WEBVTT - Fed's Tom Barkin Talks Employment, Inflation

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Joining us this morning, Richmond fed President Tom Barkin here

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<v Speaker 2>on Bloomberg Television and radio worldwide, and on radio they

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<v Speaker 2>can't see it, but on television people can see.

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<v Speaker 3>You have a bit of a bandage on your head.

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<v Speaker 2>You just had one of those older people's kind of operations.

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<v Speaker 4>Yeah, there's no truth that it was what happened in

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<v Speaker 4>the last meeting.

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<v Speaker 2>All right, Speaking of the last meeting, we came out

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<v Speaker 2>of that believing that, or at least Wall Street, that

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<v Speaker 2>you're going to cut rates again in October and maybe

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<v Speaker 2>in December. But since then, we've gotten some numbers that

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<v Speaker 2>show GDP is hotter, inflation is still running hot, and

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<v Speaker 2>the job is claims numbers suggest companies aren't laying anybody off.

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<v Speaker 2>So should we have less confidence in the path going forward?

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<v Speaker 4>Well, I don't think you can mark to market the

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<v Speaker 4>next meeting every week, even though that's what the markets do.

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<v Speaker 4>I mean, let's see what happens on the on the employment side.

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<v Speaker 4>We'll get some important data in a couple of minutes

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<v Speaker 4>here on the inflation side, and I think we'll get

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<v Speaker 4>there when we get there.

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<v Speaker 2>Well, the majority seem to believe, at least according to

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<v Speaker 2>what the Chairman tells us, that inflation is going to

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<v Speaker 2>be a one time rise in the price level.

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<v Speaker 3>And overnight we got a bunch of new.

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<v Speaker 2>Tariffs, as you just saw on a lot of different

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<v Speaker 2>things from the President. How much confidence do you have

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<v Speaker 2>in any kind of inflation forecast at this point?

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<v Speaker 1>Not much.

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<v Speaker 4>I mean, what I definitely see happening is there are

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<v Speaker 4>cost increases that suppliers want to pass on. There's no

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<v Speaker 4>question about that, and tariffs are a big part of it.

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<v Speaker 4>But you could put health insurance in other other costs

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<v Speaker 4>in there too, But those costs are going to attempt

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<v Speaker 4>to get passed on to a consumer who's frankly exhausted

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<v Speaker 4>of price increases. And so you know, we're seeing a

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<v Speaker 4>lot of trading down, you know, branded to private label

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<v Speaker 4>kind of choices, but we're also seeing people trade off.

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<v Speaker 4>And it wouldn't surprise me at all if people who

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<v Speaker 4>are forced to accept certain price increases therefore something else

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<v Speaker 4>on the other side, and that's your classic relative price

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<v Speaker 4>trade off, and that may mean that you won't see

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<v Speaker 4>as much broad based inflationary impact as you'd see. You know,

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<v Speaker 4>price increases on particular items we'll.

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<v Speaker 2>See, and yet you get PCEE in an hour and

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<v Speaker 2>basically you've already calculated the numbers. Inflation's not moving in

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<v Speaker 2>the right direction. So can you still justify or how

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<v Speaker 2>long can you justify cutting rates in that environment?

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<v Speaker 1>Well, we have inflation moving in the wrong direction.

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<v Speaker 4>Unfortunately, we also have unemployment moving in the wrong direction.

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<v Speaker 4>And that was the backdrop of the last meeting. You

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<v Speaker 4>have to ask yourself, you know, how are the risks

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<v Speaker 4>still the same as you saw them two three, four

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<v Speaker 4>months earlier, when you had unemployment in the right direction

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<v Speaker 4>and inflation in the wrong direction.

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<v Speaker 1>You know.

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<v Speaker 4>My overall thesis though, is that while it's not, you know,

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<v Speaker 4>ticking in the right place, the downside is relatively limited.

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<v Speaker 4>I see, the inflation downside is limited by this customer

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<v Speaker 4>pushback that I just talked about, also productive, which I

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<v Speaker 4>think is we're seeing that at real scale, and so

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<v Speaker 4>that means there's less pressure to pass costs on. And

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<v Speaker 4>then on the unemployment side, obviously, labor supply is dropping

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<v Speaker 4>at the same time as labor demand, and that's keeping

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<v Speaker 4>the unemployment rate relatively balanced. And that's the combination of

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<v Speaker 4>immigration and ravocation of temporary status also, you know our generation, Mike,

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<v Speaker 4>which is leaving the workforce.

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<v Speaker 1>I mean, you're seeing a million three.

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<v Speaker 4>More people over sixty five out of the workforce every year,

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<v Speaker 4>and so you've got less labor.

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<v Speaker 1>Demand, low hiring, low firing environment.

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<v Speaker 4>But you've also got less labor supply, and that probably

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<v Speaker 4>means that the unemployment rate increases are going to be

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<v Speaker 4>relatively limited.

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<v Speaker 3>We at least you and I are still employed as

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<v Speaker 3>of today.

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<v Speaker 1>We'll see how this interview goes.

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<v Speaker 2>You suggested that companies in your district are beginning to

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<v Speaker 2>feel a little bit better, or at least some of

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<v Speaker 2>the uncertainty has come off of their planning and their thinking.

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<v Speaker 2>Are these kind of big new tariffs that we got

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<v Speaker 2>today just going to change that mind has the idea

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<v Speaker 2>that ongoing tariffs and ongoing disruption are going to be

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<v Speaker 2>part of this administration and economy.

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<v Speaker 3>Is that in their planning.

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<v Speaker 4>Well, I've been describing it as a fog that's created uncertainty,

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<v Speaker 4>and I definitely think in the context of the last

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<v Speaker 4>couple of months, the fog has started to lift. Businesses

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<v Speaker 4>don't know exactly what the tariff will be on their

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<v Speaker 4>sector necessarily.

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<v Speaker 1>But they kind of have a sense of the range.

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<v Speaker 4>People aren't really following the news every day, you know,

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<v Speaker 4>the same way they were back in April. And a

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<v Speaker 4>lot of businesses I talk to say, look, I've just

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<v Speaker 4>got to do something, you know, I've got to take action.

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<v Speaker 4>I can't be on the sidelines forever. So I am

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<v Speaker 4>seeing people more in the game now. If you're in

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<v Speaker 4>a particular sector where you see a new announcement, of

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<v Speaker 4>course that's gonna set you back. And so you know,

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<v Speaker 4>what I say about businesses in general is not true

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<v Speaker 4>of businesses in every sector. And so there's sectors with

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<v Speaker 4>a lot more clarity and sectors with a lot less clarity.

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<v Speaker 4>And that's I think just going to be part of

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<v Speaker 4>the game here.

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<v Speaker 2>This morning we had an investor on who basically said

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<v Speaker 2>markets are rising because of the idea that a year

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<v Speaker 2>from now rates will be substantially lower. Is that the

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<v Speaker 2>right way to look at it? The wrong way to

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<v Speaker 2>look at it?

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<v Speaker 1>Oh?

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<v Speaker 4>I wouldn't know how to think about, you know, how

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<v Speaker 4>markets ought to rise or not rise. I mean, we're

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<v Speaker 4>very much focused on trying to land the plan here

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<v Speaker 4>and balancing inflation unemployment. As I said, I think both

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<v Speaker 4>of them have ticked in the wrong direction. But on

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<v Speaker 4>the other hand, the downside is limited and we're just

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<v Speaker 4>going to have to, you know, adjust our stance as

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<v Speaker 4>we learn more.

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<v Speaker 3>Well, where's your dot?

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<v Speaker 2>What are you thinking in terms of the next couple

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<v Speaker 2>of meetings? And then for twenty twenty.

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<v Speaker 4>Six, Well, I really like the DOT process for me

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<v Speaker 4>because it's a if forces real integration of your thinking

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<v Speaker 4>in terms of where you think the economy is going,

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<v Speaker 4>where you think policy is going. But I don't have

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<v Speaker 4>it as a forecast prediction. It's not, you know, something

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<v Speaker 4>I like to talk about publicly because it adjusts. You know,

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<v Speaker 4>we do mark that dot to market as things go.

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<v Speaker 4>So you know, every meeting for me is one where

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<v Speaker 4>I want to stop and look at the balance between

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<v Speaker 4>how we're doing on the inflation side of the unemployment

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<v Speaker 4>side and make the right decision.

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<v Speaker 2>Well, the story around the FED this week has been,

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<v Speaker 2>shall we say, the debate over where the neutral rate is?

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<v Speaker 2>Where do you think it is? And how fast would

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<v Speaker 2>you want to get there?

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<v Speaker 4>Well, you know, I've seen a lot of the stuff

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<v Speaker 4>that's been in the press, and we're studying that, and

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<v Speaker 4>you know, I always try to understand all arguments and

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<v Speaker 4>figure out how to integrate them into my thinking. I'd

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<v Speaker 4>point you to the Richmond Fed neutral rate, the lubric

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<v Speaker 4>mathis model. It takes a lot of signal from what

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<v Speaker 4>you see in the real economy, and in the real

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<v Speaker 4>economy over the last couple of years, what you've seen

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<v Speaker 4>is interest rate I mean interest rates go up and

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<v Speaker 4>the economy stay relatively healthy, and so that model doesn't

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<v Speaker 4>take a lot of it doesn't It has a relatively

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<v Speaker 4>high neutral rate because it takes a lot of signal

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<v Speaker 4>from the current environment. Now things can change, but that's

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<v Speaker 4>where the Richmond Fed model is right now, and i'd.

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<v Speaker 1>Point you to that.

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<v Speaker 4>What number do they have where you it moves around

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<v Speaker 4>based on what's happening in the economy.

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<v Speaker 2>Well, that gets the next question is Chairman Powell saying

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<v Speaker 2>that you really don't want to target the neutral rate

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<v Speaker 2>because it moves around, also saying that for any voter

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<v Speaker 2>to really move things around, you have to be incredibly persuasive.

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<v Speaker 2>Do you find Steven Myron's arguments persuasive.

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<v Speaker 4>I'm looking forward to digging into them with my team,

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<v Speaker 4>and I like every voice in the room and every

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<v Speaker 4>argument in the room. You know, that's what we do

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<v Speaker 4>as a discipline as we sit down and try to

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<v Speaker 4>take those arguments apart and figure out which parts of

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<v Speaker 4>them really resonate with the way we think about things

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<v Speaker 4>and which parts don't.

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<v Speaker 1>We're looking forward to doing that.

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<v Speaker 4>Is on the neutral rate, you know, in general, I

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<v Speaker 4>just want to agree it's not that useful as an

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<v Speaker 4>operational tool.

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<v Speaker 1>The models out there, even the one.

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<v Speaker 4>That I talked about, have a confidence interval of about

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<v Speaker 4>two hundred basis points, and so you could say it's three,

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<v Speaker 4>which is a the SEP media, and you could say it's.

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<v Speaker 1>Three and a half or two and a half.

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<v Speaker 4>But if you add a two hundred basis point range

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<v Speaker 4>to it, you say, that's not that helpful for making

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<v Speaker 4>operational decisions on monetary policy. What is more helpful, and

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<v Speaker 4>the reason I favor in the model we've gotten Richmond,

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<v Speaker 4>is how are you seeing the economy react real time

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<v Speaker 4>to the level of rates you've got in the market.

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<v Speaker 4>And if you see it weakening, that's a signal that

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<v Speaker 4>maybe you've got it too high.

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<v Speaker 1>If you see it relatively strong, that's the signal. The

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<v Speaker 1>other way.

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<v Speaker 2>Logan went to Richmond to announce her idea of changing

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<v Speaker 2>the operational rate for the FED what do you think

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<v Speaker 2>of that?

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<v Speaker 4>Well, I appreciate Laurie making the trip. We had a

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<v Speaker 4>balance sheet conference yesterday that was very well attended and

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<v Speaker 4>I thought lots of thoughtful papers, including hers, and I

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<v Speaker 4>thought she made an extremely articulate, well reasoned argument, and

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<v Speaker 4>I'm looking forward to digging into it further.

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<v Speaker 3>You anticipate the FED making a change, Oh, I don't know.

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<v Speaker 2>The Supreme Court if it allows the President to fire

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<v Speaker 2>Lisa Cook?

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<v Speaker 3>What does that mean for the Fed?

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<v Speaker 4>Well, the judicial processes, local processes will operate, however they operate.

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<v Speaker 4>What I do every day is show up and try

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<v Speaker 4>to argue for the best monetary policy we can and

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<v Speaker 4>make the case, as you said, in a persuasive way

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<v Speaker 4>to my colleagues, and that's what I'm going to continue

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<v Speaker 4>to do.

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<v Speaker 2>Well, let's leave it with this, What is the best

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<v Speaker 2>monetary policy right now?

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<v Speaker 3>Continued rate cuts or do you not know? At this point?

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<v Speaker 4>I think you have to be very adaptive to what's

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<v Speaker 4>playing out here. The world I've described as one where

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<v Speaker 4>the labor market is weakening. It's a low hiring environment,

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<v Speaker 4>but the labor supply is also short, and you have

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<v Speaker 4>to be very attentive to that. Balance because it could

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<v Speaker 4>get out of balance right. Similarly, on the inflation side,

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<v Speaker 4>you do have these cost pressures and four and a

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<v Speaker 4>half years of inflation over target. On the other hand,

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<v Speaker 4>you're not seeing that show up and spikes and inflation

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<v Speaker 4>in the real time numbers. We are seeing what seems

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<v Speaker 4>to be a productivity boom. And so I think you

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<v Speaker 4>have to be very attentive to how little we know

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<v Speaker 4>about how each of our mandate very is going to

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<v Speaker 4>play out. And so, you know, I feel like very

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<v Speaker 4>adaptive is the way to think about it, as opposed

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<v Speaker 4>and that's part of why I'm not being prescriptive into well,

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<v Speaker 4>it's this many dood cuts over this period of time,

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<v Speaker 4>because I think we're going to see and learn a

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<v Speaker 4>lot as we go here.

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<v Speaker 2>Tom Barkin, thank you very much for coming up to

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<v Speaker 2>Washington and joining us this morning here on Bloomberg