Speaker 1: Bloomberg Audio Studios, podcasts, radio news. So here's the license.
Speaker 2: This morning, the New York Fed President John Williams pushing
Speaker 2: back against hawkish commentary from the FMC and Wall Street
Speaker 2: now pricing in better than fifty percent odds the Fed
Speaker 2: will cut race in December. FED Governor Stephen Marram was
Speaker 2: the loan to sent for a fifty basis point raid
Speaker 2: cut at last month FMC meeting, and Governor Maron joins
Speaker 2: us now for more.
Speaker 1: Governor Maron, good.
Speaker 2: Morning, Good morning once again, thanks for being here, Thanks
Speaker 2: for having me back. We've got to start with the
Speaker 2: labor market. Your reflections on what we saw yesterday. Does
Speaker 2: it lean one way or the other?
Speaker 3: Yeah, I mean I think the implications of yesterday were
Speaker 3: obviously dubvish, and if anyone was on the fence, I
Speaker 3: would hope that this would move them in the direction
Speaker 3: of cutting. I mean, you saw the unemployment rate edged
Speaker 3: up a bit. You know, you saw some other indicators
Speaker 3: like an increase in permanent layoffs. You know, those are
Speaker 3: indications that the labor market has been affected by restrictive
Speaker 3: FED policy. And given the outlook for inflation, there's not
Speaker 3: really much of a need to be as restrictive as
Speaker 3: we are, and.
Speaker 1: Yet on the committee we have pushedback.
Speaker 2: Maybe after that, FED Governor Michael Bach had this to say,
Speaker 2: I'm concerned that we're seeing inflation still around three percent.
Speaker 2: Inflation's closer to three that it is to two. What
Speaker 2: do you make of that argument? How percisive is it?
Speaker 4: It's not persuasive to me. And I'll tell you why.
Speaker 3: All of the inflation excess, sorry, almost all of the
Speaker 3: inflation excess is a mirage. It's not indicative of supplied
Speaker 3: demand in balances. And so, for example, if you look
Speaker 3: at the housing market, right, market rents have been running
Speaker 3: at about one percent for a couple of years. Measured
Speaker 3: inflation in the index is actually much higher than that
Speaker 3: because it takes a really long time for the index
Speaker 3: to converge down.
Speaker 4: To where market rents are.
Speaker 3: That's a statistical artifact, right, That's an artifact of the
Speaker 3: statistical measurement process. It's indicative of a supplied demand in
Speaker 3: balance that was there in twenty twenty two, twenty twenty three.
Speaker 3: Monterre policy works with lags. It has to be set
Speaker 3: now for twenty twenty seven. So when you look at
Speaker 3: the housing data, right, you see market rents running about
Speaker 3: one percent for a couple of years. There's no supply
Speaker 3: demand in balance there. We should not be setting policy
Speaker 3: for twenty twenty seven based on a supply demand in
Speaker 3: balance that existed in twenty twenty two or twenty twenty three.
Speaker 4: That doesn't make any sense.
Speaker 3: There's other things too, like portfolio management services which confuse
Speaker 3: quantities for prices. This stuff is all well known. If
Speaker 3: you look at market based measures of inflation, they're much
Speaker 3: closer too than they are to three. So I think
Speaker 3: that the excess the overage is a mirage, and it's
Speaker 3: a mistake to ask people to lose their jobs because
Speaker 3: of course of the statistical measurement process.
Speaker 2: And you've got to put out new forecasts on December
Speaker 2: tenth as well, which is going to be complicated by
Speaker 2: the fact we've had limited data more recently. How relevant
Speaker 2: do you think the Canida actually is, because I'll I'll
Speaker 2: offer you the perspective on more straight At the moment,
Speaker 2: it goes something like this. The meeting's on the tenth,
Speaker 2: you don't get the dates fro until the sixteenth. The
Speaker 2: Fed's kind of constrained by that. They can't do anything
Speaker 2: what's your perspective on that.
Speaker 3: Yeah, so, as I said moment ago, monter policy works
Speaker 3: with lags. It'ld be much easier if it hit the
Speaker 3: economy immediately, but it doesn't. It works with lags, So
Speaker 3: you have to set policy based on the forecast. So
Speaker 3: the data matter insofar as they affect your forecast. It
Speaker 3: doesn't make sense to be setting policy for where the
Speaker 3: economy was three or six months ago. We should be
Speaker 3: setting policy based for where the economy is going to
Speaker 3: be twelve to eighteen months from now. And so if
Speaker 3: we have data, it gives us the ability to update
Speaker 3: our four K. But the lack of data doesn't mean
Speaker 3: that we don't have a forecast. We did have a forecast.
Speaker 3: It all gives us as opportunities to falsify a forecast.
Speaker 3: And there hasn't been anything in the data in the news,
Speaker 3: in media stories, in private sector data, alternative data that's
Speaker 3: available to us that would make us think that the
Speaker 3: forecast has somehow nullified. And there's been a big shock
Speaker 3: to it. So, if anything, all the information that we've
Speaker 3: gotten in the interim since September FMC has inclined to
Speaker 3: the Duvish side. You know, we got weaker inflation than
Speaker 3: people expected, and we got a higher unemployment rate than
Speaker 3: folks were expecting. So all of that information should push
Speaker 3: one in the Duvish direction.
Speaker 5: But there are still FED officials that are looking for
Speaker 5: more data, and they have said they're data dependent. They
Speaker 5: want that insurance that they're cutting right now and it's
Speaker 5: the right time. Potentially the unemployment rate might be moving
Speaker 5: up to four point five percent on December sixteenth. Would
Speaker 5: you be in favor of just moving the meeting if
Speaker 5: it meant others felt more reassured to cut interest rates
Speaker 5: in December?
Speaker 3: So you know, I haven't really thought about that, and
Speaker 3: it's not a conversation that It's not a conversation that
Speaker 3: I've been part of. I mean, I agree the meeting dates,
Speaker 3: see the meeting dates seem kind of arbitrary, But at
Speaker 3: the same time, there's a lot of there's a lot
Speaker 3: of stuff that gets done as a result of those
Speaker 3: meeting dates, and you know, people have investments and contracts
Speaker 3: and other decisions that are tied to the timing of
Speaker 3: the meeting date, and I don't know to what extent
Speaker 3: moving those dates would be disruptive for all that. So
Speaker 3: it's something that I'm not sure about. But this ultimately
Speaker 3: comes down to the question of data dependence. Is what
Speaker 3: you do when you don't have a forecast or when
Speaker 3: you don't have any confidence in your forecast. Right, we
Speaker 3: should be forecast dependent, not data dependent. Being excessively data
Speaker 3: dependent is to be too backward looking. And if you're
Speaker 3: too backward looking, you necessarily are going to have the
Speaker 3: wrong policies.
Speaker 5: Neil Daughter rights and he says, the only question that
Speaker 5: matters for you is will you descend for fifty if
Speaker 5: you believe it means not being able to push through
Speaker 5: a twenty five basis point cut.
Speaker 4: Yeah, so absolutely not.
Speaker 3: I would absolutely vote for for a twenty five basis
Speaker 3: point cut if I vote were the marginal vote, There's
Speaker 3: no question about that.
Speaker 4: You know.
Speaker 3: To do other wise would be to cause real harm
Speaker 3: to the economy for purposes of vanity.
Speaker 4: And that's not who I am.
Speaker 6: Going into next year talking about the forecast of what's
Speaker 6: going to happen. A lot of economists to come on
Speaker 6: the show expect a reacceleration on the backs of the
Speaker 6: tax refunds and some of the other stimulative measures that
Speaker 6: could come early next year. How do you factor that
Speaker 6: into your forecast for ongoing weakness in the labor market
Speaker 6: and the consumer.
Speaker 3: Yeah, so I think that, you know, I have not
Speaker 3: been a what I would think of as excessively pessimistic
Speaker 3: on the economy. I do think policy is restrictive, and
Speaker 3: I do think that it's too restrictive, and we don't
Speaker 3: need to be And the longer we remain restrictive, the
Speaker 3: greater the chances that we are the source of an
Speaker 3: economic downturn, which we should not seek to be.
Speaker 4: I think that.
Speaker 3: Many of the many of the factors that will be
Speaker 3: kicking in over the next twelve months that might be
Speaker 3: supportive of GDP growth are things that miss is. They
Speaker 3: really don't have hawks implications for Monterey policy because they
Speaker 3: affect the supply side. And when you think about things
Speaker 3: like relaxing regulations, and I think that that has been
Speaker 3: going on at actually an impressive pace, these are things
Speaker 3: that push out the supply side of the economy and
Speaker 3: therefore don't necessarily create a demand excess of supply. Right,
Speaker 3: Montere policy should be tight if demands is too much
Speaker 3: an excess of supply, and if you push out the
Speaker 3: supply side of the economy, then that's not something you
Speaker 3: worry about.
Speaker 6: There's a duration mismatch here though, the idea that if
Speaker 6: you reduce regulations and you allow people to build supply,
Speaker 6: that it takes a longer time than say, if you
Speaker 6: give people two thousand dollars checks right up front that
Speaker 6: they can spend immediately, or if they get a rebate
Speaker 6: that's a lot bigger from their tax from the tax filings.
Speaker 6: How do you factor in that timing mismatch? Would you
Speaker 6: look through any bump up in inflation next year from
Speaker 6: both stimulative measures as well as a price increases that
Speaker 6: we're hearing from a lot of retailers that they're going
Speaker 6: to pass along.
Speaker 3: So you know, I wouldn't look through I wouldn't look
Speaker 3: through bumps from uh from from checks like.
Speaker 4: That, right, you know, I don't think that. I don't
Speaker 4: think that you'd be able to.
Speaker 3: However, a policy like that has been hasn't been formalized,
Speaker 3: it hasn't been introduced, We don't know the parameters of it.
Speaker 3: It's too early to sort of think about basing a
Speaker 3: forecast on something like that. What we do know is
Speaker 3: that the is that the labor market data have been
Speaker 3: coming in not as strong as we'd like them to
Speaker 3: be in that policy is too restrictive.
Speaker 2: Governor, if we can stay on inflation. Do you know
Speaker 2: when we're going to get some inflation data? When are
Speaker 2: we going to get that? Because we've heard about the
Speaker 2: payroll schedule. I haven't really heard anything about the CPI schedule.
Speaker 2: You've got any indication whatsoever when it's coming.
Speaker 3: Yeah, the BLS put it out on its website this week.
Speaker 3: I think that we're not going to get the November
Speaker 3: CPI data until after the next FMC, so we've got
Speaker 3: to wait for that too. We've got we've got to
Speaker 3: waste that.
Speaker 1: Do you see that, Lisa, Yes, I did.
Speaker 6: I saw that we have to wait and it's not
Speaker 6: clear exactly when we're going to get it, but there's
Speaker 6: a real question going forward about when we might get.
Speaker 1: We don't have the DACE ship, but we don't have.
Speaker 4: The data are on the website.
Speaker 3: Yeah, the BLS has a has a as a list
Speaker 3: of the release dates on.
Speaker 1: The payrolls one. But I've missed the CPI one.
Speaker 2: Which doesn't that just make it an even stronger case
Speaker 2: just to wait and have this meeting when we've got
Speaker 2: all this data.
Speaker 1: Why is it that we have to wait so much
Speaker 1: long before at governor.
Speaker 4: Wait for the data.
Speaker 3: Yes, well, because the government shutdown introduced a whole number
Speaker 3: of snags into the data collection process, and so that
Speaker 3: those snags mean extra time to collect the data, extra
Speaker 3: time to process the data. People have a log gym
Speaker 3: of work to get back to. I mean, we just
Speaker 3: you know, sort of spent several years talking about talking
Speaker 3: about bullwhips from supply chains, right and you know, gets
Speaker 3: pulled in at once. And when you have a government shutdown,
Speaker 3: all the government employees aren't working and they come back
Speaker 3: to work and they've got a ton of work to do,
Speaker 3: all at once. And so you know, we have those
Speaker 3: those bullwhips in government data right now. And you know,
Speaker 3: if that were a market, you'd see some inflation in
Speaker 3: the price of data.
Speaker 4: But it's not a market.
Speaker 2: So give me for coming out with the hawkish hits.
Speaker 2: But we got another one in the last twenty four
Speaker 2: hours two and it came from Beth Hammock laring interest
Speaker 2: rights to support the labor market risk prolonging this period
Speaker 2: of elevated inflation, and it could also encourage risk taking
Speaker 2: and financial markets. Can we finish on that last point,
Speaker 2: risk taking and financial markets. How excessive is it and
Speaker 2: should it be on the ritar of the f WEBC sure.
Speaker 3: So, first of all, as I said before, the excess
Speaker 3: of inflation is a quirk of the statistical process. And
Speaker 3: it is a mistake to ask people to lose their
Speaker 3: jobs as a result of a quirk of the satistical
Speaker 3: process on financial markets. You know, Look, I think that
Speaker 3: lots of things affect financial markets. Tax policy does, regulation
Speaker 3: does technology like artificial intelligence does. It's a mistake to
Speaker 3: conflate the stance of the status of financial markets with
Speaker 3: the status of montary policy. Right, even when you look
Speaker 3: at us something as a financial market as deeply connected
Speaker 3: to mantary policy, like interest rates, We've lived through periods
Speaker 3: of conundrums, right, We're passing through of the Fed funds
Speaker 3: rate into longer term interest rates was confusing to people.
Speaker 3: So it's just a mistake to do a one for
Speaker 3: one mapping of these things. And I think that when
Speaker 3: you look at financial conditions, the financial condition that matters
Speaker 3: most for the real economy is and remain, has been
Speaker 3: and remains housing, right, And this this is an area
Speaker 3: where financial conditions are not tight, so are not loose.
Speaker 3: This is an area where financial conditions are still quite
Speaker 3: tight going out getting a mortgage. You know, this is
Speaker 3: not something that's not a financial condition that I would
Speaker 3: consider to be excessively easy. And so I think it's
Speaker 3: a mistake. And I think it's also a mistake, as
Speaker 3: I said before, to ask people to experience job losses
Speaker 3: because you think the stock market is too high. I
Speaker 3: don't know what the right level for the stock market is,
Speaker 3: and I think that it's a very challenging question to
Speaker 3: be able to answer credibly.
Speaker 4: And to say that we need to create job.
Speaker 3: Losses in order to sort of restore the stock market
Speaker 3: to some level that we think is more reflective of
Speaker 3: fair value is just not a policy view that I hold.
Speaker 6: A lot of people have come on this show and
Speaker 6: said that right now the FED is stuck between a
Speaker 6: conundrum of the K shaped economy where you have people
Speaker 6: at the upper end who are doing just fine and
Speaker 6: are supporting consumption, and people on the lower end who
Speaker 6: are experiencing lack of wage gains and they're experiencing those
Speaker 6: job losses more significantly. How concerned are you about sort
Speaker 6: of your dual roles of trying to help prop up
Speaker 6: and prevent some of those job losses from really escalating,
Speaker 6: while at the same time, potentially cutting rates would exacerbate
Speaker 6: that case shape, and you only exacerbate what you're seeing
Speaker 6: with respect to the wealth divide.
Speaker 3: So Congress didn't task us with addressing all social problems
Speaker 3: in the world, in equality one of them. They tasked
Speaker 3: us with tackling aggregate maximum employment and stable prices. And
Speaker 3: so therefore the right policy to take is to stabilize
Speaker 3: employment and prices, and that's the policy.
Speaker 4: That's the policy that I support.
Speaker 3: I do think though, while discussing the subject of inequality,
Speaker 3: it would be much worse for the people at the
Speaker 3: lower end of the income distribution if the unemployment rate
Speaker 3: continued to go up as a result of our policies.
Speaker 4: That's not something that they.
Speaker 3: Would be that they would welcome, and it's not something
Speaker 3: that I would welcome either.
Speaker 5: Governor arts with the President this week and you have
Speaker 5: an office and I asked them about the FED interviews.
Speaker 4: It says lots of names.
Speaker 5: We may go the standard way quote, it's nice every
Speaker 5: once in a while to go politically correct. Out of
Speaker 5: the names that we know that are being interviewed, who
Speaker 5: is politically correct?
Speaker 4: You know? I don't really know the n work.
Speaker 5: You worked for the president, so you understand how his
Speaker 5: mine works. Do you think it means someone that is
Speaker 5: currently on the board, like a Governor Waller or someone
Speaker 5: that's very close to him in your former colleague Kevin
Speaker 5: has it.
Speaker 3: Yeah, So I mean it should be pretty clear that
Speaker 3: I just always say what's on my mind, and therefore
Speaker 3: I don't even know what politically correct is. So I
Speaker 3: don't even know how to begin addressing that, you know,
Speaker 3: but look, don't I don't make being.
Speaker 5: Too politically correct right now?
Speaker 3: Actually am I've never been accused of that before, so hey,
Speaker 3: you know, I'm happy to have it first.
Speaker 2: Govin a very diplomatic it's going to see you, thanks
Speaker 2: for dropping by, Thanks for having me, Thank you, sir,
Speaker 2: Thank you very much.
Speaker 1: The fact Govin is Stephen Myron