WEBVTT - Former Dallas Fed President Robert Kaplan Talks Outlook for US Monetary Policy

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

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<v Speaker 2>Robert Kaplan joins US Vice Sherman Goldblin Sachs and of

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<v Speaker 2>course all of his experience at the Dallas FED. You

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<v Speaker 2>have a beautiful sentence, doctor Kaplan about the idea of

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<v Speaker 2>we need to build relationships. So when you entered the FED,

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<v Speaker 2>what do you do? Do you have lunch with the chairman?

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<v Speaker 2>Is that how this is going to work with Chairman.

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<v Speaker 3>Wars Those aren't the relationships I was referring to. For

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<v Speaker 3>Kevin worsh and for me when I went into the FED,

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<v Speaker 3>and for anybody coming in from outside. You want to

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<v Speaker 3>get to know the staff, particularly the economists. You want

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<v Speaker 3>to get you want to meet the heads of supervision.

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<v Speaker 3>There's twenty two thousand people at the FED. You want

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<v Speaker 3>to meet all of the bank presidents. When I say relationships,

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<v Speaker 3>you're going to want to start getting into a conversation

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<v Speaker 3>with them about what issues they're seeing, where they're coming from,

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<v Speaker 3>and you want to start assessing personnel. That's all the

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<v Speaker 3>things that the new chair will need to do in

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<v Speaker 3>the first number of weeks and months.

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<v Speaker 4>What do you expect, Robert from this incoming chairman? Kevin

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<v Speaker 4>Walsh based upon his testimony, based upon what we know

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<v Speaker 4>in his past experience, what are you expecting.

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<v Speaker 3>He's going to accelerate, in my opinion, and work closely

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<v Speaker 3>with Mickey Bowman to accelerate move along bank deregulation, particularly

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<v Speaker 3>tailoring for smaller banks, which they're still in the process

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<v Speaker 3>of trying to do.

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<v Speaker 1>He's going to work more closely.

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<v Speaker 3>We know that with Scott Besson on the balance sheet,

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<v Speaker 3>which will come back to that, and I think he's

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<v Speaker 3>going to encourage he may de emphasize or even eliminate

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<v Speaker 3>the dot plot, you know, the forward guidance, and he's

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<v Speaker 3>going to want to encourage folks around the FOMC table

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<v Speaker 3>to anticipate that a is going.

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<v Speaker 1>To be disinflationary.

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<v Speaker 3>He's going to get he's going to have the debate

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<v Speaker 3>on that one, and that they'll agree with the argument,

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<v Speaker 3>but they want to see demonstrable improvement in headline inflation,

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<v Speaker 3>and the war is going to make that harder.

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<v Speaker 1>So he's going to have to debate that out.

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<v Speaker 4>Robert the A lot of critics of the FED oftentimes

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<v Speaker 4>cite the types of data that the FED uses, principally

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<v Speaker 4>that it's a rearwood rear word looking backward, looking as

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<v Speaker 4>opposed to con anticipatory. Do you think Kevin Wors can

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<v Speaker 4>have an impact there at all?

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<v Speaker 1>Well, yeah, he ought to. And in fairness to the FED, the.

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<v Speaker 3>Calls with CEOs, the fact that the boards around the

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<v Speaker 3>FED systems are made up of local leaders CEOs, community leaders,

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<v Speaker 3>labor leaders, et cetera, community education leaders. So they've got

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<v Speaker 3>to be careful. And I always used to argue this,

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<v Speaker 3>you want to be careful, not to folk. You want

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<v Speaker 3>to understand the data, but you've got to be out

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<v Speaker 3>in the world understanding what the structural changes are in

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<v Speaker 3>which actually going on on the ground, because it might

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<v Speaker 3>it might be different than what.

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<v Speaker 1>The data is telling you.

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<v Speaker 3>Because data is lagging and it's often aggregated, and we're

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<v Speaker 3>better yet it's wrong. It gets revised two and three times,

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<v Speaker 3>So you've got to be careful about data.

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<v Speaker 2>Can I go nerd sure?

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<v Speaker 1>Okay?

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<v Speaker 2>Robert kaplan with U, folks, and his charm is no

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<v Speaker 2>one within our FED apparatus is a better understanding of

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<v Speaker 2>business process, financial process, his efforts at Goldman Sacks and

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<v Speaker 2>then the monetary fiscal dual mandate process of the Dallas Fed. Okay,

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<v Speaker 2>so let's go beneath the headline data or Robert, we

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<v Speaker 2>can do this. Trimmed mean was not invented at Dallas.

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<v Speaker 2>It was Steve Chikeetti and the crew up at the

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<v Speaker 2>Cleveland fed some of that coming out of the University

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<v Speaker 2>of Michigan. That's a school north of Kansas. Robert, in

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<v Speaker 2>case you didn't.

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<v Speaker 1>Know that, I've heard of it.

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<v Speaker 2>And then Jim Dolmas codified this in Dallas. And when

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<v Speaker 2>Powell talks about the trimmed mean, he's talking about Robert

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<v Speaker 2>Keplin shop. Are you gonna stay on the trim mean

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<v Speaker 2>with Dolmos or are you going to have another inflation

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<v Speaker 2>gauge under chairman Warship.

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<v Speaker 3>So it's a here's the answer. There's a whole bunch

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<v Speaker 3>of inflation indicators. That trim mean is one of them.

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<v Speaker 3>And let me just tell you for your audience what

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<v Speaker 3>the trim mean is. It's a simple way of saying,

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<v Speaker 3>it xes out extreme moves to the upside and the downside,

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<v Speaker 3>and it gives you another estimate of quote unquote core inflation.

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<v Speaker 3>The reason you got to be careful and I love

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<v Speaker 3>the trim mean. We own it that the Dallas Vetterick

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<v Speaker 3>Jim Dolmas came up with it is it can it

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<v Speaker 3>can mislead you?

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<v Speaker 1>And here's why.

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<v Speaker 3>In March of twenty twenty one, what was the trim

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<v Speaker 3>mean reading about one six, one seven, even though inflation

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<v Speaker 3>later in the year was going to nine. So what

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<v Speaker 3>happens when you have an oil price spike like you

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<v Speaker 3>do right now? Initially it's one item, the trim mean

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<v Speaker 3>trims it out over a period of months on oil

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<v Speaker 3>price spikes, bleeds quote unquote right into twenty or thirty

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<v Speaker 3>other items, and all of a sudden what started as

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<v Speaker 3>a spike. And then so wouldn't shock me if the

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<v Speaker 3>trim mean three months from now is you know, closer

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<v Speaker 3>to three than two. And so you got to be

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<v Speaker 3>very careful about.

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<v Speaker 2>Each one in I got to get this in mcloone's

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<v Speaker 2>on deck here on oil, so we got to get

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<v Speaker 2>this in with Can I Can I do a second

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<v Speaker 2>a follow up, Chairman Sweeney? Can I do a follow

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<v Speaker 2>up question? Yep, I'll do a follow up question with

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<v Speaker 2>Robert Kaplan. Robert, can you apply these wonderful statistical methods

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<v Speaker 2>given a K shaped economy where the inflation for the

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<v Speaker 2>halves and there's six thousand foot houses down in Dallas

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<v Speaker 2>and Austin is different than half of America flat and

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<v Speaker 2>they're back.

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<v Speaker 1>Yeah.

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<v Speaker 3>This is why the FED I don't think should or

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<v Speaker 3>will or I don't think it should abandon the two

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<v Speaker 3>percent target. Why to your point, if headline inflation is

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<v Speaker 3>running two and three quarters to three, if I make

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<v Speaker 3>fifty or fifty five grand a year or less, that's

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<v Speaker 3>eighty five million workers.

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<v Speaker 1>By the way, my headline inflation rate, SUREFF wallet might

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<v Speaker 1>be six or seven or eight.

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<v Speaker 3>So that's why the low modern income workers are getting suffocated.

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<v Speaker 3>And so their problem is that not that they don't

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<v Speaker 3>have jobs. They're employed, but they can't make ends meet.

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<v Speaker 3>And so I think the FED needs to stay on

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<v Speaker 3>the inflation fight.

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<v Speaker 2>This has been wonderful, Robert Kevin, generous of you from

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<v Speaker 2>Golden Sechs, from Harvard, from Kansas, and also from the

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<v Speaker 2>Dallas Fed. Thank you, thank you so much,