WEBVTT - John Williams Talks Tariffs and Higher Prices 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.640 --> 0:00:09.760 We want to take you to the stage here at 0:00:09.760 --> 0:00:12.680 Bloomberg invest Our own Michael McKee sitting down with the 0:00:12.680 --> 0:00:15.600 President of the New York Fed, John Williams. You're going 0:00:15.680 --> 0:00:19.560 to work against me, right, don will I start with 0:00:19.600 --> 0:00:21.800 the I guess you'd call it the orange elephant in 0:00:21.840 --> 0:00:25.280 the room, the tariffs that the President put on today. 0:00:26.600 --> 0:00:29.960 For a long time, you've been saying to me, it's 0:00:30.000 --> 0:00:32.640 too early to know the effect of the tariffs. Well, 0:00:32.760 --> 0:00:34.800 now we've got some details on the tariffs. 0:00:35.360 --> 0:00:38.600 Your reaction, right, And I think the reason I was 0:00:38.640 --> 0:00:41.159 saying to you it's too early is because it really matters. 0:00:41.720 --> 0:00:43.559 It matters you. 0:00:43.520 --> 0:00:47.639 Know, which goods or where tariffs are applying, what countries, 0:00:48.040 --> 0:00:49.120 how long they apply for. 0:00:49.280 --> 0:00:51.400 So there's you know, when you look at the research 0:00:51.479 --> 0:00:52.200 that looks. 0:00:51.960 --> 0:00:54.720 At the effects of teriffs on the US economy, you know, 0:00:54.760 --> 0:00:56.720 one of the things that's highlights it depends whether it's 0:00:56.720 --> 0:00:57.520 consumer goods. 0:00:57.560 --> 0:00:58.360 It depends on. 0:00:58.480 --> 0:01:00.720 Whether it's goods that lots of kind trees produced, and 0:01:00.720 --> 0:01:02.600 a lot of things like that. So you know, it 0:01:02.640 --> 0:01:05.360 really made sense to let's wait and see find out 0:01:05.400 --> 0:01:08.679 more about what policies may be put in place, uh, 0:01:08.720 --> 0:01:11.160 and then kind of you know, come to I would say, 0:01:12.080 --> 0:01:14.560 you know, conditional judgments about. 0:01:14.319 --> 0:01:16.520 What does it mean for the US economy. And as 0:01:16.560 --> 0:01:18.400 you said, we've we are seeing more. 0:01:18.280 --> 0:01:22.280 Actual actions on tariffs in different dimensions. I would still 0:01:22.360 --> 0:01:24.759 highlight there's a lot of uncertainty. We don't know how 0:01:24.800 --> 0:01:27.679 long the tariffs will apply. We don't know what other 0:01:27.720 --> 0:01:29.720 countries may do in response to this. 0:01:30.400 --> 0:01:30.720 We don't. 0:01:31.080 --> 0:01:33.480 We also don't know what else may happen in this, uh, 0:01:34.520 --> 0:01:35.880 you know, in the in the kind of realm of 0:01:35.920 --> 0:01:39.319 trade policy. You My own view is that based on 0:01:39.440 --> 0:01:44.240 experience from previous episodes, based on analysis, is it you know, 0:01:44.520 --> 0:01:48.480 tariffs on consumer goods especially, they do feed into import 0:01:48.520 --> 0:01:54.120 prices pretty strongly. That does filter into prices that consumers pay. 0:01:54.320 --> 0:01:56.520 That happens relatively soon. 0:01:57.000 --> 0:02:00.000 Tariffs that feed into kind of intermediate inputs, the things 0:02:00.160 --> 0:02:02.680 that companies use to make other things and to make 0:02:02.760 --> 0:02:06.160 other things, those tend to pass through more gradually and 0:02:06.240 --> 0:02:09.760 have maybe last a little bit longer in terms of effects. 0:02:10.600 --> 0:02:12.799 My view is that, you know, based on what we. 0:02:12.680 --> 0:02:15.960 Know today, given all the uncertainties around that, you know, 0:02:16.000 --> 0:02:20.040 I do factory in some effects of tariffs now on 0:02:20.639 --> 0:02:22.960 inflation on prices, because I think we will see some 0:02:23.040 --> 0:02:26.080 of those effects later this year, not yet, but maybe 0:02:26.160 --> 0:02:28.400 later this year. I also you have to factor in 0:02:28.440 --> 0:02:32.400 how does that affect you know, economic activity, decisions by 0:02:32.400 --> 0:02:35.400 businesses to invest, consumers to spend, And that's where I 0:02:35.400 --> 0:02:38.000 think another big uncertainty is we've seen some kind of 0:02:38.680 --> 0:02:40.880 movements in the data in the last couple of months. 0:02:40.919 --> 0:02:43.799 I think some of that's in anticipation of tariffs, So 0:02:43.800 --> 0:02:46.040 it's hard to really read the tea leaves there. But 0:02:46.080 --> 0:02:48.280 that's something else will be watching carefully, is to what 0:02:48.360 --> 0:02:52.000 extent is that affecting consumer confidence, business confidence, you know, 0:02:52.040 --> 0:02:54.400 the uncertainty around this and the effects of the tariffs 0:02:54.440 --> 0:02:57.760 on economic growth and employment and things like that. So 0:02:57.800 --> 0:03:01.280 still a lot of uncertainty, I think directionally higher prices 0:03:02.040 --> 0:03:04.000 in the outlook, at least in mind kind of thinking 0:03:04.000 --> 0:03:06.880 about what's happening, but also a lot of uncertainly about 0:03:06.880 --> 0:03:08.720 how the economy responds to this. 0:03:09.240 --> 0:03:12.600 The twenty eighteen playbook for the tariffs and Trump one 0:03:12.600 --> 0:03:16.120 point zero, basically outlined by the staff and the tailbook 0:03:16.440 --> 0:03:19.840 that year, suggested that you basically had two options. You 0:03:19.880 --> 0:03:25.760 could raise interest rates to fight inflation risk recession, or 0:03:25.800 --> 0:03:29.640 you could look through ignore the tariffs, assuming that they 0:03:29.680 --> 0:03:32.079 would be a one time rise in the price level 0:03:32.600 --> 0:03:35.520 but not an ongoing cause of inflation. What do you 0:03:35.560 --> 0:03:39.720 think this year, which of those two playbooks should you follow? 0:03:39.920 --> 0:03:42.040 You're going to get little frustrated, And I answer the 0:03:42.080 --> 0:03:44.120 same way I answer the last question, Mike, and that 0:03:44.240 --> 0:03:47.000 is it depends on how these you know, what goods 0:03:47.440 --> 0:03:49.880 you know the tariffs apply to which countries, how long 0:03:49.880 --> 0:03:53.640 they're in place for, you know how big they are. 0:03:53.720 --> 0:03:55.840 So we have to depend on a lot of factors 0:03:55.840 --> 0:03:57.840 about how big the effects are and maybe how long 0:03:57.880 --> 0:04:00.840 these effects last. I do go back to the broader 0:04:00.880 --> 0:04:04.400 context of monetary policy. It's not just about tariffs or 0:04:04.400 --> 0:04:07.800 trade policy. There's a lot of factors in influence a 0:04:07.920 --> 0:04:11.520 US economy, economic outlook, and the global economic outlook. You 0:04:11.520 --> 0:04:15.160 have to take all of those into consideration, look at 0:04:15.160 --> 0:04:19.320 the totality of the data, look at the risks and uncertainty, 0:04:19.360 --> 0:04:22.120 and what that means for achieving our maximum employment and 0:04:22.160 --> 0:04:25.000 price stability goals. So from my perspective, if you go 0:04:25.080 --> 0:04:27.719 back to the twenty eighteen kind of briefing, we got, 0:04:27.960 --> 0:04:29.880 you know, clearly you want to think about how long 0:04:29.960 --> 0:04:32.320 lasting these are, how big the effects are. But I 0:04:32.320 --> 0:04:34.680 would just reinforce this point, there's a lot of uncertainty 0:04:34.680 --> 0:04:37.159 about that, and we need to be guided not only 0:04:37.200 --> 0:04:40.880 by our economic analysis, by our you know, absolutely fantastic 0:04:40.920 --> 0:04:43.120 staff who does all this work, but also what are 0:04:43.120 --> 0:04:45.040 we seeing in the data, what are we hearing from 0:04:45.080 --> 0:04:47.920 business leaders, what are we seeing in you know, out 0:04:47.920 --> 0:04:50.840 there in the economy, and then from that information kind 0:04:50.839 --> 0:04:53.640 of get a feel for which direction the economy is going, 0:04:53.680 --> 0:04:56.599 both in terms of inflation and employment. I mean, the 0:04:56.640 --> 0:04:59.000 good news here is we're starting the US acadomy is 0:04:59.000 --> 0:05:02.479 starting in very good place. Unemployment is four percent, the 0:05:02.560 --> 0:05:07.239 labor market is stabilized after cooling from red hot conditions 0:05:07.279 --> 0:05:09.760 a couple of years ago. Inflation is two and a 0:05:09.800 --> 0:05:13.080 half percent, and it's you know, been gradually coming down 0:05:13.400 --> 0:05:15.919 towards our two percent goal. So we're starting with the 0:05:15.960 --> 0:05:17.520 economy in a good place. And I would argue we 0:05:17.560 --> 0:05:20.239 had started it with a monetary policy in a good place, 0:05:20.320 --> 0:05:23.400 ready in a good position to adjust as needed depending 0:05:23.440 --> 0:05:26.880 on how the data and the outlook and the risk 0:05:26.960 --> 0:05:28.039 of the outlook evolved. 0:05:28.120 --> 0:05:30.880 Well, given the uncertainty you talk about in the time 0:05:31.240 --> 0:05:34.359 span before we might see things show up. Is it 0:05:34.400 --> 0:05:38.280 fair to say that it's too early to consider changing 0:05:38.480 --> 0:05:39.919 interest rates at the March meeting? 0:05:40.200 --> 0:05:41.880 Well, in my view, I think we need, you know, 0:05:42.000 --> 0:05:44.360 I think monetary policy is in a very good place. 0:05:44.400 --> 0:05:47.920 It is you know, modestly restrictive. It is helping keep 0:05:47.960 --> 0:05:50.200 the economy I think in good balance. I expect the 0:05:50.240 --> 0:05:53.240 economy to continue to grow this year, roughly in line 0:05:53.279 --> 0:05:56.440 with you know, the economy's potential. I expect inflation to 0:05:56.760 --> 0:05:59.640 would you know, over time move down back. 0:05:59.440 --> 0:06:00.360 To our two percole. 0:06:00.440 --> 0:06:02.839 So I think monetary policy has got the right, you know, 0:06:02.960 --> 0:06:04.159 kind of balance right now. 0:06:04.279 --> 0:06:05.599 It makes sense. 0:06:05.440 --> 0:06:08.320 To collect, you know, some more information not only about 0:06:08.360 --> 0:06:12.000 what's happening with trade policy, but obviously there's also what 0:06:12.040 --> 0:06:14.919 we're seeing in terms of other policies and fiscal policy 0:06:15.160 --> 0:06:18.160 and regulatory policy. So getting that whole picture and then 0:06:18.600 --> 0:06:22.200 watch what's happening here in our country but around the 0:06:22.200 --> 0:06:25.560 world and put all those together to see where monetary policy, 0:06:26.240 --> 0:06:28.440 you know, what the appropriate stance of policy will be. 0:06:28.520 --> 0:06:31.559 But to answer your question, I think the current place 0:06:31.560 --> 0:06:33.840 where policy is good. I don't see a need to 0:06:33.920 --> 0:06:35.040 change it, right away. 0:06:35.400 --> 0:06:39.680 All right, there you go, there's one market moving. You 0:06:39.760 --> 0:06:43.400 mentioned what information you're trying to collect from the companies 0:06:43.440 --> 0:06:47.280 that you speak to. Are the CEOs has lost as 0:06:47.440 --> 0:06:49.320 the FED and the rest of us in terms of 0:06:49.360 --> 0:06:51.760 what the impact of all this is going to be. 0:06:52.080 --> 0:06:53.760 Well, I think when you talk to business leaders, the 0:06:53.760 --> 0:06:55.760 first thing that they tell you is they have to 0:06:55.800 --> 0:06:59.320 prepare for whatever happens. They're not sitting there having to guess, 0:06:59.600 --> 0:07:01.200 you know, well, this is what will happen or that 0:07:01.200 --> 0:07:04.560 will happen, but really think through strategically about how to 0:07:04.600 --> 0:07:07.919 manage you know, different scenarios and how to behave And 0:07:07.960 --> 0:07:10.360 I think one thing you're getting more of a sense 0:07:10.400 --> 0:07:13.960 of from some business leaders is, you know, kind of 0:07:14.000 --> 0:07:17.640 a view of let's be cautious about making big business 0:07:17.720 --> 0:07:22.040 decisions right now. Let's get that additional information around what's 0:07:22.040 --> 0:07:25.440 happening in terms of this broad set of policies before 0:07:25.480 --> 0:07:26.480 making decisions. 0:07:26.520 --> 0:07:28.000 I mean, measures of you. 0:07:27.960 --> 0:07:30.360 Know, uncertainty are pretty high right now, and I think 0:07:30.600 --> 0:07:33.280 people are taking that into account as they think about, 0:07:33.480 --> 0:07:36.840 you know, maybe collect that more additional information before they 0:07:36.920 --> 0:07:37.880 make those decisions. 0:07:37.960 --> 0:07:40.960 Well, as they try to put these things together, what's 0:07:41.000 --> 0:07:44.640 their underlying view of the economy and what they would do, 0:07:45.120 --> 0:07:47.640 and then how is this laid on top of it? 0:07:48.360 --> 0:07:51.480 Well, you know, my again my view coming into this, 0:07:51.680 --> 0:07:54.240 you know, setting aside to say some of the trade 0:07:54.240 --> 0:07:56.840 policy issues that we're talking about, is the economy is 0:07:57.760 --> 0:08:02.080 very strong, very solid growth. We've had very good productivity growth, 0:08:02.080 --> 0:08:04.880 we have a solid labor market. Uh, and the economies 0:08:04.880 --> 0:08:07.520 and in good balance, and inflation is coming down. So 0:08:07.560 --> 0:08:09.720 I think that's your starting place. And then the question 0:08:09.880 --> 0:08:13.200 is you know what happens with various policies and how 0:08:13.280 --> 0:08:16.360 does that you know what adjustments you have to make 0:08:16.360 --> 0:08:19.120 in your your thinking relative to that. But I, you know, 0:08:19.240 --> 0:08:22.200 firmly believe that we're starting the year not only in 0:08:22.320 --> 0:08:24.880 where we are today, but or the momentum we have. 0:08:24.920 --> 0:08:29.080 Is good growth this year, slower growth. 0:08:28.800 --> 0:08:32.600 Than say, last year, but and inflation, you know, inflationary 0:08:32.640 --> 0:08:35.319 pressure is coming down. Now of course you have to 0:08:35.360 --> 0:08:37.760 add to that any policy changes it affects them. 0:08:38.320 --> 0:08:40.080 Well, that's the big question. 0:08:40.280 --> 0:08:43.720 What are companies telling you about their plans for dealing 0:08:43.720 --> 0:08:45.559 with tariffs? Are they going to pass them through? 0:08:46.200 --> 0:08:46.440 Well? 0:08:46.520 --> 0:08:48.440 I think you know, again it gets it depends on 0:08:48.480 --> 0:08:49.880 which industry you're talking about. 0:08:49.960 --> 0:08:51.960 It depends on uh uh. 0:08:52.200 --> 0:08:54.920 You know, some tariffs are applying to may apply to 0:08:55.240 --> 0:08:58.040 some industries or goods and not to others. I mean, 0:08:58.120 --> 0:09:00.440 right now, I don't hear people literally say and here's 0:09:00.480 --> 0:09:03.440 how it works. I do go back to the experience 0:09:03.440 --> 0:09:06.480 of twenty eighteen, you talked about twenty nineteen, and also 0:09:06.520 --> 0:09:08.880 some of the experience of the pandemic. I mean, when 0:09:08.920 --> 0:09:13.720 producers or you know, retailers are confronted with much higher costs, 0:09:14.640 --> 0:09:16.719 you know, they have to figure out what to do, 0:09:16.760 --> 0:09:18.439 and they're going to you know, try to pass that 0:09:18.559 --> 0:09:20.520 on to their. 0:09:19.800 --> 0:09:21.320 Customers as much as they can. 0:09:21.920 --> 0:09:25.079 They're going to try to find probably some ways to 0:09:25.120 --> 0:09:29.400 adjust other margins of cost or prices, and you know, 0:09:29.720 --> 0:09:33.560 other competitors and things may take actions as well. So 0:09:33.600 --> 0:09:35.800 I think there's not a no, there's no kind of 0:09:35.840 --> 0:09:38.920 plan that every business has for that. But based on history, 0:09:38.960 --> 0:09:41.040 what we've seen is, you know, we see a pretty 0:09:41.120 --> 0:09:43.520 high pass through of tariffs into it least into the 0:09:43.559 --> 0:09:44.360 import crises. 0:09:44.559 --> 0:09:47.760 Well, in twenty eighteen, you were looking up at the 0:09:47.800 --> 0:09:51.559 two percent inflation target and companies had no pricing power, 0:09:51.600 --> 0:09:53.599 and we were all very excited to go online and 0:09:53.600 --> 0:09:57.120 shop and get very big discounts that all changed after 0:09:57.600 --> 0:10:01.360 the COVID pandemic. Does that set us up in a 0:10:01.400 --> 0:10:05.120 different way to deal with rising prices, our companies going 0:10:05.160 --> 0:10:06.880 to say, hey, we did it, now, we can do 0:10:06.920 --> 0:10:07.280 it again. 0:10:07.760 --> 0:10:09.880 Well, I do think that you're absolutely right. 0:10:10.280 --> 0:10:13.360 You know, the conditions back then where inflation had underrun 0:10:13.400 --> 0:10:15.760 our target, you know, moderately for. 0:10:15.720 --> 0:10:16.760 About a decade. 0:10:17.080 --> 0:10:19.240 We were looking for inflation to get a little bit 0:10:19.320 --> 0:10:22.800 higher on a sustained basis of two percent, and the 0:10:22.840 --> 0:10:23.720 economy was strong. 0:10:23.800 --> 0:10:24.960 The unemployment rate. 0:10:24.880 --> 0:10:27.160 Was low in twenty eighteen twenty nineteen, so we're in 0:10:27.160 --> 0:10:32.080 a very good economy. And the actual policy actions that happened, 0:10:32.080 --> 0:10:35.640 both on fiscal policy and trade policy, I mean, they clearly. 0:10:35.320 --> 0:10:36.240 Affected the economy. 0:10:36.320 --> 0:10:39.360 We saw I think some boosts to inflation, short term 0:10:39.559 --> 0:10:41.800 boost to inflation, but it was in the context of 0:10:41.800 --> 0:10:44.480 economy that was you know, hadn't seen inflation for a 0:10:44.480 --> 0:10:47.000 long time. You know, the experience of the past few 0:10:47.080 --> 0:10:49.720 years has shown that businesses have become much more tuned 0:10:50.160 --> 0:10:53.400 to how to figure out how to pass on cost increases. 0:10:53.440 --> 0:10:57.600 They feel they have more pricing power. They've flexed that 0:10:57.679 --> 0:11:00.800 pricing power quite a bit during the time of shortage, 0:11:01.520 --> 0:11:07.400 and I think, you know, households also very sensitive to 0:11:07.559 --> 0:11:10.560 prices high cost of many goods. So I think it 0:11:10.640 --> 0:11:14.120 is a different situation today, and you see this in 0:11:14.200 --> 0:11:17.560 surveys in other form, you know, we talk to people. 0:11:17.920 --> 0:11:19.880 It is different than it was in twenty eighteen, where 0:11:19.920 --> 0:11:23.720 really there is almost a decade of no inflation. So 0:11:23.720 --> 0:11:25.920 I think you have to it's a different context. 0:11:26.040 --> 0:11:28.840 Well, speaking of surveys, recent surveys that have come out 0:11:29.080 --> 0:11:33.240 show people think inflation is going up, even at the 0:11:33.320 --> 0:11:37.559 longer term. The Michigan numbers for five to ten years 0:11:38.200 --> 0:11:41.280 are up. Are you worried that Americans are going to 0:11:41.280 --> 0:11:45.960 be much quicker to sort of the anchor their inflation expectations. 0:11:46.000 --> 0:11:50.319 Well, it's obviously something I watch very closely. Inflation expectations, 0:11:50.520 --> 0:11:53.560 whether in surveys or market measures or from economists or 0:11:53.760 --> 0:11:57.160 something that's really important for us to study to understand 0:11:57.440 --> 0:12:00.800 where you know, the people are thinking about how they 0:12:00.880 --> 0:12:04.000 view future inflation and that feeds back into the economy. 0:12:04.000 --> 0:12:07.120 So it's a really important topic. I can't help but 0:12:07.400 --> 0:12:09.400 point out that the New York Fed we carry out 0:12:09.400 --> 0:12:13.960 our own survey of households, survey of consumer expectations and 0:12:14.000 --> 0:12:18.240 study every month of the results from that survey. 0:12:18.280 --> 0:12:20.120 So it's something I take seriously. 0:12:20.480 --> 0:12:23.360 So what am I seeing in terms of the surveys 0:12:23.360 --> 0:12:26.400 I think on the Michigan survey. Clearly it's you know, 0:12:26.440 --> 0:12:28.600 the most recent readings have moved up quite a bit. 0:12:30.000 --> 0:12:33.240 That's something to watch closely. I'm not going to say 0:12:33.280 --> 0:12:35.760 it's not important. I do think that there are some 0:12:36.240 --> 0:12:38.840 aspects of the Michigan survey that might make it a 0:12:38.840 --> 0:12:41.560 bit sensitive to some spikes and things. We've seen that 0:12:41.600 --> 0:12:44.439 in the past, particularly kind of how they ask the question, 0:12:44.559 --> 0:12:47.160 how they collect the data. There's nothing wrong with it, 0:12:47.160 --> 0:12:49.320 it's just we've seen that sometimes you'll get a big 0:12:49.360 --> 0:12:53.520 movement that gets reversed in our survey of consumer expectations 0:12:54.000 --> 0:12:55.959 that we've done, at least for the data we have, 0:12:56.040 --> 0:12:58.120 which is not the most recent data. You know, we 0:12:58.200 --> 0:13:00.959 haven't seen much of a movement in shorter longer run 0:13:01.000 --> 0:13:04.480 inflation expectations, but something I'll be watching closely. 0:13:04.760 --> 0:13:06.280 One thing that definitely happens. 0:13:06.360 --> 0:13:08.520 I think we're hearing from businesses and I think we 0:13:08.600 --> 0:13:12.960 are getting this from you know, some of the survey data, 0:13:12.960 --> 0:13:17.079 like in the Michigan survey, is the talk of tariffs. 0:13:17.320 --> 0:13:20.160 The sense that there's you know, higher prices you know 0:13:20.280 --> 0:13:24.559 out there is clearly influencing how people are thinking about 0:13:24.559 --> 0:13:27.560 inflation this year. I'm not seeing as much of an 0:13:27.600 --> 0:13:30.200 indication in most of these surveys that that's about long 0:13:30.280 --> 0:13:32.320 run inflation or inflation in the future, but more about 0:13:32.360 --> 0:13:33.880 inflation in the near term. 0:13:33.920 --> 0:13:35.720 And clearly, you know, people are. 0:13:36.080 --> 0:13:41.400 Experiencing some higher prices and are maybe more focused on 0:13:41.440 --> 0:13:42.040 that right now. 0:13:42.520 --> 0:13:45.120 You have to come up with your own survey answers. 0:13:45.200 --> 0:13:48.439 At the March nineteenth meeting. In December, when you put 0:13:48.440 --> 0:13:51.000 out the last summary of economic projections, it was widely 0:13:51.040 --> 0:13:52.760 assumed that was sort of a dead letter when you 0:13:52.760 --> 0:13:55.000 put it out, because nobody knew what Trump was going 0:13:55.040 --> 0:13:57.720 to do, and by March you'd have a much better idea. 0:13:57.760 --> 0:14:00.280 Do you have any better idea or is this also 0:14:00.440 --> 0:14:03.360 going to be something we'll look at and go, we'll 0:14:03.400 --> 0:14:04.320 see you in June. 0:14:04.720 --> 0:14:06.880 Well, you know, if you look at my website, I 0:14:06.920 --> 0:14:09.600 have this thing about research interests and it says monetary 0:14:09.640 --> 0:14:12.880 policy under uncertainty, And I think that that's a good 0:14:13.240 --> 0:14:16.120 good description of my job, because you always have uncertainty 0:14:16.160 --> 0:14:19.520 of uncertainty about policies. We went through the pandemic, We've 0:14:19.520 --> 0:14:22.240 gone through you know, various you know, events over the 0:14:22.320 --> 0:14:25.560 past several decades, so you're you're always dealing with that 0:14:25.640 --> 0:14:28.400 uncertainty and needing to make the best decisions, you know. 0:14:28.480 --> 0:14:31.520 I do think relative December, clearly some of the actions 0:14:31.560 --> 0:14:34.640 have happened, and even the discussions in Congress when physical 0:14:34.680 --> 0:14:38.600 policy have provided you know, a better idea of the 0:14:38.600 --> 0:14:42.400 types of policies that may that we will or likely see. 0:14:42.560 --> 0:14:44.960 I still think that I don't have a lot of 0:14:44.960 --> 0:14:47.760 confidence in say the base case that this is my 0:14:47.920 --> 0:14:49.960 forecast for the economy, this is where it's going. 0:14:50.080 --> 0:14:51.600 I'm much more in the kind of. 0:14:51.600 --> 0:14:54.000 The mode of thinking, there's a bunch of scenarios that 0:14:54.040 --> 0:14:57.400 could happen. We could see this happen, the tariffs be 0:14:57.480 --> 0:14:59.680 very short lived, and then we move forward. 0:14:59.400 --> 0:15:02.160 With there's other where you know, there's much you. 0:15:02.120 --> 0:15:05.680 Know, more permanent or different, and so it's really thinking 0:15:05.720 --> 0:15:09.880 through these scenarios, thinking through what the risks those imply 0:15:10.120 --> 0:15:12.880 for achievement or maximum employment, price to ability goals, and 0:15:12.880 --> 0:15:14.600 then how do we position policy for that. 0:15:14.800 --> 0:15:15.280 So it's not. 0:15:15.280 --> 0:15:19.040 About getting the getting the right guests about where everything's 0:15:19.080 --> 0:15:21.560 going to happen. But it's really just getting policy position right. 0:15:21.600 --> 0:15:23.000 So that's how I'm thinking about So do I have 0:15:23.480 --> 0:15:27.640 more information that helps inform that, Yes, but it's still 0:15:27.800 --> 0:15:29.360 you know, I think that the base case a would 0:15:29.680 --> 0:15:32.080 you know, or the one that we're asked about, it's 0:15:32.160 --> 0:15:34.440 kind of the most likely scenario, is not the only 0:15:34.480 --> 0:15:36.400 one that's important. You really have to think through all 0:15:36.400 --> 0:15:38.640 the different paths that we could be on. 0:15:39.160 --> 0:15:42.120 We along with the summary of economic projections comes everybody's 0:15:42.400 --> 0:15:46.880 favorite diagram from the FED of the dot plot. In December, 0:15:47.240 --> 0:15:51.520 you said two this year the consensus median was too 0:15:51.960 --> 0:15:55.080 rag cuts this year. As of today, we've priced in 0:15:55.200 --> 0:15:58.160 three in the futures markets. Do you think two is 0:15:58.200 --> 0:16:01.920 still a baseline or do you really have no idea. 0:16:01.600 --> 0:16:02.200 At this point? 0:16:02.320 --> 0:16:04.240 So, Mike, my whole attempt to say I'm not putting 0:16:04.240 --> 0:16:05.600 a lot of weight on my base case didn't work 0:16:05.600 --> 0:16:07.680 at all. Right, if I try it again now, I'm kidding. 0:16:08.160 --> 0:16:10.040 I think it's really hard to know. I mean, right now, 0:16:10.080 --> 0:16:12.240 the markets, as you say, they're pricing in three to 0:16:12.280 --> 0:16:15.160 four rate cuts this year based on futures. 0:16:15.320 --> 0:16:16.760 If you look at the modal. 0:16:16.480 --> 0:16:20.040 Expectation in the market, based on options, it looks maybe 0:16:20.080 --> 0:16:21.840 more like one or a little bit more than one 0:16:21.840 --> 0:16:25.200 cut this year. And again these are market expectations. I'm 0:16:25.240 --> 0:16:27.720 not making a prediction. I think that's actually really kind 0:16:27.720 --> 0:16:31.440 of informative. You know, market participants are trying to figure out, well, 0:16:31.480 --> 0:16:32.440 the modal case is. 0:16:32.760 --> 0:16:35.000 Something like one cut or maybe a little bit more. 0:16:35.160 --> 0:16:38.080 But there's just a wide dispersion of views out there. 0:16:38.360 --> 0:16:40.200 And it gets back to these scenarios. If you're in 0:16:40.240 --> 0:16:42.560 the market, you have to, you know, think about what 0:16:42.560 --> 0:16:45.520 are the different scenarios and position for that. Clearly, market 0:16:45.520 --> 0:16:48.800 participants are kind of thinking about some scenarios where they're 0:16:48.840 --> 0:16:51.720 protecting against scenarios where the you know, the FED needs 0:16:51.720 --> 0:16:52.800 to cut some. 0:16:52.720 --> 0:16:54.000 More than the base case. 0:16:54.640 --> 0:16:56.600 And I think, you know, I think, what's that's just 0:16:56.680 --> 0:16:59.040 reminding this is just you know, we're you know, there's 0:16:59.040 --> 0:17:02.600 a lot of uncertainty about economy, about the policies. I'm 0:17:02.640 --> 0:17:05.399 always just focused on one thing, which is, you know, 0:17:05.680 --> 0:17:08.160 how can we set policy and hopefully set a path 0:17:08.200 --> 0:17:11.199 of policy that you know, best achieves our goals. We're 0:17:11.240 --> 0:17:13.320 starting in a good place. Let's just try to keep 0:17:13.800 --> 0:17:16.240 the economy on the right track to get the inflation 0:17:16.320 --> 0:17:18.480 down to two percent over the next couple of years 0:17:18.480 --> 0:17:21.800 and keep the you know, maintain the sustaining the strength 0:17:21.800 --> 0:17:23.120 in the economy and the labor market. 0:17:23.560 --> 0:17:25.200 I want to switch over to the balance sheet because 0:17:25.200 --> 0:17:28.120 there's still a lot of interest in our projections. Basically 0:17:28.119 --> 0:17:31.080 are going to stop QT roughly the middle of this year, 0:17:32.040 --> 0:17:34.720 but there's also a paragraph in the last minutes that 0:17:34.840 --> 0:17:39.040 suggests that you might stop it early if the debt 0:17:39.040 --> 0:17:43.359 ceiling is not resolved, because that could affect liquidity. Is 0:17:43.400 --> 0:17:45.399 that a real possibility. 0:17:44.760 --> 0:17:48.320 Well, let me explain you know that that notion. I 0:17:48.359 --> 0:17:52.919 mean right now, our strategy is hasn't changed. The strategy 0:17:53.000 --> 0:17:55.679 is we want to continue to reduce our holdings of 0:17:55.720 --> 0:17:58.720 treasury and mortgage backed securities until we get the level 0:17:58.760 --> 0:18:01.560 of reserves to what we is somewhat above ample. And 0:18:01.600 --> 0:18:03.920 that's something we study very carefully. 0:18:03.960 --> 0:18:04.760 We have a lot of. 0:18:05.280 --> 0:18:08.840 Information from market participants. We have various statistical and other 0:18:09.119 --> 0:18:12.639 analysis we do to try to measure or are we 0:18:12.760 --> 0:18:16.440 providing enough reserves into the banking system to achieve our 0:18:16.520 --> 0:18:19.760 interest rate control goals. So that is that is a 0:18:19.800 --> 0:18:21.760 strategy we put in place a couple of years ago. 0:18:21.960 --> 0:18:23.440 We're still executing on that. 0:18:23.720 --> 0:18:26.080 One of the things about that strategy is we need 0:18:26.119 --> 0:18:29.080 to be monitoring what's happening in money markets, what's happening, 0:18:29.119 --> 0:18:32.719 the repot markets, the FED funds markets, what's happening you know, 0:18:32.800 --> 0:18:35.600 you know, all these different indicators we're looking at. And 0:18:35.640 --> 0:18:38.879 with the debt ceiling dynamics that we're talking about here 0:18:39.200 --> 0:18:42.560 is that during a period of the debt ceiling, what 0:18:42.720 --> 0:18:45.399 happens is basically the Treasury spends out a lot of 0:18:45.480 --> 0:18:48.560 their money that they hold in account of the FED. 0:18:48.720 --> 0:18:52.040 That actually increases reserves. As the debt ceiling is ended, 0:18:52.080 --> 0:18:55.040 that switches, and so you get big movements in reserve 0:18:55.119 --> 0:18:57.560 in the amount of reserves out there. There's really not 0:18:57.680 --> 0:19:00.000 driven by the demand by banks, So the financial sysm 0:19:00.359 --> 0:19:04.440 the kind of artificially moved around by you know, kind 0:19:04.480 --> 0:19:07.879 of the dynamics resulting from a debt ceiling issue. And 0:19:07.960 --> 0:19:10.440 so the point that we're really making is we want 0:19:10.480 --> 0:19:13.080 to have a good view of what's happening in the 0:19:13.119 --> 0:19:16.760