inflation is way down, unemployment is up to a level 0:08:04.800 --> 0:08:08.880 that we're happy with, and the rates are well above 0:08:09.520 --> 0:08:13.480 what almost everyone on the FOMC is saying they think 0:08:13.600 --> 0:08:17.800 is the steady state. And as I keep saying, you 0:08:17.880 --> 0:08:20.800 just got to think about your restrictive and that includes me, 0:08:21.080 --> 0:08:24.000 and you got to think about how restrictive you want 0:08:24.040 --> 0:08:27.280 to be. If you got the dual mandate where you 0:08:27.400 --> 0:08:30.960 want it, do you want to have rates be that 0:08:31.200 --> 0:08:33.560 much higher than where you think they're going to settle 0:08:34.160 --> 0:08:38.600 or does that endanger the pretty picture? And so that's 0:08:38.679 --> 0:08:41.000 kind of where my head is it's not even technical. 0:08:41.080 --> 0:08:45.280 There's a ticki tac argument that I would just remind 0:08:45.360 --> 0:08:49.800 people that, A, you know, we meet every six weeks, okay, 0:08:49.840 --> 0:08:54.960 so we're constantly going back over the data and forecast 0:08:55.040 --> 0:08:58.000 of what's to come to try not to get behind 0:08:58.040 --> 0:09:00.520 the curve, or if we get behind the curve, not 0:09:00.559 --> 0:09:02.960 to be too far behind the curve. It's why the 0:09:03.040 --> 0:09:07.439 FED is the tip of the spear for economic stabilization. 0:09:08.400 --> 0:09:12.480 And there was a meeting where we had a meeting 0:09:12.480 --> 0:09:16.480 and there was no rate increase. Let's say it was 0:09:16.960 --> 0:09:20.920 between zero and twenty five. There are no twelve point fives, 0:09:21.120 --> 0:09:23.160 but if there could be a twelve point five, it 0:09:23.240 --> 0:09:25.439 was kind of a twelve point five meeting. And then 0:09:25.440 --> 0:09:28.040 we have a meeting where that's there's an argument in 0:09:28.080 --> 0:09:30.320 the market is are they twenty five or they fifty? 0:09:30.520 --> 0:09:34.480 There's no thirty seven point five move, but. 0:09:34.679 --> 0:09:36.280 I think I've joked about that. 0:09:36.120 --> 0:09:41.560 And over two meetings, Yeah, seven point five is a 0:09:41.559 --> 0:09:48.200 fifty point move, Okay, So over some longer period it 0:09:48.320 --> 0:09:52.320 doesn't feel it doesn't feel like if you're trying not 0:09:52.480 --> 0:09:57.240 to fall behind the curve. We move in discrete increments, 0:09:57.600 --> 0:10:01.559 And so I still think is taking a long view 0:10:01.679 --> 0:10:04.120 is the right way to think about what's happening. And 0:10:04.240 --> 0:10:07.080 I don't know why we don't do thirty seven point five? 0:10:07.200 --> 0:10:09.960 Why is it continuous? Why can't we picked like thirty three? 0:10:10.480 --> 0:10:12.000 I know what I know? 0:10:12.320 --> 0:10:13.000 Is there a rule? 0:10:13.080 --> 0:10:21.640 Actually, I'm really interested in the questions people realize thatous. 0:10:21.200 --> 0:10:23.120 So I don't know. 0:10:23.400 --> 0:10:25.560 I don't know, but I think maybe some of the 0:10:25.600 --> 0:10:29.560 confusion comes around because the FED has emphasized data dependency 0:10:29.880 --> 0:10:33.320 so much in recent years, and data, by its very 0:10:33.400 --> 0:10:37.280 nature is backward looking. And then we we can talk 0:10:37.320 --> 0:10:40.640 about that, okay, But then you get to turning points 0:10:40.640 --> 0:10:43.840 in the business cycle, and now it kind of feels 0:10:43.840 --> 0:10:46.320 like you're shifting more into You talked about being behind 0:10:46.360 --> 0:10:48.720 the curve. It feels like you're trying to get ahead 0:10:48.720 --> 0:10:50.840 of something. And so I think there's that tension. 0:10:52.000 --> 0:10:56.079 There is some tension between how much do you want 0:10:56.120 --> 0:10:58.440 to look back how much do you want to look forward? 0:10:58.920 --> 0:11:01.800 You got to do both. If you want a soft landing, 0:11:01.840 --> 0:11:06.080 you can't be behind the curve. And the hardest thing, 0:11:06.160 --> 0:11:08.520 as I say that that Central Bank has to do 0:11:09.120 --> 0:11:12.480 is to get the timing exactly right when there are 0:11:12.640 --> 0:11:15.600 moments of transition. It's why we meet every six weeks, 0:11:15.720 --> 0:11:18.199 so that you don't have to make one decision and 0:11:18.600 --> 0:11:25.400 figure out the thing. My only objection to the characterization 0:11:26.720 --> 0:11:29.960 is that to be data dependent I do not think 0:11:31.080 --> 0:11:34.800 means you commit I won't make any forward looking judgments. 0:11:34.880 --> 0:11:36.760 I only want to look backward. I think it's a 0:11:36.800 --> 0:11:41.679 mistake to do that, and especially because there are lags 0:11:41.679 --> 0:11:45.720 to monetary policy, and the lags, if anything, were even 0:11:45.800 --> 0:11:50.560 longer for this weird business cycle. And so if your 0:11:50.640 --> 0:11:55.480 decision rule was going to be I'm just gonna wait 0:11:55.760 --> 0:12:02.000 until we see, say, the job market start falling apart before. 0:12:01.679 --> 0:12:02.800 Once we're in recession. 0:12:03.000 --> 0:12:07.760 Well no, exactly. By that point it's too late to 0:12:07.800 --> 0:12:10.800 do anything about that. So I do think there's a 0:12:10.880 --> 0:12:14.120 risk management argument for being in a being in a 0:12:14.160 --> 0:12:15.200 more nimble spot. 0:12:31.280 --> 0:12:33.320 Since you mentioned lags, I want to ask you a 0:12:33.400 --> 0:12:37.400 question about that. When the FED started jacking up rates aggressively, 0:12:37.440 --> 0:12:39.360 one of the theories for why it didn't have a 0:12:39.520 --> 0:12:43.079 sharper impact on the economy is that so many households 0:12:43.120 --> 0:12:46.040 and corporations had in say twenty twenty first half of 0:12:46.440 --> 0:12:48.240 twenty one turned out their debt, and so there was 0:12:48.240 --> 0:12:51.000 not a lot of sensitivity to debt. The flip side 0:12:51.000 --> 0:12:53.640 of that now, and people have been writing about this, 0:12:53.920 --> 0:12:55.760 is that even though the FED has now commenced a 0:12:55.800 --> 0:12:59.439 cutting cycle, that the weighted average cost of debt is 0:12:59.440 --> 0:13:02.600 probably going to rise in twenty twenty five basically just 0:13:02.679 --> 0:13:06.240 mathematically right, because eventually they'll have to be refired at 0:13:06.360 --> 0:13:08.920 higher rates and so forth. How do you think about 0:13:09.040 --> 0:13:12.800 that dynamic now when you're thinking about these lags, you're 0:13:12.800 --> 0:13:15.640 starting a cutting cycle, but at the same time, probably 0:13:15.760 --> 0:13:17.520 cost of debt is actually going to rise for a 0:13:17.520 --> 0:13:20.080 fair number of economic actors in this economy. 0:13:20.240 --> 0:13:25.360 You have remarked on this subject and thought it through. 0:13:27.160 --> 0:13:30.160 In my world, that goes into the economic conditions, and 0:13:30.200 --> 0:13:35.439 that's there are many things that have made this a hairy, 0:13:36.440 --> 0:13:41.920 strange time for central banks because the business cycle, both 0:13:42.000 --> 0:13:47.319 down and up, looked almost nothing like the historical precedence. 0:13:48.000 --> 0:13:54.439 This is one aspect of that. We've analyzed this specifically 0:13:54.600 --> 0:13:58.280 thinking about mortgages. Okay, So if I had told you 0:13:58.360 --> 0:14:01.720 the premise of your question one hundred percent agree with 0:14:02.640 --> 0:14:06.160 six years ago, if you said the FED is going 0:14:06.240 --> 0:14:10.199 to raise five hundred basis points in a single year, 0:14:11.160 --> 0:14:16.000 what is going to happen. I think most all economists 0:14:16.040 --> 0:14:21.040 would say, yikes, there's going to be a major, major contraction, 0:14:21.600 --> 0:14:26.640 and it's going to be concentrated. Autos down the tubes, 0:14:26.720 --> 0:14:32.200 consumer durables bye bye, business, fixed investment, construction all going 0:14:32.280 --> 0:14:36.440 to collapse because they're very interest rate sensitive. We didn't 0:14:36.520 --> 0:14:40.400 really see the economy go into the steepness of collapse 0:14:40.440 --> 0:14:43.440 that you would have expected. And so that brings us 0:14:43.480 --> 0:14:48.080 back to this question. It's kind of a twofold. Is 0:14:48.160 --> 0:14:52.520 there something about this unusual business cycle that makes economic 0:14:52.560 --> 0:14:57.080 activity less sensitive to the interest rate or is there 0:14:57.200 --> 0:15:01.840 something strange about this moment that the lag effect is longer, 0:15:02.720 --> 0:15:06.200 And it can be both and they can run together. 0:15:06.280 --> 0:15:09.880 But in the case of mortgages, one of the things 0:15:09.920 --> 0:15:15.680 that has made monetary policy transmission less direct is the 0:15:15.720 --> 0:15:18.800 fact that a vastly higher share of mortgages are thirty 0:15:18.880 --> 0:15:21.760 year fixed mortgages now than they were in two thousand 0:15:21.800 --> 0:15:24.960 and five, two thousand and nine, whenever you want to 0:15:25.040 --> 0:15:28.520 look at and so when they change the interest rate, 0:15:29.080 --> 0:15:33.680 in some countries, virtually all mortgages are adjustable rate mortgage. 0:15:33.720 --> 0:15:37.640 So when their central bank raises rates, they bring out 0:15:38.720 --> 0:15:43.000 parents onto TV. The Central Bank is killing us. You know, 0:15:43.080 --> 0:15:46.520 our mortgage payment went up in the US. If everybody's 0:15:46.560 --> 0:15:51.040 on a thirty year fixed in a way, that's just 0:15:51.080 --> 0:15:54.480 a delay. But it's a thirty year delay. So I 0:15:54.520 --> 0:15:59.600 do think that notion that there are companies that don't 0:15:59.600 --> 0:16:02.080 have a lot of the debt, so they aren't as 0:16:02.400 --> 0:16:06.120 especially sense of the interest rate, that the term structure 0:16:06.280 --> 0:16:11.600 of their debt may be such that the average rates 0:16:11.640 --> 0:16:14.680 they're paying might even be higher as a FED cuts, 0:16:14.920 --> 0:16:17.400 I think that's not a problem. That's just a fact, 0:16:17.600 --> 0:16:21.520 and we just need to we need to understand it 0:16:21.240 --> 0:16:23.520 and see what the magnitude is. 0:16:24.240 --> 0:16:30.120 Let me ask you the same question in an extremely yeah, 0:16:30.160 --> 0:16:32.880 but my question is going to be ultra simplistic. Can 0:16:32.920 --> 0:16:37.040 you explain to us in excruciating detail, what exactly you 0:16:37.120 --> 0:16:41.920 expect happens in the economy now as you cut interest rates? 0:16:42.160 --> 0:16:45.240 How does that cut get transmitted? 0:16:45.440 --> 0:16:52.040 Okay? As a general matter, the FED has only one tool, really, 0:16:53.440 --> 0:16:57.360 which is a screwdriver that can tighten or can loosen. 0:16:58.160 --> 0:17:02.120 And I always say, if you're problem is a loose fender, 0:17:03.160 --> 0:17:07.600 that's great. If your problem is can you make breakfast, no, 0:17:08.400 --> 0:17:10.840 you kind of can't do that. With a screwdriver. So 0:17:11.080 --> 0:17:16.280 the main channels of monetary policy impact on the economy, 0:17:16.920 --> 0:17:19.679 I think are on the real economy side, and they 0:17:19.720 --> 0:17:22.800 are on interest rates sensitive parts of the economy like 0:17:23.160 --> 0:17:28.800 consumer durables, business, fixed investment, construction, things like that. Now 0:17:28.880 --> 0:17:33.119 there are other channels of monetary transmission where there's a 0:17:33.119 --> 0:17:37.479 lot of argument how important are they, and they are. Well, 0:17:37.560 --> 0:17:40.480 if you change the value of assets like the value 0:17:40.480 --> 0:17:43.320 of housing, the value of stocks, et cetera, is there 0:17:43.320 --> 0:17:47.320 a wealth effect so that consumer spending might go up 0:17:47.920 --> 0:17:53.360 as the asset values go up, or if you contract 0:17:53.640 --> 0:17:58.640 and asset values go down, would that limit spending. There's 0:17:58.720 --> 0:18:02.280 a dollar chance that if rates in the US are 0:18:02.680 --> 0:18:06.639 moving relative to how rates are moving in other places, 0:18:06.920 --> 0:18:10.960 can affect the currency, and that could affect imports and exports. 0:18:11.480 --> 0:18:14.200 Those are probably a lot of the of the main channels, 0:18:14.840 --> 0:18:20.840 and it's always in the counterfactual what would be happening 0:18:20.840 --> 0:18:24.800 if we didn't do this, So to the extent that 0:18:25.000 --> 0:18:29.680 there's already a debt structure, or to the extent that 0:18:29.800 --> 0:18:32.159 we went through a business cycle that, for the first 0:18:32.200 --> 0:18:36.840 time ever was not driven by cyclical industries but was 0:18:36.920 --> 0:18:40.119 driven by services because nobody could spend money on that, 0:18:41.280 --> 0:18:45.720 and services aren't especially interest rates sensitive. That's another reason 0:18:46.280 --> 0:18:52.080 why you might think monetary transmission, the monetary transmission mechanism, 0:18:53.000 --> 0:18:56.199 which is actually a whole bunch of different transmission mechanisms, 0:18:57.240 --> 0:19:01.200 just looks different this time than before. Now, well, everything 0:19:01.240 --> 0:19:03.920 that looks different is not bad. Okay. In a way, 0:19:04.040 --> 0:19:07.680 this is frustrating that monetary policy doesn't have the same impact. 0:19:07.720 --> 0:19:11.120 But at the same time, in twenty twenty three, we 0:19:11.280 --> 0:19:14.760 hit what I called the golden path. Inflation came down 0:19:14.920 --> 0:19:17.119 almost as much as it ever came down in a 0:19:17.160 --> 0:19:20.879 single year, and there was no recession, and that never 0:19:21.040 --> 0:19:25.520 happened before. And so the unusualness of this thing sometimes 0:19:25.400 --> 0:19:25.840 it is good. 0:19:26.320 --> 0:19:28.720 Well, this gets to by a question, and I sort 0:19:28.720 --> 0:19:31.720 of wonder whether us in the media or you and 0:19:31.840 --> 0:19:34.760 economics are going to be cursed with debating the transitory 0:19:34.840 --> 0:19:38.200 verse non transitory debate of twenty twenty two for literally 0:19:38.240 --> 0:19:40.879 the rest of our lives. But at this point in 0:19:41.400 --> 0:19:45.480 I guess October twenty twenty four, okay, and we talked 0:19:45.480 --> 0:19:47.880 with you when you first started talking about the golden path, 0:19:47.920 --> 0:19:50.639 and that looks great. It's even more golden today than 0:19:50.680 --> 0:19:53.320 it was at the time we were talking, but like 0:19:53.359 --> 0:19:55.640 why like how much credit like for you know, if 0:19:55.640 --> 0:19:57.560 like how much credit do you give yourselves at the 0:19:57.560 --> 0:20:00.480 FED versus like how much of it was were weird 0:20:00.480 --> 0:20:01.240 and then got normal? 0:20:03.119 --> 0:20:05.560 I think mostly things were weird and then got normal. 0:20:06.160 --> 0:20:09.080 We made the mistake. And look, I made the mistake. 0:20:09.160 --> 0:20:12.320 I was in the declare. I wasn't on the FED 0:20:12.400 --> 0:20:16.040 at that time. But team Transitory, I, like many people 0:20:16.080 --> 0:20:18.760 in the market, thought it would be transitory if we 0:20:18.920 --> 0:20:22.080 had it to do over. I think you would call 0:20:22.119 --> 0:20:27.280 it team supply shock. Okay, and they're in life take 0:20:27.280 --> 0:20:32.200 the victory, just with a slightly different Well, so Steve 0:20:32.280 --> 0:20:38.040 Lessman said, well, it turns out team Tradessa Tory was right, 0:20:38.160 --> 0:20:40.719 you know, and there is a sense in which the 0:20:40.840 --> 0:20:44.880 language should have been about what's the nature of the 0:20:45.000 --> 0:20:48.119 shock that's happening, not the how long is that going 0:20:48.200 --> 0:20:50.959 to last? It was. I was wrong. I thought if 0:20:51.000 --> 0:20:54.520 you get a supply shock, that's going to heal itself 0:20:54.560 --> 0:20:59.159 pretty quickly. It didn't. It lasted. The supply shocks we 0:20:59.320 --> 0:21:02.760 learned last did a lot longer because if the ports 0:21:02.800 --> 0:21:06.160 are messed up and the chips are not getting produced, 0:21:06.200 --> 0:21:08.280 then they can't get cars. But then the people who 0:21:08.320 --> 0:21:12.280 are buying the cars to use for delivery, they're delayed, 0:21:12.280 --> 0:21:15.920 and so this supply chain having more steps in it 0:21:16.440 --> 0:21:17.600 ended up being a bigger deal. 0:21:17.720 --> 0:21:19.679 Just real quickly on this point, though, If this is 0:21:19.720 --> 0:21:22.720 the story, then does that mean labor market strength now 0:21:22.920 --> 0:21:26.120 does not necessarily pose renewed inflation risk? 0:21:27.440 --> 0:21:30.760 Yes, does not necessarily. I agree with it. So let 0:21:30.760 --> 0:21:34.680 me finish two Sorry, two thoughts is not a one. 0:21:35.400 --> 0:21:37.720 Did the FED have anything to do with it? That's 0:21:37.800 --> 0:21:40.640 kind of the question. If it was all supply shocks, 0:21:41.200 --> 0:21:43.960 then the FED didn't really. Yes, the FED can't be 0:21:44.080 --> 0:21:47.520 blamed for the inflation going up, but then the FED 0:21:47.520 --> 0:21:50.679 shouldn't take credit for coming down. There is some component 0:21:51.080 --> 0:21:58.320 that as supply shocks heel you get immaculate disinflation. I 0:21:58.400 --> 0:22:03.840 do think that the fundamentally different thing that happened this 0:22:04.000 --> 0:22:07.159 time than the last time we were getting supply shocks, 0:22:07.160 --> 0:22:11.159 like at the end of the seventies, is that the 0:22:11.200 --> 0:22:19.359 market expectations of inflation basically never went up in the seventies. 0:22:19.480 --> 0:22:23.240 As actual inflation went up, the expectations went up. And 0:22:23.480 --> 0:22:26.800 part of what made the Voger experience so hard is 0:22:26.880 --> 0:22:30.240 You didn't have to just slay the inflation dragon. You 0:22:30.440 --> 0:22:35.400 had to go convince everyone that we will hold this 0:22:35.560 --> 0:22:40.280 thing underwater for as long as it takes until it surrenders. 0:22:40.920 --> 0:22:45.720 And that's a brutal that's a brutal process. I do 0:22:45.840 --> 0:22:52.760 think that the that expectations stayed even as actual inflation 0:22:52.840 --> 0:22:58.080 was almost double digit, stayed exactly at PC two percent 0:22:58.280 --> 0:23:03.720 as the inflation target said, was fundamentally the FED making 0:23:03.760 --> 0:23:07.440 a promise. It may look bad, but we're going to 0:23:07.520 --> 0:23:12.480 get it back, and that the market to facto believed it, 0:23:12.920 --> 0:23:16.760 and that is to the FED, is about FED credibility, 0:23:16.760 --> 0:23:19.000 and I do think it made a big difference it. 0:23:19.760 --> 0:23:22.440 I want to ask one more question on the Golden 0:23:22.560 --> 0:23:24.679 Path and the interview we did with you about I 0:23:24.680 --> 0:23:26.359 guess it was almost a little over a. 0:23:26.400 --> 0:23:28.719 Year ago, like a year and a half. Yeah. 0:23:29.000 --> 0:23:32.160 In that conversation, you talked about housing costs coming down 0:23:32.200 --> 0:23:35.840 being essential to the Golden Path scenario. And yet here 0:23:35.880 --> 0:23:39.719 we are, as we discussed earlier, mortgage rates aren't really 0:23:39.760 --> 0:23:42.280 coming down. In fact, some people expect them to, you know, 0:23:42.359 --> 0:23:44.480 either stay where they are or go higher from here. 0:23:44.920 --> 0:23:48.919 Shelter costs in CPI still you know kind of high. 0:23:49.359 --> 0:23:53.240 How did we manage to get here without housing costs 0:23:53.320 --> 0:23:55.600 really substantially coming down? 0:23:55.800 --> 0:24:00.320 Okay, now I'm afraid you're remembering, you know each thing 0:24:00.359 --> 0:24:03.399 I said back from over a year ago, but my 0:24:03.920 --> 0:24:07.960 emphasis was about the shelter costs and the inflation aspect. 0:24:08.080 --> 0:24:12.359 And to our previous discussion, I had just given this 0:24:12.400 --> 0:24:16.640 speech at the Peterson Institute in which I said, we 0:24:16.640 --> 0:24:20.399 were getting a series of very strong jobs numbers, yet 0:24:20.440 --> 0:24:25.920 inflation was coming down, and I was arguing, don't lose 0:24:26.040 --> 0:24:30.920 sight of if you're getting positive supply shocks, labor force 0:24:31.000 --> 0:24:35.720 participation coming back after a severe drops that is a 0:24:35.760 --> 0:24:40.920