WEBVTT - What Susan Collins Wants to See Before Supporting Another Rate Cut 0:00:02.720 --> 0:00:14.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.040 --> 0:00:20.920 Hello and welcome to another episode of the Authoughts podcast. 0:00:20.960 --> 0:00:22.320 I'm Tracy Alloway. 0:00:22.040 --> 0:00:23.600 And I'm Joe. Why isn't thal Joe? 0:00:23.680 --> 0:00:24.440 We're in Boston. 0:00:24.800 --> 0:00:25.040 I know. 0:00:25.560 --> 0:00:28.040 We've never done an odd lotch thing in Boston of 0:00:28.080 --> 0:00:28.960 any sort, have we? 0:00:29.240 --> 0:00:32.160 No, this is actually my first time in Boston. I've 0:00:32.200 --> 0:00:34.239 been to the airport a few times, but I've never 0:00:34.280 --> 0:00:36.600 actually stayed in the city. And everything I know about 0:00:36.600 --> 0:00:40.000 Boston comes from the Boston New York rivalry as depicted 0:00:40.080 --> 0:00:43.720 in thirty Rocks. So I know nothing basically, you know what. 0:00:44.040 --> 0:00:46.400 And I lived in Vermont for several years in high school. 0:00:46.400 --> 0:00:49.120 Boston that was the big city. Like people in like 0:00:49.120 --> 0:00:51.640 people aspire to go to Boston and when people I 0:00:51.720 --> 0:00:53.400 knew a lot of people went to college here and 0:00:53.440 --> 0:00:55.360 stuff like that. I love it here. I'm excited to 0:00:55.360 --> 0:00:55.639 be here. 0:00:55.720 --> 0:00:58.000 You know. The big city closest to my house in 0:00:58.000 --> 0:01:00.000 Connecticut is Worcester, Massa Tuessetts. 0:01:00.200 --> 0:01:01.280 That's the big one. That's a niceity. 0:01:01.440 --> 0:01:04.600 It's about forty minutes away. So all right, Well, the 0:01:04.680 --> 0:01:07.520 reason we are here is for the Boston Fed, which 0:01:07.640 --> 0:01:11.080 is holding their sixty ninth Economic Conference, and the theme 0:01:11.120 --> 0:01:13.959 of this year's is the US economy in a changing 0:01:14.080 --> 0:01:16.680 global landscape, which is putting it mildly. 0:01:16.760 --> 0:01:20.320 I think it is putting it mildly. There's a lot 0:01:20.360 --> 0:01:22.360 going on globally, all kinds of things. You could just 0:01:22.400 --> 0:01:24.720 run down the list. We don't even have to summarize it. 0:01:24.760 --> 0:01:28.399 But it is a time of change, both macro big 0:01:28.440 --> 0:01:31.319 picture globally, but also just for the near term. Direction 0:01:31.360 --> 0:01:34.840 of monetary policy right now in the United States probably 0:01:34.880 --> 0:01:37.200 as as ambiguous as it's been in a while. 0:01:37.160 --> 0:01:39.399 Yeah, I think so. And we're seeing that reflected in 0:01:39.440 --> 0:01:41.680 a lot of the Fed speak that's been coming out 0:01:41.720 --> 0:01:43.959 at the moment. We have doves on the one side, 0:01:43.959 --> 0:01:46.920 who are talking about a deteriorating labor market, and then 0:01:46.959 --> 0:01:48.880 we have hawks on the other side who are still 0:01:49.000 --> 0:01:52.160 very concerned that basically, after five years of inflation, we 0:01:52.240 --> 0:01:54.800 have still not returned to the two percent target. 0:01:54.880 --> 0:01:57.360 It's been half a decade, right and as of right 0:01:57.360 --> 0:02:01.000 now recording this November nineteenth, twenty twenty five, the work 0:02:01.080 --> 0:02:04.560 function looking at FED fund futures gives about a forty 0:02:04.600 --> 0:02:08.519 five percent chance of a rate cut in December. That 0:02:08.680 --> 0:02:10.720 was in the high sixties just a couple of weeks ago. 0:02:10.800 --> 0:02:13.360 So a lot of things, a lot of uncertainty, more 0:02:13.480 --> 0:02:16.480 or less a coin flip right now. We don't know 0:02:16.480 --> 0:02:18.760 what's going on in the medium term or the long term. 0:02:18.840 --> 0:02:20.760 I'm going to say one more thing before we get 0:02:20.840 --> 0:02:24.440 to our very esteemed guest. But there is another complication, 0:02:24.520 --> 0:02:26.880 which is we've had the government shut down, right, so 0:02:27.120 --> 0:02:29.560 we haven't had a lot of the economic data. By 0:02:29.600 --> 0:02:31.839 the time this episode comes out, there might have been 0:02:32.240 --> 0:02:35.239 some of the economic data, but we also have FED 0:02:35.320 --> 0:02:38.639 minutes that are due out later today. But to emphasize, 0:02:38.680 --> 0:02:42.600 as of this morning, everything is very very uncertain. 0:02:43.240 --> 0:02:43.480 Uh. 0:02:43.520 --> 0:02:45.920 The fog, that's like the term everyone's using. 0:02:46.000 --> 0:02:47.760 Yeah, there's a little bit of fog out in the 0:02:47.880 --> 0:02:53.240 Boston Harbor right now as well, so fog fog everywhere. Okay, So, 0:02:53.440 --> 0:02:56.160 without further ado, we have the perfect guest to talk 0:02:56.240 --> 0:02:59.639 about the changing US economic landscape and what it means 0:02:59.680 --> 0:03:01.640 from my arry policy. We're going to be speaking with 0:03:01.680 --> 0:03:05.000 Boston Fed President Susan Collins. So, Susan, thank you so 0:03:05.080 --> 0:03:06.200 much for coming on all thoughts. 0:03:06.440 --> 0:03:09.560 I am delighted to be here and welcome to Boston. 0:03:09.680 --> 0:03:11.480 Thank you so much. I heard I'm supposed to eat 0:03:11.520 --> 0:03:12.720 beans and lobster. 0:03:13.000 --> 0:03:13.519 Is that right? 0:03:13.919 --> 0:03:16.280 All right, I'll do that all of it. Okay, perfect? 0:03:16.520 --> 0:03:20.240 So tell us firstly about this research conference. What's the 0:03:20.280 --> 0:03:24.079 purpose of the FED gathering people together to talk about 0:03:24.120 --> 0:03:26.000 you know, you have a series of papers here, all 0:03:26.000 --> 0:03:28.760 with different themes and topics. Why do this? 0:03:29.440 --> 0:03:31.720 Sure happy to talk about our conference. And I have 0:03:31.800 --> 0:03:34.880 to say, I and our entire team are delighted that 0:03:34.920 --> 0:03:37.120 you are both going to be joining us for our 0:03:37.200 --> 0:03:38.200 day and a half conference. 0:03:38.360 --> 0:03:41.640 We can't say no to a conference full of academic 0:03:41.720 --> 0:03:44.400 economic papers. 0:03:45.240 --> 0:03:49.080 Well, it will be quite meady and informative. You know, 0:03:49.120 --> 0:03:51.360 it's not just academics, and that's one of the things 0:03:51.400 --> 0:03:54.720 that I think is really important to us and one 0:03:54.760 --> 0:03:57.560 of the things that makes it particularly valuable. So we 0:03:57.640 --> 0:04:01.400 bring together and this is the sixty ninth Boston Conference. 0:04:01.520 --> 0:04:03.800 It's our flagship. You know, we do other meetings and 0:04:03.840 --> 0:04:06.520 conferences and other things, but this one is our flagship. 0:04:06.880 --> 0:04:10.720 And we bring together academics, certainly, we bring together policy 0:04:10.760 --> 0:04:15.600 makers from different institutions, We bring together business leaders. We 0:04:15.720 --> 0:04:17.640 have a wide range of people. We actually have people 0:04:17.680 --> 0:04:19.960 from different disciplines. So one of the papers is from 0:04:19.960 --> 0:04:23.360 a political scientist as well, so that is as kind 0:04:23.360 --> 0:04:26.400 of a hallmark of the conference is to really do 0:04:26.520 --> 0:04:29.599 a deep dive to understand dimensions of a topic. And 0:04:29.680 --> 0:04:31.760 we picked a pretty big one this time. So I'm 0:04:31.800 --> 0:04:34.320 not going to suggest we're going to cover the entire thing, 0:04:34.880 --> 0:04:38.160 but understanding the US economy in what is a changing 0:04:38.200 --> 0:04:43.200 global landscape related to risks and uncertainties, to fragmentation. It's 0:04:43.240 --> 0:04:46.960 a lot to talk about, and I'm really looking forward 0:04:47.000 --> 0:04:50.200 to being part of it, to learning and to hearing 0:04:50.200 --> 0:04:51.120 the presentations. 0:04:51.440 --> 0:04:55.000 I don't want to create any tension between you and 0:04:55.120 --> 0:04:58.279 the fellow regional FED president, but doesn't it feel like 0:04:58.520 --> 0:05:01.440 Kansas City cheats a little bit by having their conference 0:05:01.640 --> 0:05:04.280 in Wyoming and August, et cetera. 0:05:04.440 --> 0:05:07.280 Like I we're in Boston in November, which is great. 0:05:07.040 --> 0:05:10.360 And it's lovely here, and it's lovely with Boston in November, 0:05:10.400 --> 0:05:10.599 but I. 0:05:11.200 --> 0:05:13.600 Always feel like it's kind of cheating. That's like, oh, 0:05:13.600 --> 0:05:15.279 we're not even going to have it in our in 0:05:15.320 --> 0:05:17.200 the exact location, and we're going to have it some 0:05:17.320 --> 0:05:19.840 in the middle of summer in this beautiful location. It 0:05:19.920 --> 0:05:20.960 is kind of cheating a little bit. 0:05:21.040 --> 0:05:23.280 Well, you know, the Jackson Hall conference is a very 0:05:23.320 --> 0:05:26.000 special one. I have been participating in that for a 0:05:26.040 --> 0:05:28.960 long time and I am a huge proponent, and I 0:05:29.120 --> 0:05:31.080 just say, the more the merrier, right, you know, it's 0:05:31.080 --> 0:05:32.080 a lot to talk about. 0:05:32.000 --> 0:05:34.480 A positive abundance mindset for conference. 0:05:34.520 --> 0:05:34.880 That's right. 0:05:35.000 --> 0:05:35.400 That's right. 0:05:36.120 --> 0:05:38.520 So let's talk Actually, you know, we'll get into we 0:05:38.520 --> 0:05:40.400 want to talk about some of the big themes we 0:05:40.440 --> 0:05:42.680 want to talk. Let's talk a little bit of near 0:05:42.839 --> 0:05:47.360 term monetary policy, et cetera. Odds of a December cut 0:05:47.440 --> 0:05:50.919 have come in dramatically because you and some of the 0:05:51.040 --> 0:05:54.279 other members of the FOMC have been talking about this 0:05:54.440 --> 0:06:00.760 concern that inflation remains stubbornly over target. That big said, 0:06:01.560 --> 0:06:03.440 there does seem to be a lot of evidence of 0:06:03.560 --> 0:06:07.000 labor market weakening, right, And we haven't got the unemployment 0:06:07.080 --> 0:06:10.880 rate for a while, but basically every measure seems to 0:06:10.960 --> 0:06:14.599 show a significant I don't know, stall et cetera. Talk 0:06:14.640 --> 0:06:17.160 to us about your read on the labor market right now. 0:06:17.520 --> 0:06:20.080 Are you concerned that some of the weakness that we've 0:06:20.120 --> 0:06:24.479 seen could snowball into seriously deteriorating environment and a sharp 0:06:24.520 --> 0:06:25.760 increase in the unemployment rate. 0:06:26.080 --> 0:06:29.120 Yeah, So I appreciate your framing of that. You know, 0:06:29.160 --> 0:06:31.479 I have to start by saying, I'm really focused on 0:06:31.680 --> 0:06:35.160 both parts of our mandate, and that does mean the 0:06:35.240 --> 0:06:37.719 labor market, say more about that in just a hot second, 0:06:37.880 --> 0:06:41.800 but also concerns about the elevated inflation and what I 0:06:41.880 --> 0:06:45.760 hear about that and our commitment to price stability, So 0:06:46.360 --> 0:06:48.839 you know, they both really matter and I'm looking at 0:06:48.880 --> 0:06:51.800 both of them. That's really what I've been emphasizing. As 0:06:51.800 --> 0:06:54.920 far as the labor market, you know it it's kind 0:06:54.920 --> 0:06:58.280 of an unusual situation in some ways, right. I mean, 0:06:58.279 --> 0:07:00.960 what I think is pretty clear that we have seen 0:07:01.279 --> 0:07:04.120 softening in the labor market. We are pulling together all 0:07:04.160 --> 0:07:07.200 the data that we can find, but as you pointed 0:07:07.200 --> 0:07:09.520 out earlier, we don't have the official data yet. We'll 0:07:09.560 --> 0:07:13.280 get a job support from September tomorrow morning, and really 0:07:13.280 --> 0:07:15.920 eager to see that, and so it's hard to tell 0:07:16.000 --> 0:07:18.760 how much that softening has been, but I do think 0:07:18.760 --> 0:07:23.440 it's clear it reflects both labor supply growth having slowed 0:07:23.680 --> 0:07:27.960 pretty notably, but also labor demand growth. And so so 0:07:28.200 --> 0:07:31.520 far it seems, and again we'll learn more that there's 0:07:31.560 --> 0:07:34.720 a kind of rough unusual balance there, and so we 0:07:34.840 --> 0:07:38.680 haven't seen a significant unemployment change, But that's something I'm 0:07:38.720 --> 0:07:40.760 watching really carefully and I'm really attuned to. 0:07:41.440 --> 0:07:43.920 Just to follow up though on we have not seen 0:07:43.920 --> 0:07:47.200 a significant unemployment change, setting aside the data which is 0:07:47.200 --> 0:07:49.120 going to be noisy for all kinds of reasons because 0:07:49.120 --> 0:07:51.720 that's September, which is ages ago, and then the data 0:07:51.760 --> 0:07:55.119 after that will be affected by the government shutdown itself, 0:07:55.160 --> 0:07:57.240 which why we're't getting data. So who knows how long 0:07:57.280 --> 0:08:00.280 it'll be until we have cleaned data. But that being said, 0:08:00.520 --> 0:08:04.680 do you have any way to anticipate actual deterioration because 0:08:04.680 --> 0:08:08.040 the concern is that once the unemployment the layoffs really 0:08:08.120 --> 0:08:11.320 starts to snowball, then they start to feed on each 0:08:11.360 --> 0:08:15.440 other and they accelerate, and people talk about nonlinearity potential. 0:08:15.880 --> 0:08:18.680 Do you are you concerned that by waiting or too 0:08:18.800 --> 0:08:21.920 much for the data to reveal oh the weakness is here, 0:08:22.400 --> 0:08:24.960 that you won't have been able to get around get 0:08:24.960 --> 0:08:26.280 in front of a deterioration. 0:08:26.760 --> 0:08:30.440 It's really important to be forward looking. And as you say, 0:08:30.720 --> 0:08:34.760 I also have seen past episodes where there's been a 0:08:34.840 --> 0:08:38.240 dynamic which can move quickly, and so it's important to 0:08:38.360 --> 0:08:43.239 recognize that. So are there risks on the labor market side, absolutely, 0:08:43.280 --> 0:08:45.559 and that's something that I'm attuned to. But that's not 0:08:45.679 --> 0:08:50.040 the only consideration in terms of making monetary policy decisions. 0:08:50.080 --> 0:08:54.720 It's really about balancing those risks and looking at to 0:08:54.760 --> 0:08:56.680 the best of one's ability, you know, how do you 0:08:56.760 --> 0:09:01.520 assess which of our goals from cos is further away? 0:09:02.160 --> 0:09:05.880 And I think that the reasons that you're talking about, 0:09:05.920 --> 0:09:09.120 some of that shift in risks, increase in risks in 0:09:09.160 --> 0:09:13.600 the labor market was a good reason for the easing 0:09:13.640 --> 0:09:17.520 the fifty percent basis point cuts that we have already 0:09:17.520 --> 0:09:20.360 done this fall, and I think that that has actually 0:09:20.400 --> 0:09:24.560 positioned us given what I know now and obviously still 0:09:24.640 --> 0:09:28.400 watching for lots of caveats, and so I think that 0:09:28.720 --> 0:09:32.080 the shift in that balance of risks that I started 0:09:32.160 --> 0:09:35.360 being quite focused on over the summer was really a 0:09:35.480 --> 0:09:40.280 rationale for those cuts that we've already seen. At the 0:09:40.320 --> 0:09:43.760 same time, we have now moved much closer to a 0:09:43.800 --> 0:09:47.920 neutral rate, and we're balancing those risks on the labor 0:09:47.960 --> 0:09:53.480 market side with continued risks related to inflation and elevation, 0:09:53.640 --> 0:09:57.160 and policies really only mildly restrictive in my view, And 0:09:57.240 --> 0:10:00.680 so I given what I'm seeing so fartinue to see 0:10:00.679 --> 0:10:02.160 that as appropriate for now. 0:10:02.480 --> 0:10:04.640 We're going to get into each one of those points. 0:10:04.640 --> 0:10:07.000 But I have a very quick process question, and I 0:10:07.040 --> 0:10:10.959 realize we're in unusual circumstances at the moment. But when 0:10:11.000 --> 0:10:15.920 the jobs number hits, presumably tomorrow on Thursday, again, we're 0:10:16.040 --> 0:10:19.040 you know, we're recording this on Wednesday, November nineteenth. But 0:10:19.080 --> 0:10:21.800 when it comes out, what actually happens? What do you 0:10:21.880 --> 0:10:24.800 do when you see that number? Do you, you know, 0:10:24.920 --> 0:10:28.240 immediately go into analysis mode? Do you start calling fellow 0:10:28.320 --> 0:10:30.679 FED presidents and talking about what it means? 0:10:31.400 --> 0:10:34.360 That's a great question. So you know, of course, we 0:10:34.520 --> 0:10:37.440 have busy schedules and all kinds of other things going on, 0:10:37.520 --> 0:10:40.000 and sometimes when the data hits, I'm in other meetings 0:10:40.120 --> 0:10:42.800 or with other groups. I am well aware of when 0:10:42.840 --> 0:10:45.520 it is due, and we do have a process. I 0:10:45.559 --> 0:10:49.920 have a very strong Boston research team of experts, and 0:10:50.080 --> 0:10:52.079 so you know, as soon as the numbers come out, 0:10:52.120 --> 0:10:54.280 I do try to take a quick look at them, 0:10:54.800 --> 0:10:59.360 and then we are sometimes virtually and you know, get 0:10:59.360 --> 0:11:03.560 together relatively quickly to assess what we're seeing in those numbers. 0:11:03.600 --> 0:11:06.160 So I have help to try to unpack them. Often 0:11:06.200 --> 0:11:09.439 the real information is in the details. It's not necessarily 0:11:09.920 --> 0:11:13.200 just the headline number. In fact, that can mask a 0:11:13.240 --> 0:11:16.760 lot of what's really interesting about the information. We then 0:11:16.840 --> 0:11:19.719 take some time to unpack it, and we want to 0:11:19.760 --> 0:11:23.839 contrast those data with what we had already seen, right, 0:11:23.880 --> 0:11:26.440 because you're adding new information. It's not going onto a 0:11:26.679 --> 0:11:31.080 kind of totally clean palate, right, it's additional information. So 0:11:31.679 --> 0:11:34.760 we're doing all of that, and I'm working with my team, 0:11:34.800 --> 0:11:36.640 and then I do, of course talk to my colleagues 0:11:36.679 --> 0:11:40.640 as well. But the immediate analysis is more within our 0:11:40.679 --> 0:11:43.440 teams in each of our reserve banks. 0:11:43.120 --> 0:11:45.679 And one more process question. But it strikes me that 0:11:45.679 --> 0:11:48.800 one of the unusual features of our very unusual environment 0:11:48.920 --> 0:11:52.319 at the moment is just the sheer amount of FED 0:11:52.400 --> 0:11:56.200 speakers that we've had in recent days. I started counting 0:11:56.200 --> 0:11:59.120 them up yesterday and I got nine in less than 0:11:59.160 --> 0:12:01.640 a week. And I think than our friend Tom Barkin, 0:12:01.800 --> 0:12:03.839 friend of the pod, put out a speech or a 0:12:03.920 --> 0:12:05.680 research note as well, so that brings it up to 0:12:05.720 --> 0:12:08.960 ten in less than a week. What's going on? Why 0:12:08.960 --> 0:12:11.880 does everyone have the urge to sort of stake their 0:12:11.960 --> 0:12:14.959 ground ahead of a meeting that you know, the market 0:12:15.000 --> 0:12:16.840 currently implies could be a coin flip. 0:12:17.720 --> 0:12:20.120 Well, all the more reason to hear a range of views. 0:12:20.160 --> 0:12:22.520 I mean, I think one of the strengths of the 0:12:22.559 --> 0:12:27.800 structure of our federated system is it really does bring 0:12:28.360 --> 0:12:32.040 different viewpoints. And you know, it's interesting because sometimes there's 0:12:32.080 --> 0:12:34.040 a claim that there's too much group think. I don't 0:12:34.080 --> 0:12:36.440 see group think. I see this week. No, No, I 0:12:36.520 --> 0:12:39.240 really don't. And so I think we have also a 0:12:39.280 --> 0:12:43.319 responsibility to explain what we're seeing, how we're thinking about things, 0:12:43.720 --> 0:12:46.760 and that's part of that communication that we do. And 0:12:47.000 --> 0:12:51.200 so I actually think that's important, and I think recognizing 0:12:51.400 --> 0:12:55.840 that the breadth of views is partly us coming together, 0:12:56.200 --> 0:13:00.360 is sharing information, and as part of that process, they're 0:13:00.360 --> 0:13:04.880 different windows. When I think you hear lots of speeches. 0:13:05.040 --> 0:13:08.320 This is certainly not an isolated time, but it's when 0:13:08.480 --> 0:13:11.160 there's you know, kind of less clarity, perhaps when they're 0:13:11.160 --> 0:13:14.200 turning points in the economy, when you're more likely to 0:13:14.280 --> 0:13:18.160 see many of us out there talking about what we're seeing, 0:13:18.760 --> 0:13:23.000 also talking about how our regional information contributes to that 0:13:23.080 --> 0:13:27.120 in different ways. And we're often talking while we're out 0:13:27.120 --> 0:13:30.559 in our regions connecting with different people, and so there's 0:13:30.640 --> 0:13:33.280 kind of multiple dimensions about why we're out and about 0:13:33.280 --> 0:13:46.720 and what we're doing. 0:13:49.960 --> 0:13:54.360 Let's talk about inflation. So core PCE as of the 0:13:54.400 --> 0:13:57.800 August reading, which again feels like ages ago now, but 0:13:57.920 --> 0:14:00.760 it's the data that we have came into two point 0:14:00.840 --> 0:14:04.600 nine per ten. So that's clearly elevated solidly above target. 0:14:04.920 --> 0:14:06.959 You know, if you just hit like a snapshot, you're 0:14:07.000 --> 0:14:10.000 looking at the unemployment rate, you're looking at the inflation 0:14:10.200 --> 0:14:13.640 reading that two point nine percent. How much does the 0:14:13.720 --> 0:14:18.360 significance of that change because it comes after years of 0:14:18.640 --> 0:14:21.680 missing the inflation target to the upside versus if we 0:14:21.840 --> 0:14:24.640 just had the snapshot, Like, how much of your thinking 0:14:24.800 --> 0:14:27.120 is sort of informed by the fact that not only 0:14:27.160 --> 0:14:29.880 has it been high, but it's been high for a 0:14:29.880 --> 0:14:30.520 really long time. 0:14:30.840 --> 0:14:34.760 I do think that the longevity of that elevation is 0:14:34.800 --> 0:14:37.600 a key factor to figure. It's hard to, you know, 0:14:37.720 --> 0:14:40.560 to put a particular weight on that, but I think. 0:14:40.440 --> 0:14:41.720 About the balance of risks. 0:14:42.400 --> 0:14:44.840 Yeah, but so let me say a few things on 0:14:44.880 --> 0:14:48.360 the inflation side. But first related to that specific question. 0:14:48.880 --> 0:14:51.360 You know, I do think that it is a bit 0:14:51.400 --> 0:14:55.720 of a reminder that it's economic behavior that is not 0:14:56.200 --> 0:15:00.320 you know, one hundred percent predictable, and many of our 0:15:00.680 --> 0:15:05.440 analyzes that are based on periods when people were really 0:15:05.560 --> 0:15:09.640 used to very low inflation, maybe a bit noisier signals 0:15:09.760 --> 0:15:13.280 of what kind of responses and changes we're going to see. 0:15:13.680 --> 0:15:17.800 And so I do think that complementing those analyzes, you know, 0:15:17.840 --> 0:15:20.840 of course, those are extremely valuable, and we continue to 0:15:20.840 --> 0:15:22.840 look at total We're all data geeks here, you know, 0:15:22.880 --> 0:15:26.600 that's kind that's kind of what we do with the conversations. 0:15:26.600 --> 0:15:29.960 We have understanding how businesses are thinking about things, and 0:15:30.040 --> 0:15:32.840 so I hear that businesses are mindful that they have 0:15:33.080 --> 0:15:37.520 raised prices significantly over recent years. They're concerned about what 0:15:37.600 --> 0:15:41.840 consumer responses will be. I've recently been hearing a number 0:15:41.880 --> 0:15:45.000 of firms, at least in the New England district, the 0:15:45.040 --> 0:15:47.760 Boston Fed's district, which is most of New England, saying 0:15:47.760 --> 0:15:51.280 that that they have been passing price increases and they 0:15:51.320 --> 0:15:56.120 have been perhaps surprised in some cases that consumers are 0:15:56.160 --> 0:15:58.840 not pushing back, and that's leading them to expect that 0:15:58.880 --> 0:16:00.560 they might continue to do that. 0:16:00.960 --> 0:16:01.080 You know. 0:16:01.240 --> 0:16:04.760 So I think that gathering a range of information to 0:16:05.040 --> 0:16:09.240 complement how what our understanding of behavior is important, and 0:16:09.280 --> 0:16:12.440 that does factor into some of the scenarios I think 0:16:12.480 --> 0:16:17.320 are plausible, they're not necessarily my baseline. My baseline scenario 0:16:17.400 --> 0:16:21.600 on the inflation side is that inflation's likely I think, 0:16:21.640 --> 0:16:25.640 to stay elevated through the rest of this year into 0:16:25.680 --> 0:16:28.640 early next, and then as tariffs work their way through 0:16:28.640 --> 0:16:30.480 the system, which I think is going to take some time, 0:16:30.520 --> 0:16:33.040 and I'm happy to talk more about tariffs suspect we 0:16:33.040 --> 0:16:34.960 may want to come back to that. Absolutely, you know, 0:16:35.040 --> 0:16:39.560 I think that the disinflation process, perhaps slow and uneven, 0:16:39.600 --> 0:16:42.640 that we had seen earlier, is likely to kick in. 0:16:42.720 --> 0:16:46.160 So my baseline is a relatively benign one, both on 0:16:46.200 --> 0:16:49.120 the inflation side and on the real side of the economy. 0:16:49.440 --> 0:16:52.840 But I don't rule out scenarios where there's a larger 0:16:52.880 --> 0:16:56.840 increase in inflation or there's more persistence. And some of 0:16:56.840 --> 0:17:01.120 that has to do with behavioral responses that might reflect 0:17:02.200 --> 0:17:05.439 having been in an elevated environment for a long time 0:17:05.960 --> 0:17:11.000 and concerns about profit margins, concerns about catching up to 0:17:11.080 --> 0:17:13.960 some of the past changes, and how people think about 0:17:13.960 --> 0:17:16.639 price levels, which is something that many of our models 0:17:16.680 --> 0:17:19.560 are not as focused on. I hear a lot about 0:17:19.600 --> 0:17:22.200 price levels when I'm out and about, but high cost 0:17:22.200 --> 0:17:26.840 of living, housing in particular, but not only childcare, food 0:17:27.280 --> 0:17:30.400 that that is the number one challenge that I hear 0:17:30.520 --> 0:17:34.359 about when I'm talking to people, particularly and moderate income communities. 0:17:34.400 --> 0:17:35.760 But not only so. 0:17:35.840 --> 0:17:38.560 Since we're at a research conference at the Boston Fed, 0:17:38.600 --> 0:17:40.800 I need to bring up a really good research paper 0:17:40.880 --> 0:17:43.639 that came out of the Boston Fed back in October, 0:17:43.720 --> 0:17:46.840 I think, and it was looking at inflation expectations now 0:17:46.880 --> 0:17:49.240 and comparing them to what happened in the early and 0:17:49.440 --> 0:17:54.040 late nineteen seventies. And the finding was that the rise 0:17:54.080 --> 0:17:57.480 in inflation expectations around COVID might not have had that 0:17:57.680 --> 0:18:01.399 much to do with actual prices, but actually outran the 0:18:01.480 --> 0:18:04.160 prices and sort of became de anchored a little bit 0:18:04.240 --> 0:18:06.600 from reality, which is what we saw on the late 0:18:06.680 --> 0:18:10.960 nineteen seventies. Is the concern that people, you know, after 0:18:11.000 --> 0:18:15.800 five years of above target inflation, after price levels going up, 0:18:15.880 --> 0:18:19.359 as you just put it, that our expectations for inflation 0:18:19.600 --> 0:18:22.800 start to become unmoored from reality. Is that the nightmare 0:18:22.840 --> 0:18:24.120 scenario for you at the moment. 0:18:24.359 --> 0:18:27.239 It certainly would be a concern if I were to 0:18:27.320 --> 0:18:32.760 see evidence that especially medium to longer term inflation expectations 0:18:33.040 --> 0:18:36.000 were becoming an unmoored I'm not seeing that right now, 0:18:36.040 --> 0:18:38.480 but it is something I watch carefully, and I do 0:18:38.600 --> 0:18:41.880 think that at least certainly so far. And my baseline, 0:18:42.000 --> 0:18:45.199 as I said, is on the more benign side. You know, 0:18:45.240 --> 0:18:48.560 it's not expecting that that would happen. In particular, we're 0:18:48.600 --> 0:18:51.840 not seeing those labor market pressures with a softer labor market. 0:18:52.400 --> 0:18:55.399 But is it a concern? Is it something to watch carefully? 0:18:55.480 --> 0:18:58.959 It is, and you know it's something that I know 0:18:59.160 --> 0:19:01.119 some are more concerned about than others. 0:19:01.240 --> 0:19:05.400 Well, talk to us about how tariffs play into inflation expectations, 0:19:05.400 --> 0:19:07.280 because this seems to be a difficult one to call. 0:19:07.359 --> 0:19:09.800 You have the initial rise in prices, and then no 0:19:09.880 --> 0:19:13.360 one is quite sure what happens after that. The consensus 0:19:13.400 --> 0:19:15.399 seems to be that it's this one off shift and 0:19:15.440 --> 0:19:18.679 then you know, inflation should start to cool. But on 0:19:18.720 --> 0:19:21.760 the other hand, we're hearing a lot from consumers, as 0:19:21.800 --> 0:19:24.720 you say, about price levels themselves. 0:19:24.920 --> 0:19:27.520 So quite a bit to say about tariffs. So you know, 0:19:27.600 --> 0:19:29.280 let me unpack a few of the things that are 0:19:29.280 --> 0:19:33.199 really top of mind for me. One is when certainly 0:19:33.200 --> 0:19:37.440 when I say that, you know, my baseline expectation would 0:19:37.520 --> 0:19:41.639 be that tariffs have a one time impact on prices. 0:19:41.800 --> 0:19:44.080 One time doesn't mean it just happens in a week 0:19:44.119 --> 0:19:50.119 and it's done that one time can get implemented over months, 0:19:50.280 --> 0:19:53.480 a year, something like that. It just says that it's 0:19:53.520 --> 0:19:59.000 not expected to be a continual increase. Once the level 0:19:59.200 --> 0:20:03.520 has adjusted, did you don't get additional impacts, but that 0:20:03.640 --> 0:20:07.159 can happen over time. So that's one point. And I 0:20:07.200 --> 0:20:10.639 do think that in a period of high uncertainty and 0:20:10.760 --> 0:20:14.280 the tariffs are really intertwined with uncertainty something to come 0:20:14.320 --> 0:20:19.840 back to and the long elevation of higher prices that 0:20:19.920 --> 0:20:23.399 we were just talking about, you might actually expect the 0:20:23.520 --> 0:20:29.160 time for businesses to pass things through to be elongated, right, 0:20:29.240 --> 0:20:33.800 And so then you start worrying more that people get 0:20:33.920 --> 0:20:36.960 used to these continual price increases and you kind of 0:20:36.960 --> 0:20:40.960 get stuck. Right. So that's a scenario, again not my baseline, 0:20:41.000 --> 0:20:43.639 but is one that I think one could think about. 0:20:44.160 --> 0:20:47.000 So a few things about tariffs. One is the tariffs 0:20:47.000 --> 0:20:50.840 are really intertwined with uncertainty, which makes you know it's 0:20:50.960 --> 0:20:54.280 uncertainty about the tariffs, which is one of the key 0:20:54.359 --> 0:21:00.000 things that's having influence. For example, in terms of hiring decisions, 0:21:00.040 --> 0:21:04.159 spent decisions, some of the reticence that firms have to 0:21:04.200 --> 0:21:07.879 make major decisions and projects, and also in terms of 0:21:07.880 --> 0:21:10.080 teasing out empirically right, it's going to take some time. 0:21:10.600 --> 0:21:13.080 Our staff at the Boston FED is doing quite a 0:21:13.119 --> 0:21:15.600 bit of work on a variety of dimensions, and that 0:21:15.720 --> 0:21:20.080 includes analysis that takes into account that, you know, many 0:21:20.080 --> 0:21:23.600 of the tariffs are impacting imported intermediates, and so there 0:21:23.600 --> 0:21:26.840 are multiple dimensions and levels and you've got to take 0:21:26.880 --> 0:21:30.359 all of that into account. And we're also doing a 0:21:30.359 --> 0:21:33.679 lot of analysis on what happened in twenty eighteen. What 0:21:33.760 --> 0:21:35.880