WEBVTT - Federal Reserve Governor Stephen Miran Talks Fed Decision 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.760 --> 0:00:09.680 The FED Governor Stephen Maron joins us now for more. 0:00:09.720 --> 0:00:10.480 Governor Maren, good. 0:00:10.400 --> 0:00:11.800 Morning, good morning, Thanks for having me. 0:00:11.920 --> 0:00:13.520 It's good to see you as always, sir. So let's 0:00:13.520 --> 0:00:15.760 spend some time. How did you approach the committee meeting 0:00:15.880 --> 0:00:18.200 just last week and what was the argument for fifty 0:00:18.200 --> 0:00:18.919 basis points? 0:00:19.280 --> 0:00:21.200 So I approached it the same way approached the first one, 0:00:21.200 --> 0:00:23.079 which is that I think that the FED is too restrictive. 0:00:23.079 --> 0:00:25.079 I think that neutral is quite a ways below where 0:00:25.120 --> 0:00:29.440 current policy is, and given my rather more sanguine outlook 0:00:29.440 --> 0:00:31.520 on inflation than some of the other members of the committee, 0:00:31.560 --> 0:00:33.879 I don't see a reason for keeping policy as restrictive 0:00:33.920 --> 0:00:35.800 for a long period of time as we are. The 0:00:35.880 --> 0:00:38.320 longer you keep policy restrictive, the more you run the 0:00:38.400 --> 0:00:41.040 risk that monetary policy itself causes a downturn in the economy. 0:00:41.080 --> 0:00:43.040 What was interesting about last week, as you know, is 0:00:43.040 --> 0:00:45.199 that a send cup both ways. We also had this 0:00:45.320 --> 0:00:48.280 argument from Presidents Smith of Kansas City FED, who put 0:00:48.320 --> 0:00:51.080 out a long staymen, I've cherry picked a quote forgive me. 0:00:51.400 --> 0:00:53.559 I see the starts of policy as being only modestly 0:00:53.600 --> 0:00:57.840 restrictive financial market conditions appear to be easy across many metrics. 0:00:57.840 --> 0:00:59.800 When you heard that kind of argument, what was the 0:01:00.160 --> 0:01:02.040 a point to what he's saying in markets? 0:01:02.200 --> 0:01:04.000 Yeah, so I'd say a couple things. First of all, 0:01:04.040 --> 0:01:05.720 I'd say that the financial markets are driven by a 0:01:05.760 --> 0:01:08.720 lot of things, not just monetary policy. They're driven, of course, 0:01:08.760 --> 0:01:10.520 in part by monitary policy, but there's a lot of 0:01:10.520 --> 0:01:13.080 things that drive financial markets. For example, I think on 0:01:13.120 --> 0:01:14.800 this program you probably spend a lot of time thinking 0:01:14.840 --> 0:01:17.320 about AI and new technologies. If you have AI or 0:01:17.360 --> 0:01:20.119 a new technology, it could push financial markets higher, which 0:01:20.160 --> 0:01:22.240 would look like an easing and financial conditions, But that 0:01:22.280 --> 0:01:25.720 doesn't necessarily tell you anything about the stance of monitary policy. Indeed, 0:01:25.840 --> 0:01:27.800 very often, in response to a supply shock or a 0:01:27.840 --> 0:01:29.920 positive supply shock, although of course it depends what kind 0:01:29.920 --> 0:01:31.920 of supply shock, you might think that the appropriate sense 0:01:31.959 --> 0:01:34.920 of monitary policy would be lower and not tighter, all 0:01:35.040 --> 0:01:36.679 lse equal, But of course there's a lot of sort 0:01:36.680 --> 0:01:39.160 of what ifs and thinking about the type of the 0:01:39.240 --> 0:01:41.600 supply shock. But I think that it's a mistake to 0:01:41.600 --> 0:01:44.480 look at financial conditions and sort of conclude something automatically 0:01:44.480 --> 0:01:46.920 about the stance of monitary policy. And I also want 0:01:46.959 --> 0:01:48.840 to point out that some of the financial conditions that 0:01:48.880 --> 0:01:51.720 look the easiest, things like the stock market, things like 0:01:52.040 --> 0:01:54.440 you know, sort of various parts of credit spreads. You know, 0:01:54.520 --> 0:01:58.680 those are not necessarily the financial conditions that feed the 0:01:58.720 --> 0:02:02.120 most into economic activity. Yes, the stock marketing, credit spreads matter, 0:02:02.160 --> 0:02:03.880 they matter a lot, But then you sort of think 0:02:03.880 --> 0:02:06.280 about something like housing. I think housing matters a lot 0:02:06.320 --> 0:02:08.560 more for the cyclical position of the economy, and some 0:02:08.639 --> 0:02:10.639 of these things don't matter, but it's that they're only 0:02:10.680 --> 0:02:12.200 part of the picture. And if you look at financial 0:02:12.200 --> 0:02:14.400 conditions that affect housing, I think they're quite tighter. You 0:02:14.440 --> 0:02:16.280 look at financial conditions that are affecting parts of the 0:02:16.280 --> 0:02:19.480 private credit market, that also looks tighter. And I wonder 0:02:19.800 --> 0:02:22.240 if what we're seeing now in some of the distresses 0:02:22.240 --> 0:02:25.120 that you see in private markets means that financial conditions 0:02:25.120 --> 0:02:27.480 have actually been tighter, but it's been masked by the 0:02:27.480 --> 0:02:29.000 fact that we don't get marks for those on a 0:02:29.000 --> 0:02:29.680 regular basis. 0:02:29.720 --> 0:02:31.360 So, Governor, I think I want to give you some time. 0:02:31.440 --> 0:02:32.920 I think we should give you some time on a 0:02:32.919 --> 0:02:35.760 central lignment of yours that this year you believe policy 0:02:35.800 --> 0:02:38.919 is actually passively tightened through twenty twenty five. And I 0:02:38.919 --> 0:02:40.920 don't think that's an argument I've heard many people make. 0:02:41.200 --> 0:02:42.840 You just spend some time fleshing that out. What do 0:02:42.880 --> 0:02:43.520 you mean by that? 0:02:43.800 --> 0:02:47.040 Sure, So my perspective is that there's been a number 0:02:47.040 --> 0:02:49.760 of shocks that have hit the economy, driven in large 0:02:49.760 --> 0:02:52.800 part by economic policy not from the FED, from outside 0:02:52.840 --> 0:02:55.880 of the FED, that pushed neutral rates higher last year 0:02:55.960 --> 0:02:57.760 and lower this year. And so I think if you 0:02:57.800 --> 0:02:59.480 look where my neutral rate is, it's not that I'm 0:02:59.520 --> 0:03:01.480 out of bound for where the rest of the committee 0:03:01.480 --> 0:03:03.640 is unneutral. It's just that I flipped from having one 0:03:03.680 --> 0:03:05.800 of the highest neutral rates last year to now one 0:03:05.840 --> 0:03:08.400 of the lowest neutral rates. And that's driven by things 0:03:08.520 --> 0:03:12.520 like population growth, right, It's driven by things like fiscal deficits, 0:03:12.760 --> 0:03:15.080 and if you think about population growth, right, that's normally 0:03:15.120 --> 0:03:17.639 considered to be one of the biggest drivers of neutral rates. 0:03:17.960 --> 0:03:19.760 And it's part of the reason why people think that 0:03:19.760 --> 0:03:23.200 neutral usually moves very very slowly, because population growth changes 0:03:23.360 --> 0:03:26.960 only very very slowly as new technologies and cultural trends 0:03:27.320 --> 0:03:29.680 drive people to have fewer kids over time. But we 0:03:29.800 --> 0:03:32.760 experienced the last few years thirty years worth of population 0:03:32.840 --> 0:03:35.120 growth change in only three years. Right, when you look 0:03:35.160 --> 0:03:37.720 at the rate of population growth, it changed more in 0:03:37.720 --> 0:03:39.160 the last three years than it did in the previous 0:03:39.160 --> 0:03:42.400 thirty years. In both directions. It round tripped completely. And 0:03:42.440 --> 0:03:44.680 so if the drivers, if the drivers of changes the 0:03:44.720 --> 0:03:47.160 neutral rate, accelerate over time, it would only make sense 0:03:47.200 --> 0:03:48.960 to me that the neutral rate itself would change more 0:03:49.040 --> 0:03:51.600 rapidly over time as well. And so that's pushed neutral 0:03:51.680 --> 0:03:54.720 higher last year and lower this year, which means that 0:03:54.760 --> 0:03:57.600 policy is passively tightened. Because what matters for the stance 0:03:57.640 --> 0:03:59.920 of policy is where you are relative to the neutral rate. 0:04:00.200 --> 0:04:02.040 And the neutral is here and policies up here, you're 0:04:02.120 --> 0:04:04.440 very tight. If neutral's here and policies down here, you're 0:04:04.560 --> 0:04:06.720 very loose. But if you stay where you are and 0:04:06.760 --> 0:04:10.520 then neutral goes down, you've passively tightened because the neutral 0:04:10.600 --> 0:04:13.320 rate has shifted, and so policy has grown tighter over 0:04:13.360 --> 0:04:15.240 the course of the year. Now, it's not the case 0:04:15.280 --> 0:04:18.040 that you would expect to see a significant downturn in 0:04:18.080 --> 0:04:20.920 the economy immediately as a result of that, because Montera 0:04:20.920 --> 0:04:23.320 policy works with lags. It hits the economy with long 0:04:23.360 --> 0:04:25.560 and variable lags, as we all know. But if you 0:04:25.640 --> 0:04:28.120 maintain that very restrictive stance of policy for a long 0:04:28.120 --> 0:04:31.520 period of time, you really increase the chances that those 0:04:31.600 --> 0:04:34.680 lags come to manifest and that Montera policy then itself 0:04:34.720 --> 0:04:37.520 induces a downturn in the economy. Why wasn't your descent bigger? 0:04:37.920 --> 0:04:39.920 You were talking about a fifty basis point cut that 0:04:39.920 --> 0:04:41.960 you would have preferred to see in the September meeting. 0:04:42.240 --> 0:04:45.599 Why didn't you go for a seventy five basis basis 0:04:45.680 --> 0:04:48.080 point cut descent last month? 0:04:48.360 --> 0:04:51.160 Of course? So look, you know, I think that we're 0:04:51.160 --> 0:04:52.840 a fair way from neutral, and I think that we 0:04:52.880 --> 0:04:55.039 could get there a bit faster. I could imagine getting 0:04:55.080 --> 0:04:58.120 there in a series of fifty clips. I don't think 0:04:58.160 --> 0:04:59.520 it's the case that we need to get there and 0:04:59.560 --> 0:05:01.200 more than that, because I don't think that I don't 0:05:01.240 --> 0:05:03.680 think the economy is dysfunctional right now. I don't think 0:05:03.720 --> 0:05:06.240 that financial markets are dysfunctional right now. I don't think 0:05:06.240 --> 0:05:08.359 we need to move even faster than that for those 0:05:08.440 --> 0:05:11.600 for those reasons. If I did, then you know, I 0:05:11.600 --> 0:05:14.440 would have no problem voting for voting for bigger cuts. 0:05:14.480 --> 0:05:16.760 But I think sort of getting there in fifties instead 0:05:16.760 --> 0:05:18.559 of twenty five's is fine. 0:05:18.800 --> 0:05:20.760 So you would be open to dissenting again for a 0:05:20.800 --> 0:05:22.880 fifty basis point cut if the rest of the committee 0:05:22.960 --> 0:05:23.640 wasn't around. 0:05:23.440 --> 0:05:26.400 For that next month or in December rather. Yeah, well, 0:05:26.440 --> 0:05:28.440 I don't want to commit to that because a lot 0:05:28.480 --> 0:05:30.640 can happen between now and the next meeting. We're getting 0:05:30.680 --> 0:05:32.280 a lot of data, I hope, between now and then, 0:05:32.279 --> 0:05:34.600 and only data about the near term. The data about 0:05:34.640 --> 0:05:36.640 the recent past as well that we don't have, so 0:05:36.720 --> 0:05:38.720 things could change. But if things play out according to 0:05:38.800 --> 0:05:41.920 my forecast, then yes I would Governor. 0:05:42.000 --> 0:05:46.160 Do you think your advocacy for a fifty bait cut 0:05:46.320 --> 0:05:49.600 is hardening the opposition to cuts at all? 0:05:50.040 --> 0:05:52.760 I don't think so. I think everybody is. Everybody is 0:05:52.800 --> 0:05:56.279 doing their own analysis of the economy and inflation in 0:05:56.320 --> 0:06:00.120 the labor market and financial markets too, and coming to 0:06:00.160 --> 0:06:02.360 a conclusion. And you know, I don't think anybody is 0:06:02.400 --> 0:06:06.279 necessarily changing your mind sort of to not support a 0:06:06.320 --> 0:06:08.400 cut just because I want to cut more. 0:06:08.640 --> 0:06:11.600 Is there a lot of discussion at the FED about 0:06:11.640 --> 0:06:13.400 the fact that you're all doing your own analysis, But 0:06:13.720 --> 0:06:15.280 what data are you all using if we're in the 0:06:15.279 --> 0:06:17.000 mis still in the middle of a government shutdown thirty 0:06:17.000 --> 0:06:17.760 four days today? 0:06:18.200 --> 0:06:21.200 Yeah, so there's a lot of talk about that. Let 0:06:21.200 --> 0:06:23.359 me say a couple things about that. First of all, 0:06:23.480 --> 0:06:26.520 you know, it's my perspective that being excessively data dependent 0:06:26.600 --> 0:06:29.960 makes you backward looking because the data are always backward looking, 0:06:29.960 --> 0:06:31.880 and because of collection lags, because the amount of time 0:06:31.880 --> 0:06:34.880 that you're doing comparisons over right, and given montary policy 0:06:34.920 --> 0:06:36.719 takes lags to hit the economy. You want to be 0:06:36.720 --> 0:06:38.919 forward looking, so you want to make policy based in 0:06:38.920 --> 0:06:41.080 your forecast. Now, there are times when you might not 0:06:41.120 --> 0:06:42.719 have a lot of confidence in your forecast, and so 0:06:42.760 --> 0:06:44.880 you need to be data dependent, but you should be 0:06:44.920 --> 0:06:46.760 data dependent only to the extent that you don't have 0:06:46.800 --> 0:06:49.560 confidence in your forecast. My perspective is that we know 0:06:49.640 --> 0:06:51.279 the size of the shocks that have hit the economy 0:06:51.279 --> 0:06:54.640 this year, things like population growth. That's a known quantity. 0:06:54.760 --> 0:06:56.520 We know what it does to the economy, we know 0:06:56.600 --> 0:06:58.359 what it does to neutral we know the size of that. 0:06:58.440 --> 0:07:01.920 It's not a mystery. So therefore I have a lot 0:07:02.000 --> 0:07:06.280 of confidence in my forecast. And therefore, to the extent 0:07:06.320 --> 0:07:07.960 that we would get data that would make me change 0:07:07.960 --> 0:07:10.600 my forecast, I would then change my policy outlook. Right, 0:07:11.000 --> 0:07:12.960 So the question is that am I missing data because 0:07:12.960 --> 0:07:15.160 of the government shutdown, that would lead me to change 0:07:15.160 --> 0:07:18.000 my forecast. And given so much of my forecast for 0:07:18.040 --> 0:07:21.880 inflation depends on the housing market and depends on the 0:07:21.880 --> 0:07:23.600 housing market, I would assume that I would see that 0:07:23.640 --> 0:07:26.200 in the reporting that Bloomberg and others do, even if 0:07:26.240 --> 0:07:28.400 I'm not getting data in the short term. Now, something 0:07:28.440 --> 0:07:31.760 like that lasts a couple of months, right, Can I 0:07:31.760 --> 0:07:33.920 continue to sort of have this degree of confidence if 0:07:33.960 --> 0:07:37.520 we go six months without data? Absolutely not. So. I 0:07:37.560 --> 0:07:39.720 do think this is something people are attentive to, And 0:07:39.760 --> 0:07:42.680 there's also alternative data, as you guys are aware. I 0:07:42.720 --> 0:07:45.960 find the alternative data on inflation to be not super useful. 0:07:46.240 --> 0:07:48.000 I do find it to be more useful on the 0:07:48.080 --> 0:07:50.080 labor market. And when you sort of look at alternative 0:07:50.160 --> 0:07:52.720 data on the labor market, you see data that's consistent 0:07:52.800 --> 0:07:56.080 with continual ebbing of demand, which again is a signal 0:07:56.480 --> 0:08:00.120 that policy is too tight. If the decline in hiring 0:08:00.320 --> 0:08:03.440 was a result of negative supply shocks from immigration, you 0:08:03.480 --> 0:08:05.280 would see higher wages, and you would see and you 0:08:05.320 --> 0:08:08.400 would see firms and people giving answering surveys in a 0:08:08.400 --> 0:08:11.000 way that indicated that jobs were plentiful or it was 0:08:11.000 --> 0:08:13.840 difficult to find workers. From the firm perspective, you're not seeing. 0:08:13.600 --> 0:08:16.560 Say, developments in private credit as as well as evidence 0:08:16.560 --> 0:08:18.400 that we're restrictive. Perhaps it was the fault of our 0:08:18.440 --> 0:08:20.320 pairs that this didn't come up much of the news conference. 0:08:20.360 --> 0:08:23.160 I was somewhat surprised did it come up much in 0:08:23.200 --> 0:08:24.920 the meeting, the two day meeting last week. 0:08:25.240 --> 0:08:28.800 Well, I mentioned it at the meetings as a reason 0:08:28.840 --> 0:08:33.120 why it was potentially a mistake to make to make 0:08:33.640 --> 0:08:37.200 very confident inferences from the stance of equity markets to 0:08:37.320 --> 0:08:41.480 the stance of monetary policy. But other than that, I 0:08:41.480 --> 0:08:43.640 think that sort of folks were focused on it on 0:08:43.720 --> 0:08:46.480 private credit as a financial stability risk and sort of 0:08:46.480 --> 0:08:48.400 thinking about how much should we care about this? What 0:08:48.720 --> 0:08:50.840 are the risks? You know, you know, what are the risks? 0:08:50.840 --> 0:08:53.360 Where could this go? Just sort of analyzing it from 0:08:53.400 --> 0:08:56.680 a financial stability perspective, Whereas I was making the point 0:08:56.679 --> 0:08:58.640 as well that there's a chance that because we don't 0:08:58.640 --> 0:09:01.560 get marks on these things very frequently, that distresses are 0:09:01.600 --> 0:09:04.640 actually greater than we thought they were, especially when you 0:09:04.640 --> 0:09:06.640 think about the share of credit that has been created 0:09:06.679 --> 0:09:09.280 in private markets in the last few years, you know, 0:09:09.280 --> 0:09:10.880 so it's slowed down recently, but over the last few 0:09:10.920 --> 0:09:13.000 years it's been a greater share of credit that's been 0:09:13.040 --> 0:09:14.840 extend into the economy, and so it could be that 0:09:14.880 --> 0:09:15.760 we're just not seeing it. 0:09:15.800 --> 0:09:17.920 Do you think we're missing something here because somebody guests 0:09:17.920 --> 0:09:20.840 come on the program and say it's idiosyncratic, just signs 0:09:20.840 --> 0:09:23.520 of isolated fraud, not a big deal, not systemic, not 0:09:23.559 --> 0:09:24.120 broad enough. 0:09:24.360 --> 0:09:27.640 Do you share that view? So, you know, look, I 0:09:28.000 --> 0:09:31.439 think that probably at the end of the day, that's 0:09:31.480 --> 0:09:33.640 what it is. However, I do want to make the 0:09:33.679 --> 0:09:38.559 point that when you get series of seemingly uncorrelated, non 0:09:38.679 --> 0:09:42.920 systematic problem sorry, non systematic issues like that, it can 0:09:43.000 --> 0:09:46.760 be an indication that montary policy is restrictive. We've seen 0:09:46.800 --> 0:09:48.880 this in the past. When you have a series of 0:09:48.920 --> 0:09:53.520 seemingly uncorrelated, uncorrelated credit problems that had been masked for 0:09:53.520 --> 0:09:56.080 a while and then suddenly come to light, it tells 0:09:56.120 --> 0:09:57.840 you something about the stance of montary policy.