1 00:00:00,080 --> 00:00:03,320 Speaker 1: I want to welcome now to our special Bloomberg Radio 2 00:00:03,400 --> 00:00:07,360 Speaker 1: broadcast are Bloomberg Television audience. I'm live today the Federal 3 00:00:07,360 --> 00:00:11,000 Speaker 1: Reserve Bank of Cleveland with the Cleveland Fed Bank President 4 00:00:11,080 --> 00:00:14,560 Speaker 1: Loretta Mester to thank you for inviting us here. Thanks 5 00:00:14,600 --> 00:00:16,720 Speaker 1: for coming. It's exciting for us. Well, it's exciting to 6 00:00:16,760 --> 00:00:18,279 Speaker 1: be here with you because you know what you just 7 00:00:18,440 --> 00:00:20,760 Speaker 1: sent it a couple of weeks ago to Federal Reserve meeting, 8 00:00:21,040 --> 00:00:23,200 Speaker 1: first time you've done this since you joined the f 9 00:00:23,280 --> 00:00:26,599 Speaker 1: O m c UH. You are looking at an economy 10 00:00:26,600 --> 00:00:29,040 Speaker 1: that's performing well, and you say the outlook is that 11 00:00:29,080 --> 00:00:31,400 Speaker 1: it will continue to perform well. But what's the urgency 12 00:00:31,520 --> 00:00:35,160 Speaker 1: why descent? Is the economy overheating? Well, it's not overheating. 13 00:00:35,159 --> 00:00:37,239 Speaker 1: And I don't think we're behind the curve yet, but 14 00:00:37,400 --> 00:00:40,360 Speaker 1: I thought there was a very compelling case for taking 15 00:00:40,360 --> 00:00:43,239 Speaker 1: another gradual step up on the path. As you know 16 00:00:43,360 --> 00:00:47,519 Speaker 1: from the Summary of economic projections, the modal path and 17 00:00:47,560 --> 00:00:50,959 Speaker 1: the or the median path across participants is a gradual 18 00:00:51,000 --> 00:00:53,639 Speaker 1: path op. We've made a lot of progress, I think, 19 00:00:53,640 --> 00:00:56,200 Speaker 1: on both parts of our dual mandate goals. In terms 20 00:00:56,240 --> 00:00:58,840 Speaker 1: of labor markets, you know we've We've seen a hundred 21 00:00:58,840 --> 00:01:02,760 Speaker 1: and eighty thousand jobs added per month this year on average, 22 00:01:03,320 --> 00:01:06,120 Speaker 1: which is a pretty good pace, especially after last year's 23 00:01:06,160 --> 00:01:08,800 Speaker 1: pace and previous year. So we're doing well on the 24 00:01:08,880 --> 00:01:12,039 Speaker 1: labor front. Inflation still still below our two percent goal, 25 00:01:12,120 --> 00:01:15,040 Speaker 1: but again, you know, it's moved up over the past year, 26 00:01:15,080 --> 00:01:18,600 Speaker 1: and monetary policy has to be forward looking. So you know, 27 00:01:18,640 --> 00:01:20,960 Speaker 1: my my view, there was a compelling case for moving 28 00:01:20,959 --> 00:01:23,760 Speaker 1: the rate up gradually, um taking another step on that 29 00:01:23,800 --> 00:01:27,040 Speaker 1: gradual path. And you know there's some you know, people 30 00:01:27,040 --> 00:01:29,479 Speaker 1: who think like, oh, you want to curtail the expansion. 31 00:01:29,520 --> 00:01:31,880 Speaker 1: Not at all. Right. The reason I think it was 32 00:01:31,920 --> 00:01:35,080 Speaker 1: appropriate to move the rate up by twenty five basis 33 00:01:35,120 --> 00:01:38,720 Speaker 1: points is that we want we want the sustainable expansion, 34 00:01:38,760 --> 00:01:41,280 Speaker 1: and I think moving rates up is consistent with that. 35 00:01:41,760 --> 00:01:44,240 Speaker 1: Last week, the numbers on consumers spending were weak enough 36 00:01:44,720 --> 00:01:48,800 Speaker 1: that the Atlanta Fed cut its GDP tracker down to 37 00:01:48,800 --> 00:01:51,040 Speaker 1: two point four percent. It had been up as sighs 38 00:01:51,120 --> 00:01:54,720 Speaker 1: three point eight percent. You know, the first half the 39 00:01:54,760 --> 00:01:58,840 Speaker 1: GDP barely grew over one percent. Does that make you 40 00:01:59,400 --> 00:02:02,680 Speaker 1: just think it isn't Maybe the weight could be a 41 00:02:02,720 --> 00:02:05,200 Speaker 1: little bit longer. There there's a risk of hitting the 42 00:02:05,240 --> 00:02:07,080 Speaker 1: economy with the rate hike when it's really not all 43 00:02:07,080 --> 00:02:09,679 Speaker 1: that strong yet. Well, you're right, the first half of 44 00:02:09,720 --> 00:02:12,920 Speaker 1: the year growth was around one percent UM. I still 45 00:02:12,960 --> 00:02:15,320 Speaker 1: think we're going to see a rebound in the second half. Yeah, 46 00:02:15,400 --> 00:02:18,440 Speaker 1: around two two to three percent in the second half, 47 00:02:18,480 --> 00:02:21,200 Speaker 1: which about two percent for the year. And my view 48 00:02:21,240 --> 00:02:23,600 Speaker 1: is that we're going to be growing about two little 49 00:02:23,600 --> 00:02:26,960 Speaker 1: bit over trend um over the next two years UM. 50 00:02:27,000 --> 00:02:29,160 Speaker 1: That'll be strong enough to put some downward pressure on 51 00:02:29,200 --> 00:02:31,359 Speaker 1: the unemployment rate. I expected to go down from where 52 00:02:31,480 --> 00:02:34,239 Speaker 1: the current level. And I believe that, you know, the 53 00:02:34,480 --> 00:02:38,160 Speaker 1: the day is in place for inflation to move gradually 54 00:02:38,160 --> 00:02:41,520 Speaker 1: back to two UM. And my view inflation expectations are 55 00:02:41,520 --> 00:02:45,000 Speaker 1: reasonably you know, well anchored. We've seen inflation move up 56 00:02:45,040 --> 00:02:48,040 Speaker 1: over the past year, and I think the economic conditions 57 00:02:48,040 --> 00:02:50,000 Speaker 1: are such that we're going to be, you know, going 58 00:02:50,000 --> 00:02:52,560 Speaker 1: gradually back to our two percent coals. So again we 59 00:02:52,639 --> 00:02:54,560 Speaker 1: have to be a little pre emptive and sort of 60 00:02:54,600 --> 00:02:58,400 Speaker 1: making sure that we're moving the interest right up UM 61 00:02:58,480 --> 00:03:02,240 Speaker 1: so that we can keep the the expansion sustained. So 62 00:03:02,680 --> 00:03:04,880 Speaker 1: but still, when I think of the urgency to hike, 63 00:03:04,960 --> 00:03:09,000 Speaker 1: now many FED officials or some I could try to 64 00:03:09,000 --> 00:03:10,400 Speaker 1: think of how the f hom C would say a 65 00:03:10,480 --> 00:03:14,000 Speaker 1: few some several, but a lot of economists and many 66 00:03:14,000 --> 00:03:16,440 Speaker 1: people of race the issue, but inflation is undershot for 67 00:03:16,480 --> 00:03:19,320 Speaker 1: so long. Again, what's the urgency is? Would it not 68 00:03:19,400 --> 00:03:22,960 Speaker 1: only be okay, but would be a good idea to 69 00:03:23,080 --> 00:03:25,320 Speaker 1: let inflation get up to two percent and let it 70 00:03:25,360 --> 00:03:28,760 Speaker 1: overshoot the forecast? And you too say not till were 71 00:03:28,760 --> 00:03:30,919 Speaker 1: going to see a two percent inflation rate. Look, I mean, 72 00:03:31,000 --> 00:03:34,160 Speaker 1: I think we've learned over history that the FED should 73 00:03:34,160 --> 00:03:37,440 Speaker 1: be looking ahead and not just waiting. I want to 74 00:03:37,440 --> 00:03:40,960 Speaker 1: be consistent with our communications and our summary econ on 75 00:03:41,040 --> 00:03:44,240 Speaker 1: projections that basically they say a gradual path is appropriate. 76 00:03:44,760 --> 00:03:47,520 Speaker 1: I think if we wait until you know, some people 77 00:03:47,520 --> 00:03:50,040 Speaker 1: say wait until you see the inflation get back to 78 00:03:50,120 --> 00:03:53,240 Speaker 1: your goal. Um, then there's a higher potential that we're 79 00:03:53,240 --> 00:03:55,680 Speaker 1: gonna have to raise interest rates on a steeper path. 80 00:03:56,320 --> 00:03:58,960 Speaker 1: And in the past, when people when when FED and 81 00:03:59,000 --> 00:04:01,400 Speaker 1: other policy nations have on that in other central banks, 82 00:04:01,440 --> 00:04:03,200 Speaker 1: it really doesn't turn out to be a good outcome. 83 00:04:03,280 --> 00:04:06,960 Speaker 1: So again, my preference would be moved rights up gradually. 84 00:04:07,400 --> 00:04:09,119 Speaker 1: You know, the gradual path. If you look at what's 85 00:04:09,120 --> 00:04:11,400 Speaker 1: in the SEPs and of course that's the assessment today 86 00:04:11,400 --> 00:04:14,440 Speaker 1: about what what we think is appropriate. It doesn't mean 87 00:04:14,440 --> 00:04:16,960 Speaker 1: moving rates up every meeting, right, it's it really is 88 00:04:16,960 --> 00:04:21,320 Speaker 1: a gradual path, and you know, policy will remain accommodative 89 00:04:21,400 --> 00:04:24,120 Speaker 1: even if we take another step on the gradual path. Okay, 90 00:04:24,160 --> 00:04:26,680 Speaker 1: So the FED has been telling us repeatedly that all 91 00:04:26,760 --> 00:04:30,680 Speaker 1: meetings are live, there's potential for a policy policy change. 92 00:04:31,160 --> 00:04:36,520 Speaker 1: Um you argued for hiking rates in September, The FED 93 00:04:36,640 --> 00:04:39,120 Speaker 1: chair said, recently the cases strengthened for a rate hike 94 00:04:39,720 --> 00:04:42,440 Speaker 1: if the data stay strong. It seems like the economies 95 00:04:42,480 --> 00:04:45,960 Speaker 1: on even a better footing for November rate hike. If 96 00:04:46,000 --> 00:04:48,320 Speaker 1: the outlook doesn't change, if the reports come in strong, 97 00:04:48,360 --> 00:04:50,279 Speaker 1: are you going to argue for a rate hike in November? 98 00:04:50,320 --> 00:04:52,360 Speaker 1: So I think all meetings are live, and I would 99 00:04:52,400 --> 00:04:55,760 Speaker 1: include November in that all meetings are live. Um As 100 00:04:55,800 --> 00:04:58,160 Speaker 1: I said in September, I thought the case was compelling 101 00:04:58,200 --> 00:05:01,360 Speaker 1: to take another another step on the gradual path. If 102 00:05:01,360 --> 00:05:04,640 Speaker 1: the data come in um as we anticipate, you know, 103 00:05:04,680 --> 00:05:08,320 Speaker 1: consistent with my forecast over the meeting run, then I 104 00:05:08,320 --> 00:05:11,719 Speaker 1: would expect, you know, to that the case would remain compelling. 105 00:05:11,720 --> 00:05:13,120 Speaker 1: But of course We're going to look at all the 106 00:05:13,200 --> 00:05:16,679 Speaker 1: data that comes in between now and November, between November 107 00:05:16,720 --> 00:05:18,320 Speaker 1: and December, as we do all the time as we 108 00:05:18,520 --> 00:05:20,719 Speaker 1: step through meetings. We'd like to look at all the 109 00:05:20,760 --> 00:05:23,839 Speaker 1: incoming information. But you're right, if the data comes in 110 00:05:24,000 --> 00:05:28,080 Speaker 1: as consistent with what we've been seeing, then yes, I 111 00:05:28,120 --> 00:05:30,440 Speaker 1: would think that it would still remain of compelling, and 112 00:05:30,480 --> 00:05:32,120 Speaker 1: you would you would vote for a rate hike. Well, 113 00:05:32,279 --> 00:05:34,279 Speaker 1: I we'll see when we get to the meeting, but again, 114 00:05:34,400 --> 00:05:37,840 Speaker 1: the case would be compelling. Uh, it is a few 115 00:05:37,880 --> 00:05:40,880 Speaker 1: days before an election, and the FED says it's not political. 116 00:05:41,240 --> 00:05:43,600 Speaker 1: I'm a long time FED watcher. I've seen moves right 117 00:05:43,640 --> 00:05:46,720 Speaker 1: before elections. I believe it. But it would certainly raise 118 00:05:46,760 --> 00:05:49,560 Speaker 1: a lot of attention. The markets would notice, are the 119 00:05:49,680 --> 00:05:52,240 Speaker 1: rules for a rate hike in November, especially this year 120 00:05:52,640 --> 00:05:55,760 Speaker 1: any different? Does the hurdle for the rate hike get 121 00:05:55,760 --> 00:05:58,599 Speaker 1: a little bit higher? November said? You said it yourself. 122 00:05:58,760 --> 00:06:01,880 Speaker 1: We are in a political institution. We have been in 123 00:06:01,920 --> 00:06:05,320 Speaker 1: a political institution all along. We're designed to be have 124 00:06:05,400 --> 00:06:08,800 Speaker 1: an independent monetary policy. I can tell you I've been 125 00:06:08,800 --> 00:06:12,000 Speaker 1: going to FOMC meetings since I became research director at 126 00:06:12,000 --> 00:06:15,040 Speaker 1: the Philly Fed, so over the past sixteen years. I've 127 00:06:15,040 --> 00:06:17,880 Speaker 1: been in the FED thirty years. Yes, we are in 128 00:06:17,960 --> 00:06:21,080 Speaker 1: a political institution. We don't Politics do not come into 129 00:06:21,080 --> 00:06:23,760 Speaker 1: our decisions. We look at the economy, we do our 130 00:06:23,760 --> 00:06:26,800 Speaker 1: best to evaluate it relative to our dual mandate goals, 131 00:06:26,920 --> 00:06:30,040 Speaker 1: and we set policy based on the economic outlook. So 132 00:06:30,080 --> 00:06:32,320 Speaker 1: you'll push and you think other FOMC members will vote 133 00:06:32,320 --> 00:06:35,039 Speaker 1: for a rate hike if called for even six days 134 00:06:35,040 --> 00:06:37,880 Speaker 1: before an election. I think we're a political Politics doesn't 135 00:06:37,880 --> 00:06:41,160 Speaker 1: come into it. President Bill Dudley said today the FED 136 00:06:41,600 --> 00:06:44,880 Speaker 1: should be cautious raising rates, especially at the time when 137 00:06:44,920 --> 00:06:47,800 Speaker 1: the key rate is so low, so close to zero. 138 00:06:48,240 --> 00:06:50,600 Speaker 1: If there's recession, the Fed doesn't have much room to 139 00:06:50,640 --> 00:06:52,479 Speaker 1: find it. And he built Uley's not the only person 140 00:06:52,560 --> 00:06:54,520 Speaker 1: making that argument. How do you respond with it, because 141 00:06:54,520 --> 00:06:56,760 Speaker 1: its pretty clear you don't share that view. Right again, 142 00:06:56,920 --> 00:07:01,880 Speaker 1: I'm basing it one monetary policy, well standardized you know, 143 00:07:01,920 --> 00:07:04,440 Speaker 1: ways of doing policy. I view the economy and I 144 00:07:04,480 --> 00:07:06,480 Speaker 1: look at our goals. We've made progress on both the 145 00:07:06,520 --> 00:07:09,640 Speaker 1: employment part of our mandate and on the inflation part 146 00:07:09,640 --> 00:07:12,000 Speaker 1: of our mandate, and to me, bringing the rate up 147 00:07:12,040 --> 00:07:15,480 Speaker 1: a little bit is appropriate. Yes, of course, we always 148 00:07:15,480 --> 00:07:18,400 Speaker 1: have to think about the risk um going forward. But 149 00:07:18,480 --> 00:07:21,640 Speaker 1: again I think it's a compelling case taking another little 150 00:07:21,680 --> 00:07:24,760 Speaker 1: step on our gradual path, which the participants of the 151 00:07:24,840 --> 00:07:27,920 Speaker 1: on the FOMC continue to see as the appropriate path. 152 00:07:29,040 --> 00:07:30,880 Speaker 1: Another person I want to site as a fellow FED 153 00:07:30,920 --> 00:07:35,640 Speaker 1: bank president, another monetary theory expert on the FED, Jim 154 00:07:35,680 --> 00:07:38,120 Speaker 1: Bullard of St. Louis, because he said on Friday the 155 00:07:38,160 --> 00:07:41,240 Speaker 1: December is his base case for a rate hike this 156 00:07:41,320 --> 00:07:44,920 Speaker 1: year because a lot of members want to raise the 157 00:07:45,000 --> 00:07:46,520 Speaker 1: key rate by the end of the year. Let's see, 158 00:07:46,520 --> 00:07:50,320 Speaker 1: doesn't happen in November. Should markets be all but convinced 159 00:07:51,000 --> 00:07:53,800 Speaker 1: that it will happen in December if it's even Jim 160 00:07:53,800 --> 00:07:56,160 Speaker 1: Bullard's base case? Now, yeah, So I think that I 161 00:07:56,160 --> 00:07:58,280 Speaker 1: don't like to look at it in terms of calendar gear. 162 00:07:58,360 --> 00:08:00,040 Speaker 1: I looked to look at it in terms of of 163 00:08:00,160 --> 00:08:04,440 Speaker 1: sort of the appropriate path. So you're right, doesn't doesn't 164 00:08:04,440 --> 00:08:07,280 Speaker 1: happen in December November? I mean, and that and sent sons, 165 00:08:07,320 --> 00:08:11,200 Speaker 1: that's less important than is the economic outlook consistent with 166 00:08:11,240 --> 00:08:14,000 Speaker 1: a gradual increase in the in the level of the 167 00:08:14,000 --> 00:08:17,240 Speaker 1: interest rate. And each meeting is a liar. You know 168 00:08:17,280 --> 00:08:20,640 Speaker 1: you mentioned the the steps the Summary of Economic Prevention 169 00:08:20,760 --> 00:08:24,400 Speaker 1: Projections that includes the dot plots. Of course, each member 170 00:08:24,440 --> 00:08:26,120 Speaker 1: gives their idea of based on their view of the 171 00:08:26,160 --> 00:08:30,280 Speaker 1: economy where the interest rates are going two hiks two 172 00:08:30,320 --> 00:08:35,280 Speaker 1: hikes in. Is is that a realistic path or does 173 00:08:35,320 --> 00:08:37,920 Speaker 1: the FOMC risk under delivering Again, I mean that's not 174 00:08:38,000 --> 00:08:40,320 Speaker 1: quite the same as promising four rate hikes at the 175 00:08:40,360 --> 00:08:44,080 Speaker 1: beginning of and ending maybe with one, but still okay, 176 00:08:44,160 --> 00:08:47,000 Speaker 1: So firstly, it's not a promise, that's true. I used 177 00:08:47,040 --> 00:08:49,520 Speaker 1: the wrong word. I shouldn't have used that. Basically, we 178 00:08:49,600 --> 00:08:51,480 Speaker 1: get to get you know, we sit down and each 179 00:08:51,600 --> 00:08:54,679 Speaker 1: participant decides what they think of the appropriate path of 180 00:08:54,720 --> 00:08:57,400 Speaker 1: policy has given what they see in the economy happening 181 00:08:57,400 --> 00:09:00,440 Speaker 1: and what their forecast is over the meeting run um, 182 00:09:00,480 --> 00:09:03,480 Speaker 1: and you know, we're we're all committed to hitting our 183 00:09:03,520 --> 00:09:06,679 Speaker 1: goals right and moving the economy in that direction. And 184 00:09:06,720 --> 00:09:09,160 Speaker 1: then we write down what we think the appropriate policy 185 00:09:09,160 --> 00:09:12,560 Speaker 1: path will be. If the economy involves differently than we expect, 186 00:09:12,600 --> 00:09:15,000 Speaker 1: then that path is going to be moving around and 187 00:09:15,080 --> 00:09:17,480 Speaker 1: so and if different shocks at the economy, then you'd 188 00:09:17,480 --> 00:09:20,520 Speaker 1: expect that path to to move around. So again it's 189 00:09:20,559 --> 00:09:22,360 Speaker 1: not a commitment to the path, but we want to 190 00:09:22,360 --> 00:09:25,199 Speaker 1: be as transparent as we can with the public about 191 00:09:25,240 --> 00:09:28,520 Speaker 1: where we are seeing the economy going and what policy 192 00:09:28,600 --> 00:09:31,720 Speaker 1: is associated with that. Semester we're just getting going, and 193 00:09:31,760 --> 00:09:33,800 Speaker 1: I'm so glad you've given me an hour here on 194 00:09:33,840 --> 00:09:35,880 Speaker 1: Bloomberg Radio to continue this conversation. I want to thank 195 00:09:35,920 --> 00:09:39,360 Speaker 1: our Bloomberg Television listeners for joining us. Will be continuing 196 00:09:39,400 --> 00:09:43,520 Speaker 1: this conversation with Loretta Mester, president of the Cleveland FED. 197 00:09:43,880 --> 00:09:50,440 Speaker 1: I'm Kathleen Hayes. This is Taking Stock with Pim Box 198 00:09:50,480 --> 00:09:55,760 Speaker 1: and Kathleen Hayes on Bloomberg Radio Very special show today. 199 00:09:55,800 --> 00:09:58,640 Speaker 1: We're broadcasting live today from the FED to Reserve Bank 200 00:09:58,800 --> 00:10:02,040 Speaker 1: of Cleveland. The Reddemester, president of Cleveland FED, is my 201 00:10:02,160 --> 00:10:04,000 Speaker 1: very special guest. Want to thank you again, Lort. It's 202 00:10:04,000 --> 00:10:06,160 Speaker 1: still great to be here in Cleveland at the bank. Yeah. 203 00:10:06,200 --> 00:10:07,840 Speaker 1: I'm glad that you were able to come to a 204 00:10:07,920 --> 00:10:10,800 Speaker 1: regional reserve bank to sort of see how we work 205 00:10:10,800 --> 00:10:13,720 Speaker 1: in the regional bank. Everyone focuses on the board of governors, 206 00:10:13,720 --> 00:10:15,920 Speaker 1: but this regional structure of the FED, I think is 207 00:10:16,040 --> 00:10:19,600 Speaker 1: very important. Since you brought that up, explain that because 208 00:10:20,080 --> 00:10:22,120 Speaker 1: from time to time in a political you're even not 209 00:10:22,160 --> 00:10:24,760 Speaker 1: in a particular it comes you're up, let's change the fit, 210 00:10:24,920 --> 00:10:27,440 Speaker 1: and somebody wants you a regional banks or someone wants 211 00:10:27,480 --> 00:10:32,200 Speaker 1: this explain to our listeners and your constituents, right, why 212 00:10:32,440 --> 00:10:34,559 Speaker 1: regional banks pay an important role and keep the Federal 213 00:10:34,600 --> 00:10:36,800 Speaker 1: Reserve doing a good job. Right. So the Federal Reserved 214 00:10:36,800 --> 00:10:41,160 Speaker 1: with design as an institution that sort of balances private 215 00:10:41,160 --> 00:10:44,000 Speaker 1: sector and public sector, right, it has. You know, there 216 00:10:44,080 --> 00:10:46,560 Speaker 1: was a concern about it being too concentrated on Wall 217 00:10:46,600 --> 00:10:50,360 Speaker 1: Street concerns. The FED, by the regional structure, really brings 218 00:10:50,440 --> 00:10:53,960 Speaker 1: main street concerns and views to the f MC meeting. 219 00:10:54,080 --> 00:10:57,160 Speaker 1: So each of the Reserve bank presidents, you know, monitor 220 00:10:57,200 --> 00:11:01,199 Speaker 1: their district. You had both Taught and David on before 221 00:11:01,559 --> 00:11:06,400 Speaker 1: umber and our Business Advisory Council, So they bring a 222 00:11:06,400 --> 00:11:10,040 Speaker 1: lot of regional information to us UM at the Cleveland FED, 223 00:11:10,080 --> 00:11:13,240 Speaker 1: and that regional information. I can't emphasize how much that's 224 00:11:13,280 --> 00:11:15,280 Speaker 1: important for us to get a handle on what's happening 225 00:11:15,559 --> 00:11:18,720 Speaker 1: in our regional economies and that actually we bring that 226 00:11:18,800 --> 00:11:20,360 Speaker 1: to d C. So I always make it a point 227 00:11:20,360 --> 00:11:23,280 Speaker 1: in FMC meanings to talk about what's happening in my region. 228 00:11:23,640 --> 00:11:25,960 Speaker 1: And of course the other presidents bring what's happening in 229 00:11:26,000 --> 00:11:28,559 Speaker 1: their region, we talk about it, and then we're making 230 00:11:28,600 --> 00:11:32,240 Speaker 1: monetary policy at the national levels. But that information is 231 00:11:32,320 --> 00:11:35,480 Speaker 1: very important, and the regional structure of the FED is 232 00:11:35,600 --> 00:11:38,400 Speaker 1: a way of bringing that information so that it can 233 00:11:38,440 --> 00:11:40,959 Speaker 1: affect national monetary apology. You have any sense, and you've 234 00:11:40,960 --> 00:11:42,319 Speaker 1: been with the FED for a long time, and you 235 00:11:42,440 --> 00:11:45,520 Speaker 1: like in monetary policy academically, your expertise you've been following, 236 00:11:45,679 --> 00:11:47,440 Speaker 1: do you have any sense that that the intent to 237 00:11:47,480 --> 00:11:49,760 Speaker 1: try to restructure the FIT or change the FED is 238 00:11:49,800 --> 00:11:52,360 Speaker 1: any more intense now than it has been. I think 239 00:11:52,400 --> 00:11:55,400 Speaker 1: that it's reasonable that to given we've been through very 240 00:11:55,400 --> 00:11:58,280 Speaker 1: hard economic times, that it's time. You know that they're 241 00:11:58,280 --> 00:11:59,480 Speaker 1: going to be a lot of people who want to 242 00:11:59,520 --> 00:12:01,880 Speaker 1: relook at things. But I want to point out to 243 00:12:01,960 --> 00:12:05,120 Speaker 1: people that you know, the FED structure has lasted for 244 00:12:05,240 --> 00:12:08,520 Speaker 1: over a hundred years, and we've had two attempts at 245 00:12:08,559 --> 00:12:12,240 Speaker 1: central banking before the Federal Reserve system, and neither one 246 00:12:12,320 --> 00:12:15,720 Speaker 1: lasted more than twenty years. So there is something very 247 00:12:15,760 --> 00:12:19,520 Speaker 1: good about this balance of the regional with d C 248 00:12:20,280 --> 00:12:23,160 Speaker 1: and you know, with the New York FED coming together 249 00:12:23,200 --> 00:12:25,480 Speaker 1: and making policy on behalf of the nation, and so 250 00:12:25,520 --> 00:12:26,800 Speaker 1: one of the good things we could say it again 251 00:12:26,840 --> 00:12:29,040 Speaker 1: one of things about regional FED bank presidents. They have 252 00:12:29,120 --> 00:12:32,560 Speaker 1: boards of directors and advisory council, so they're the regional economy. 253 00:12:32,720 --> 00:12:35,880 Speaker 1: So how do you respond then to people who feel 254 00:12:36,040 --> 00:12:38,560 Speaker 1: that the Fed is maybe not responsive enough to the 255 00:12:38,640 --> 00:12:41,480 Speaker 1: demands of labor. And within that context, I want to 256 00:12:41,480 --> 00:12:45,480 Speaker 1: mention that the Labor Market Conditions Index, which Janet Yellen 257 00:12:45,520 --> 00:12:47,559 Speaker 1: has praised, is such a good view of the labor 258 00:12:47,600 --> 00:12:49,800 Speaker 1: market has as some of a different view of the economy. 259 00:12:49,800 --> 00:12:53,000 Speaker 1: I would say than the low unemployment rate UH. It's 260 00:12:53,000 --> 00:12:55,840 Speaker 1: been below its post recession average of plus four every 261 00:12:55,880 --> 00:12:59,920 Speaker 1: month since January year did date average has been negative 262 00:13:00,240 --> 00:13:03,280 Speaker 1: out of UH seven eight seven seven out of eight 263 00:13:03,320 --> 00:13:05,760 Speaker 1: months this year. In the past, this has been a 264 00:13:05,840 --> 00:13:08,679 Speaker 1: precursor a signal of recession. Is that something the right 265 00:13:08,760 --> 00:13:11,440 Speaker 1: ms you and others who want to high rates now 266 00:13:11,640 --> 00:13:14,120 Speaker 1: need to pay closer attention to. We look at many, 267 00:13:14,160 --> 00:13:16,760 Speaker 1: many different statistics on the labor market. In fact, one 268 00:13:16,760 --> 00:13:20,040 Speaker 1: of the authors of that that index is actually here 269 00:13:20,040 --> 00:13:22,800 Speaker 1: at the Cleveland Fed UM, Bruce falc And so we 270 00:13:22,840 --> 00:13:24,520 Speaker 1: look at that, we look at a lot of other 271 00:13:24,559 --> 00:13:27,480 Speaker 1: indicators of the labor markets UM, and I think most 272 00:13:27,480 --> 00:13:30,560 Speaker 1: ecconists would agree that the labor markets are doing quite well. 273 00:13:30,600 --> 00:13:32,320 Speaker 1: In fact, it's one of the strengths of the economy. 274 00:13:32,440 --> 00:13:36,319 Speaker 1: That said, not everyone in the labor market is doing well, 275 00:13:36,559 --> 00:13:41,040 Speaker 1: and there are long term issues with labor workforce development 276 00:13:41,080 --> 00:13:44,560 Speaker 1: issues UM. I recently was in Hazard, Kentucky, part of 277 00:13:44,559 --> 00:13:48,040 Speaker 1: my district in Appalachia, and you know, there are people 278 00:13:48,120 --> 00:13:51,440 Speaker 1: hurting there because of the coal um industry. And you know, 279 00:13:51,480 --> 00:13:54,200 Speaker 1: I saw a program that's actually making you know, taking 280 00:13:54,559 --> 00:13:56,960 Speaker 1: you know, coal miners and they were in a course 281 00:13:57,040 --> 00:13:59,600 Speaker 1: to learn how to be electrical alignment and and firebrock 282 00:13:59,679 --> 00:14:02,520 Speaker 1: to line it. It's one small program, but I think, 283 00:14:02,679 --> 00:14:04,280 Speaker 1: you know, one of the roles of the FED and 284 00:14:04,320 --> 00:14:06,320 Speaker 1: one of the value adds we can do is study 285 00:14:06,720 --> 00:14:09,520 Speaker 1: how to scale those programs up. We have a community 286 00:14:09,600 --> 00:14:12,959 Speaker 1: development function here at the Cleveland FED that does first 287 00:14:13,080 --> 00:14:15,600 Speaker 1: rate work UM and looking at some of these issues 288 00:14:15,640 --> 00:14:19,960 Speaker 1: in terms of low and moderate income neighborhoods and what 289 00:14:20,120 --> 00:14:24,600 Speaker 1: kinds of programs can help transition right from certain industries 290 00:14:24,640 --> 00:14:27,800 Speaker 1: that are undiversified into more into the jobs that are 291 00:14:27,800 --> 00:14:29,560 Speaker 1: going to be in demand in the future. So again, 292 00:14:29,880 --> 00:14:32,720 Speaker 1: I think the FED can can help that conversation and 293 00:14:32,920 --> 00:14:37,520 Speaker 1: by providing our objective research on which programs work, which 294 00:14:37,520 --> 00:14:40,880 Speaker 1: programs don't work, which kinds of policies can the nation 295 00:14:41,560 --> 00:14:45,920 Speaker 1: UM rely on to actually help these transitional economies. That's 296 00:14:46,000 --> 00:14:48,600 Speaker 1: different than saying we should use monetary policy as a 297 00:14:48,680 --> 00:14:51,280 Speaker 1: tool to affect those longer run issues. Zeroing in on 298 00:14:51,320 --> 00:14:55,280 Speaker 1: the living recognitions index and the weakness we've seen that 299 00:14:55,400 --> 00:14:57,200 Speaker 1: you don't take that as a sign that maybe this 300 00:14:57,280 --> 00:14:59,840 Speaker 1: economy really doesn't need or is really not strong enough 301 00:14:59,880 --> 00:15:02,160 Speaker 1: to stand another industrate hyke, I don't. I think if 302 00:15:02,200 --> 00:15:04,760 Speaker 1: you look at across a number of statistics, the unemployment 303 00:15:04,880 --> 00:15:08,120 Speaker 1: rate is down, The other indicators of labor market health 304 00:15:08,440 --> 00:15:12,200 Speaker 1: have improved. UM, hiring rates are going up. You know, 305 00:15:12,240 --> 00:15:14,560 Speaker 1: if you look at the unemployment rates across race and 306 00:15:14,640 --> 00:15:19,360 Speaker 1: general gender, they've improved. They're not perfect, obviously, but again, 307 00:15:19,520 --> 00:15:23,640 Speaker 1: some of those differences reflect longer run issues that monetary 308 00:15:23,680 --> 00:15:26,800 Speaker 1: policy really isn't meant to address. So again, I think 309 00:15:26,800 --> 00:15:31,160 Speaker 1: if you look at the the job creation rates UM, 310 00:15:31,200 --> 00:15:33,440 Speaker 1: the number of jobs being created at a hundred and 311 00:15:33,520 --> 00:15:36,560 Speaker 1: eighty thousand per month on average this year, that's well 312 00:15:36,600 --> 00:15:40,680 Speaker 1: above the range um that most economists say would be 313 00:15:41,120 --> 00:15:43,720 Speaker 1: the steady state or the sustainable rate, and so I 314 00:15:43,760 --> 00:15:46,360 Speaker 1: think that's you know, to me, those are good numbers. 315 00:15:46,720 --> 00:15:49,000 Speaker 1: More with Lotermester, she's president of the Federals or of 316 00:15:49,000 --> 00:15:52,880 Speaker 1: Bank of Cleveland. Coming up here on taking Stock. This 317 00:15:53,080 --> 00:15:58,440 Speaker 1: is Bloomberg. You're listening to taking Stock with Kathleen Hayes 318 00:15:58,520 --> 00:16:03,600 Speaker 1: and Pim Fox on Bloomberg Radio, our very special show. Today, 319 00:16:03,640 --> 00:16:05,840 Speaker 1: we're live at the Fed of Reserve Bank of Cleveland 320 00:16:05,920 --> 00:16:09,720 Speaker 1: with Cleveland Fed President Loretta Mester. Loretta, I want to 321 00:16:09,960 --> 00:16:12,280 Speaker 1: follow up on some of the things we've been discussing. Actually, 322 00:16:12,280 --> 00:16:15,240 Speaker 1: I'm getting notes from listeners and others who are who 323 00:16:15,240 --> 00:16:19,400 Speaker 1: are hanging on your every word. And one question, how 324 00:16:19,480 --> 00:16:22,160 Speaker 1: deep right now is a split on the Federal Open 325 00:16:22,240 --> 00:16:27,400 Speaker 1: Market Committee, the FEDS policy making body. Three dissenters the 326 00:16:27,440 --> 00:16:30,800 Speaker 1: most people. I don't know if people realize in fact, 327 00:16:30,800 --> 00:16:33,120 Speaker 1: you don't people like you don't dissent lightly, it's a 328 00:16:33,120 --> 00:16:37,120 Speaker 1: big deal. Three people descended how deep is a split? Well, 329 00:16:37,480 --> 00:16:40,600 Speaker 1: if you look at the vote count, yeah, you'll say 330 00:16:40,640 --> 00:16:42,840 Speaker 1: three to centers. But I don't think we're that far apart. 331 00:16:42,920 --> 00:16:46,160 Speaker 1: I think we all as as Cherry Ellen Senator press conference. 332 00:16:46,600 --> 00:16:48,440 Speaker 1: You know, the case has strengthened. We said that in 333 00:16:48,480 --> 00:16:51,640 Speaker 1: our statement after the meeting. It's just really a matter 334 00:16:51,800 --> 00:16:53,840 Speaker 1: of where you see the risk and where you see 335 00:16:53,840 --> 00:16:56,680 Speaker 1: the economy. I think one of the things that struck 336 00:16:56,720 --> 00:16:59,600 Speaker 1: me over time is the resiliency the U S economy 337 00:16:59,640 --> 00:17:02,280 Speaker 1: is shown into a number of bumps in the road 338 00:17:02,360 --> 00:17:05,040 Speaker 1: on this road to of expansion. So if you just 339 00:17:05,080 --> 00:17:06,960 Speaker 1: think over the past year. We started the year, we 340 00:17:07,000 --> 00:17:09,879 Speaker 1: had that volatility UM in January and February and the 341 00:17:09,920 --> 00:17:13,760 Speaker 1: financial markets we got over that. We had the readjustment 342 00:17:13,800 --> 00:17:16,480 Speaker 1: to sort of fears about the growth rate in China 343 00:17:16,560 --> 00:17:21,240 Speaker 1: being revised down. UM, economy made it through. UM. We 344 00:17:21,359 --> 00:17:25,640 Speaker 1: had the Brexit vote UM again, lots of concern about that, 345 00:17:25,720 --> 00:17:28,520 Speaker 1: and the economy made it through. So to my mind, 346 00:17:28,600 --> 00:17:31,720 Speaker 1: you know, we've continued to make this progress UM and 347 00:17:31,760 --> 00:17:35,160 Speaker 1: we focus on the monetary policy goals. To my mind, 348 00:17:35,200 --> 00:17:38,280 Speaker 1: that means that it's a compelling case to take another step. 349 00:17:38,400 --> 00:17:42,080 Speaker 1: So the FETE has been cautious up till now about 350 00:17:42,119 --> 00:17:44,640 Speaker 1: how it's moved RACE. I think that strategy has really 351 00:17:44,640 --> 00:17:48,040 Speaker 1: served us well. But in an economy where we're continuing 352 00:17:48,080 --> 00:17:50,280 Speaker 1: to make progress on our goals, and we expect to 353 00:17:50,320 --> 00:17:53,840 Speaker 1: make further progress on our goals. I think being prudence 354 00:17:53,920 --> 00:17:56,159 Speaker 1: sometimes means moving the rate up, and that's kind of 355 00:17:56,200 --> 00:17:58,800 Speaker 1: where I was, and other people had different views. Well, 356 00:17:58,640 --> 00:18:00,359 Speaker 1: we're going to get a little better a view of 357 00:18:00,359 --> 00:18:02,639 Speaker 1: this when we get the FOMC minutes, but that's not 358 00:18:02,760 --> 00:18:04,920 Speaker 1: for uh, Well on the week and a half or so, 359 00:18:06,200 --> 00:18:09,359 Speaker 1: the dynamic at the meeting where there were If we 360 00:18:09,400 --> 00:18:11,440 Speaker 1: get those f and FMC minutes, are we going to 361 00:18:11,520 --> 00:18:13,679 Speaker 1: see that there were a number of people, not just 362 00:18:13,840 --> 00:18:18,440 Speaker 1: as centers, who were more in favor of moving in September? 363 00:18:19,080 --> 00:18:21,760 Speaker 1: How did that? Can you give us a sense of 364 00:18:21,760 --> 00:18:24,520 Speaker 1: of you just said that, No, maybe the split is 365 00:18:24,520 --> 00:18:26,280 Speaker 1: in as deep as we might think. Is that because 366 00:18:26,280 --> 00:18:28,399 Speaker 1: there's more people who were leading in that direction they 367 00:18:28,440 --> 00:18:31,840 Speaker 1: just didn't dissent. The meetings always have every participant, whether 368 00:18:31,920 --> 00:18:35,080 Speaker 1: a vote or not. You bring your view about the 369 00:18:35,240 --> 00:18:38,680 Speaker 1: both the economy and policy to the table, so there's 370 00:18:38,680 --> 00:18:42,560 Speaker 1: a rich discussion. I always come into the meetings very um, 371 00:18:42,640 --> 00:18:44,800 Speaker 1: very much looking forward to the other view points I'm 372 00:18:44,840 --> 00:18:47,120 Speaker 1: going to hear around the table. Of course, I come 373 00:18:47,119 --> 00:18:49,520 Speaker 1: in with my idea of where I think things have 374 00:18:49,680 --> 00:18:52,080 Speaker 1: been and where they're going. You know my forecast and 375 00:18:52,080 --> 00:18:54,119 Speaker 1: then what I think of the appropriate policy is. But 376 00:18:54,119 --> 00:18:57,920 Speaker 1: it's a very good discussion. We exchange views. I commend 377 00:18:58,040 --> 00:19:01,800 Speaker 1: Janet Yalen, the chairman, for allowing that kind of give 378 00:19:01,840 --> 00:19:05,359 Speaker 1: and take and for encouraging it. So my my fundamental 379 00:19:05,440 --> 00:19:07,680 Speaker 1: is that when you know you bring a diversity of views, 380 00:19:07,720 --> 00:19:09,920 Speaker 1: you actually get and have that discussion, you actually get 381 00:19:09,920 --> 00:19:13,240 Speaker 1: better policy as an outcome. So how worried are you 382 00:19:13,280 --> 00:19:15,879 Speaker 1: are you You're not so much in the financial bubbles camp, 383 00:19:16,880 --> 00:19:19,480 Speaker 1: but are you a bit worried that investors are reaching 384 00:19:19,520 --> 00:19:22,879 Speaker 1: for yield and they've gone into commercial real estate? Is 385 00:19:23,000 --> 00:19:26,720 Speaker 1: Eric rosen Grand from the Boston emphasized junk bonds et cetera, 386 00:19:26,840 --> 00:19:29,760 Speaker 1: and if people start exiting all at once, that that 387 00:19:29,800 --> 00:19:32,359 Speaker 1: could deed stabilize the markets. And that is something that 388 00:19:32,400 --> 00:19:36,160 Speaker 1: you're putting on the plate when you make that list 389 00:19:36,240 --> 00:19:38,560 Speaker 1: of reasons why the Fed should move now and raise 390 00:19:38,600 --> 00:19:40,520 Speaker 1: that rate. Okay, we certainly always have to look at 391 00:19:40,560 --> 00:19:44,119 Speaker 1: all the risks that our policies in gender um. My 392 00:19:44,280 --> 00:19:46,959 Speaker 1: case was based on the progress we've made on our 393 00:19:47,000 --> 00:19:50,520 Speaker 1: dual mandated goals. UM, but you know it would we 394 00:19:50,640 --> 00:19:52,840 Speaker 1: have to take into account that we've had interest rates 395 00:19:52,880 --> 00:19:56,359 Speaker 1: at very very low levels um for a very long time, 396 00:19:56,400 --> 00:19:58,680 Speaker 1: and so of course you're going to be looking for 397 00:19:59,080 --> 00:20:02,720 Speaker 1: whether financial when balances are building up. I don't see them, 398 00:20:02,840 --> 00:20:05,800 Speaker 1: um right now is building up you know, and and 399 00:20:05,840 --> 00:20:08,119 Speaker 1: the reason to race rates, But it's certainly something that 400 00:20:08,160 --> 00:20:10,840 Speaker 1: we're going to have to continue to monitor. We did 401 00:20:10,880 --> 00:20:13,439 Speaker 1: see some froth in the commerce in the commercial real 402 00:20:13,520 --> 00:20:16,280 Speaker 1: estate market, which is what Eric rosing Grin has pointed to. 403 00:20:16,800 --> 00:20:18,800 Speaker 1: That seems to have settled down a bit now, but 404 00:20:18,920 --> 00:20:22,560 Speaker 1: nonetheless we want to continue to monitor that this is 405 00:20:22,600 --> 00:20:25,840 Speaker 1: a bit in the future. But again, inquiring minds want 406 00:20:25,920 --> 00:20:29,240 Speaker 1: to know, um, when would be the appropriate time to 407 00:20:29,320 --> 00:20:33,399 Speaker 1: start unwinding the balance sheet? Is there a level of 408 00:20:33,440 --> 00:20:36,360 Speaker 1: fud funds rate you can point to, because after all, 409 00:20:36,920 --> 00:20:39,040 Speaker 1: you're you're looking for a rate hike this year, so 410 00:20:39,119 --> 00:20:41,399 Speaker 1: are a lot of other people to write rate hikes 411 00:20:41,440 --> 00:20:44,520 Speaker 1: next year? How is the Fed calibrating this? As the 412 00:20:44,560 --> 00:20:47,920 Speaker 1: majority seems to be more on board for this gradual moves, still, 413 00:20:47,960 --> 00:20:49,880 Speaker 1: at some point you gotta look at the balance sheet, 414 00:20:50,040 --> 00:20:52,720 Speaker 1: right So as the fetists said that, you know, we 415 00:20:52,760 --> 00:20:56,480 Speaker 1: want to communicate our policy based on the funds rate path, 416 00:20:56,600 --> 00:20:59,280 Speaker 1: and that's what we've been doing, um and then later 417 00:20:59,320 --> 00:21:01,879 Speaker 1: on we can herman whether we want to stop reinvesting 418 00:21:01,880 --> 00:21:05,399 Speaker 1: of the portfolio. So my view of of of the 419 00:21:05,480 --> 00:21:08,960 Speaker 1: mechanism is that the portfolio you know, is an accommodated 420 00:21:09,080 --> 00:21:11,520 Speaker 1: is a tool of accommodation. And so as we get 421 00:21:11,600 --> 00:21:14,160 Speaker 1: you know, the economy continues to expand and we're bringing 422 00:21:14,160 --> 00:21:16,679 Speaker 1: the funds rate up, then we could consider sort of 423 00:21:16,680 --> 00:21:20,040 Speaker 1: stopping the reinvestments, whether a one percent level of the 424 00:21:20,040 --> 00:21:22,000 Speaker 1: funds rate. I think different people would have different views 425 00:21:22,040 --> 00:21:25,639 Speaker 1: about that, but the same issues about why the funds 426 00:21:25,720 --> 00:21:28,359 Speaker 1: rate should come back up eventually will also mean that 427 00:21:28,359 --> 00:21:30,520 Speaker 1: that that we can stop reinvesting in the in the 428 00:21:30,560 --> 00:21:34,680 Speaker 1: portfolio can gradually, um, you know, get smaller in about 429 00:21:34,680 --> 00:21:37,760 Speaker 1: fifteen seconds. That this means because it's another form of 430 00:21:37,800 --> 00:21:40,320 Speaker 1: tightening when you stop reinvesting the proceeds. So you have 431 00:21:40,400 --> 00:21:41,679 Speaker 1: to be doing it at a time and the economy 432 00:21:41,720 --> 00:21:44,120 Speaker 1: is pretty strong, well you'd want to do it. Take 433 00:21:44,160 --> 00:21:47,480 Speaker 1: into account that that's added downward pressure on long yields. 434 00:21:47,680 --> 00:21:50,040 Speaker 1: So of course, right we'd we'd look at all our 435 00:21:50,080 --> 00:21:53,280 Speaker 1: tools at that point, but again the main tool policy 436 00:21:53,320 --> 00:21:55,920 Speaker 1: tool at this point is interest rates for term interest rates. 437 00:21:55,960 --> 00:21:58,960 Speaker 1: All right, we're Amester, We're gonna keep going. She's president 438 00:21:59,000 --> 00:22:01,480 Speaker 1: of the Federal Reserve Bank Cleveland, joining me today for 439 00:22:01,520 --> 00:22:04,879 Speaker 1: an exclusive interview. I'm Kathleen Hayes on taking Stock, and 440 00:22:04,960 --> 00:22:11,680 Speaker 1: this is Bloomberg. You're listening to taking Stock with Kathleen 441 00:22:11,720 --> 00:22:17,119 Speaker 1: Hayes and Pim Fox on Bloomberg Radio. Very special edition 442 00:22:17,320 --> 00:22:20,960 Speaker 1: of taking Stock today on Bloomberg Radio. I'm Kathleen Hayes 443 00:22:21,400 --> 00:22:25,679 Speaker 1: along with Lorettamester. She's President of the Cleveland Fed. Loretta 444 00:22:25,680 --> 00:22:29,200 Speaker 1: getting got a great response here on our conversation, so 445 00:22:29,240 --> 00:22:31,040 Speaker 1: I want to thank you again for taking the time today. 446 00:22:31,040 --> 00:22:32,639 Speaker 1: It's a pretty special to sit down for an hour 447 00:22:32,720 --> 00:22:35,520 Speaker 1: the Fed Bank president. Thanks for coming. Well, I want 448 00:22:35,600 --> 00:22:39,440 Speaker 1: to ask you about we got the IYSET Manufacturing Index. Okay, 449 00:22:39,480 --> 00:22:43,520 Speaker 1: anything above fifty is signaling growth, anything below contraction in manufacturing. 450 00:22:43,640 --> 00:22:46,359 Speaker 1: It climbed a fifty one point five in September. Uh, 451 00:22:46,560 --> 00:22:51,600 Speaker 1: it was negative the month before. Lackluster. People aren't very 452 00:22:51,600 --> 00:22:53,840 Speaker 1: excited about what they're seeing. So that's one part of 453 00:22:53,880 --> 00:22:56,359 Speaker 1: the equation that I said. Manufacturing closely watched. I know 454 00:22:56,400 --> 00:22:59,480 Speaker 1: folks the Fed watch it and it's not just UH, 455 00:22:59,800 --> 00:23:02,000 Speaker 1: the I s M Manufacturing index, the I s M 456 00:23:02,040 --> 00:23:06,760 Speaker 1: Services index is at a seventy nine month low. Again, 457 00:23:07,760 --> 00:23:11,080 Speaker 1: with these signs of an economy that's still struggling in 458 00:23:11,119 --> 00:23:14,080 Speaker 1: a lot of ways. It's not strong. Is a rate 459 00:23:14,320 --> 00:23:17,840 Speaker 1: hike now maybe just not the most prudent thing to do. 460 00:23:18,320 --> 00:23:21,320 Speaker 1: So you're right. Growth has been struggling a bit, right. 461 00:23:21,359 --> 00:23:23,800 Speaker 1: We had you know, one percent growth in the first 462 00:23:23,840 --> 00:23:27,040 Speaker 1: half of the year. Our NIO casts suggests that we're 463 00:23:27,040 --> 00:23:28,760 Speaker 1: going to see a pickup and growth in the second 464 00:23:28,760 --> 00:23:32,000 Speaker 1: half of the year. UM. The consumer has been the 465 00:23:32,080 --> 00:23:34,720 Speaker 1: strength side of the economy. It's been doing very well. 466 00:23:34,760 --> 00:23:38,920 Speaker 1: Consumer spending is held up, consumer confidence is held out up, UM, 467 00:23:39,000 --> 00:23:43,240 Speaker 1: household balance sheets of strength, and over time, UH, employment 468 00:23:43,359 --> 00:23:46,119 Speaker 1: is part of that driver. Right. We've seen the income 469 00:23:46,160 --> 00:23:49,320 Speaker 1: is rising UM and at other parts and at lower 470 00:23:49,359 --> 00:23:51,600 Speaker 1: parts of the income distribution as well moving up, So 471 00:23:51,640 --> 00:23:55,160 Speaker 1: that those are all very very positive things. Business investment, 472 00:23:55,200 --> 00:23:58,440 Speaker 1: as you point out, and manufacturing has been hit UM 473 00:23:58,560 --> 00:24:01,879 Speaker 1: has been weak, and so a certain extent we understand 474 00:24:01,920 --> 00:24:04,200 Speaker 1: part of that, right. You know that the oil price 475 00:24:04,240 --> 00:24:08,359 Speaker 1: shock UM really hurt the energy part of the economy 476 00:24:08,440 --> 00:24:11,320 Speaker 1: and investment in the brig counts are down and and 477 00:24:11,359 --> 00:24:14,879 Speaker 1: that was really a bigger shock UM that effected the 478 00:24:14,920 --> 00:24:17,600 Speaker 1: Cleveland Fed district as well, because we have oil and 479 00:24:18,240 --> 00:24:21,040 Speaker 1: um gas exploration going on in our region as well. 480 00:24:21,600 --> 00:24:24,239 Speaker 1: But the other part is that it's broader than just 481 00:24:24,440 --> 00:24:27,560 Speaker 1: energy and there you know, you've seen that low interest 482 00:24:27,640 --> 00:24:31,680 Speaker 1: rates some firms instead of investing or buying back their stock. UM, 483 00:24:31,720 --> 00:24:33,520 Speaker 1: the weakness has been a little bit more. They're just 484 00:24:34,080 --> 00:24:36,000 Speaker 1: there does appear to be a sense of caution on 485 00:24:36,040 --> 00:24:37,760 Speaker 1: the part of a lot of businesses, and so that's 486 00:24:37,800 --> 00:24:40,720 Speaker 1: somewhat of a puzzle. UM. I do think that as 487 00:24:40,760 --> 00:24:43,879 Speaker 1: the economy continues to expand, we'll see some increase in 488 00:24:43,920 --> 00:24:47,119 Speaker 1: business investment. But you know, if that continues to be 489 00:24:47,160 --> 00:24:49,239 Speaker 1: as low as it's been, in productivity growth as low 490 00:24:49,280 --> 00:24:51,320 Speaker 1: as it's been, it could be that trend growth as 491 00:24:51,400 --> 00:24:54,920 Speaker 1: lower than the troopers and I pay it at manufacturing 492 00:24:55,280 --> 00:25:02,520 Speaker 1: very important in your region across the Midwest. Dollar rate hike, 493 00:25:03,040 --> 00:25:06,280 Speaker 1: stronger dollar not good for manufacturing. How concerns are you 494 00:25:06,280 --> 00:25:09,240 Speaker 1: about that? Right? So we certainly have, UM, some firms 495 00:25:09,240 --> 00:25:12,399 Speaker 1: in our district who reported that the dollar really affecting them. 496 00:25:12,440 --> 00:25:15,199 Speaker 1: They're the ones who have you know, or dependent on 497 00:25:15,240 --> 00:25:18,320 Speaker 1: international sales, but the manufacturer in the district that are 498 00:25:18,320 --> 00:25:22,480 Speaker 1: domestically focused, they've seen improvement over time. So again it's 499 00:25:22,560 --> 00:25:24,840 Speaker 1: you know, you have to take into account the heterogeneity 500 00:25:24,880 --> 00:25:28,359 Speaker 1: of the economy. So yes, manufacturing is week. We have 501 00:25:28,480 --> 00:25:31,080 Speaker 1: signs that at least in our district economy, and I 502 00:25:31,080 --> 00:25:33,240 Speaker 1: would say more generally in the nation that the ones 503 00:25:33,280 --> 00:25:36,800 Speaker 1: that have been less tied to international which we're exports 504 00:25:36,800 --> 00:25:40,639 Speaker 1: have been hurt, have seen some improved activity over time. 505 00:25:40,720 --> 00:25:43,399 Speaker 1: What about markets and of course the exchange rate, but 506 00:25:43,440 --> 00:25:46,520 Speaker 1: then there are stocks as well to consider if the 507 00:25:46,520 --> 00:25:50,040 Speaker 1: FED starts back on the rate hiking path, while other 508 00:25:50,320 --> 00:25:52,880 Speaker 1: central banks from the European Central Bank to the Bank 509 00:25:52,920 --> 00:25:56,280 Speaker 1: of Japan are trying to find ways to stimulate their 510 00:25:56,320 --> 00:25:59,399 Speaker 1: economies more, they've had negative rates for crying outlet. So 511 00:25:59,480 --> 00:26:01,919 Speaker 1: we operate it in a global economy, of course, you know, 512 00:26:02,040 --> 00:26:05,080 Speaker 1: we're we're interlinked in many ways. Trade is one channel, 513 00:26:05,160 --> 00:26:08,920 Speaker 1: financial services is another. But again, right, we set our 514 00:26:08,960 --> 00:26:11,760 Speaker 1: domestic policy here in the US to try to hit 515 00:26:11,800 --> 00:26:16,439 Speaker 1: our goals of two percent inflation, price stability, and full employment. 516 00:26:16,840 --> 00:26:20,040 Speaker 1: And again just looking at how the progress we've made 517 00:26:20,040 --> 00:26:22,040 Speaker 1: and what we expect to continue to make on those goals. 518 00:26:22,280 --> 00:26:24,760 Speaker 1: Taking a little step up on the path of graduating 519 00:26:24,960 --> 00:26:29,360 Speaker 1: in interest rates seems appropriate. We're still going to be accommodative, right, 520 00:26:29,400 --> 00:26:32,159 Speaker 1: So this is not an idea that we're gonna tighten quickly. 521 00:26:32,160 --> 00:26:34,240 Speaker 1: And in fact, one of the reasons I think there's 522 00:26:34,280 --> 00:26:36,240 Speaker 1: a compelling case to take that next step on the 523 00:26:36,240 --> 00:26:39,200 Speaker 1: gradual path is so that we don't find our self 524 00:26:39,240 --> 00:26:43,159 Speaker 1: in a situation where markets tighten enough labor, you know, 525 00:26:43,240 --> 00:26:47,359 Speaker 1: labor markets tightened so much that prices become more price pressures, 526 00:26:47,359 --> 00:26:49,280 Speaker 1: and then we'll have to move rights up more steeply 527 00:26:49,280 --> 00:26:52,639 Speaker 1: in the future. So again, this is really negotiating a 528 00:26:52,760 --> 00:26:57,760 Speaker 1: gradual return back um to our goals. And of course 529 00:26:57,760 --> 00:27:00,639 Speaker 1: it's it's not just the dollar right now. Earlier in 530 00:27:00,680 --> 00:27:02,879 Speaker 1: the year, when the FED was all primed for for 531 00:27:02,960 --> 00:27:05,960 Speaker 1: interest rate increases, one of the things that happened, of course, 532 00:27:06,320 --> 00:27:10,560 Speaker 1: first it was the volatility in in Yuan China that hit. 533 00:27:10,680 --> 00:27:12,560 Speaker 1: Then of course the bregsit vote in Midsummer. Well, now 534 00:27:12,560 --> 00:27:14,880 Speaker 1: we've got big dark clouds on hanging over some big 535 00:27:14,920 --> 00:27:17,800 Speaker 1: European banks, and it's not just Deutsche Bank in Germany. 536 00:27:17,800 --> 00:27:20,200 Speaker 1: People look at Italian banks as well. If the FED 537 00:27:20,520 --> 00:27:23,160 Speaker 1: starts hiking rates in the middle of that, don't they 538 00:27:23,320 --> 00:27:26,480 Speaker 1: or do you risk exacerbating this term oil. I don't 539 00:27:26,480 --> 00:27:28,800 Speaker 1: think that the FED moving the funds right up by 540 00:27:28,800 --> 00:27:31,400 Speaker 1: twenty five basis point is going to affect the conditions 541 00:27:31,400 --> 00:27:35,399 Speaker 1: and Italian banks and German banks. UM. One thing about 542 00:27:35,480 --> 00:27:38,160 Speaker 1: the US is that our banking system is much better 543 00:27:38,200 --> 00:27:41,840 Speaker 1: capitalized than it was during the crisis, so we're relatively 544 00:27:42,280 --> 00:27:45,560 Speaker 1: um good. But we can't ignore the fact that there 545 00:27:45,600 --> 00:27:48,159 Speaker 1: are problems in some other countries in terms of their 546 00:27:48,160 --> 00:27:51,000 Speaker 1: banking system, and that is a risk. But again we 547 00:27:51,119 --> 00:27:54,840 Speaker 1: take prudent, you know, account of that. We're certainly monitoring 548 00:27:54,880 --> 00:27:58,119 Speaker 1: the situation UM and that's part of this monitoring in 549 00:27:58,200 --> 00:28:01,239 Speaker 1: between f MC meetings that we did precisely to make 550 00:28:01,280 --> 00:28:04,120 Speaker 1: sure that we understand the mechanisms and how it could 551 00:28:04,119 --> 00:28:08,360 Speaker 1: affect US markets. Little finer point on this, UH, we 552 00:28:08,440 --> 00:28:12,359 Speaker 1: have seen lately that some of the European and Japanese 553 00:28:12,359 --> 00:28:14,840 Speaker 1: banks are having a little bit harder time getting dollar 554 00:28:15,000 --> 00:28:19,120 Speaker 1: funding because the various challenges they're facing. Could a rate 555 00:28:19,200 --> 00:28:23,360 Speaker 1: hike exacerbate that problem? Again, the level of interest rates 556 00:28:23,359 --> 00:28:26,119 Speaker 1: we're talking about, UM, I don't see that that's going 557 00:28:26,200 --> 00:28:29,280 Speaker 1: to be a major problem for us or for them either. 558 00:28:30,240 --> 00:28:33,120 Speaker 1: Another kind of question, oil, Okay, we've got a deal 559 00:28:33,240 --> 00:28:34,639 Speaker 1: that maybe we've got we've got a deal to talk 560 00:28:34,680 --> 00:28:39,080 Speaker 1: about a deal in Opeq. If they're successful this time, UH, 561 00:28:39,320 --> 00:28:41,800 Speaker 1: led by the saudiast to get a cut in production, 562 00:28:42,160 --> 00:28:47,800 Speaker 1: presumably oil prices will move higher. Does this represent a 563 00:28:47,880 --> 00:28:52,680 Speaker 1: significant factor for inflation? Uh? Does it increase your concern 564 00:28:53,120 --> 00:28:56,680 Speaker 1: about about inflation and the FED not moving fast enough? 565 00:28:57,400 --> 00:28:58,560 Speaker 1: But first of all, guess what do you what do 566 00:28:58,600 --> 00:29:00,520 Speaker 1: you think of the deal? How are you say? Okay? So, 567 00:29:00,560 --> 00:29:02,720 Speaker 1: one of the things that should remember is the reason 568 00:29:02,760 --> 00:29:06,080 Speaker 1: that inflation has been low is because of the sharp 569 00:29:06,120 --> 00:29:09,480 Speaker 1: decline in oil prices since mid to the beginning of 570 00:29:09,520 --> 00:29:12,840 Speaker 1: this year. As those the effect of that lower oil 571 00:29:12,840 --> 00:29:15,880 Speaker 1: prices work through, we've seen inflation move gradually back up, 572 00:29:16,080 --> 00:29:19,400 Speaker 1: and the oil prices have been relatively stable. Now we've 573 00:29:19,440 --> 00:29:22,400 Speaker 1: seen more stability and inflation moving back up towards our 574 00:29:22,440 --> 00:29:25,800 Speaker 1: target over gradually over time. Obviously, one of we're going 575 00:29:25,840 --> 00:29:28,360 Speaker 1: to be monitoring what's going to happen to the oil price, 576 00:29:28,400 --> 00:29:30,480 Speaker 1: but at the moment, there's no reason to think that 577 00:29:30,840 --> 00:29:33,800 Speaker 1: things are going to be so different that we are 578 00:29:33,880 --> 00:29:36,920 Speaker 1: out medium run outlook will change necessarily and so, but 579 00:29:36,960 --> 00:29:38,640 Speaker 1: it is certainly one of the factors that we're going 580 00:29:38,680 --> 00:29:41,320 Speaker 1: to take into account when we're assessing conditions going forward. 581 00:29:41,720 --> 00:29:45,000 Speaker 1: If oil prices moved significantly higher, again, is it more 582 00:29:45,040 --> 00:29:47,280 Speaker 1: of a yippie we got inflation moving up or is it, 583 00:29:47,360 --> 00:29:49,920 Speaker 1: oh my gosh, now people face higher oil prices and 584 00:29:49,960 --> 00:29:51,760 Speaker 1: it's a it's a tough thing for consumers and not 585 00:29:51,800 --> 00:29:54,480 Speaker 1: so great for the economy. Well, that's the balancing act 586 00:29:54,520 --> 00:29:56,360 Speaker 1: that we do. Right. It's going to have those both 587 00:29:56,400 --> 00:29:58,920 Speaker 1: of those effects, and the question is how much will 588 00:29:58,960 --> 00:30:01,800 Speaker 1: it have an impact on inflation, how much on the economy, 589 00:30:01,840 --> 00:30:04,840 Speaker 1: And the timing also matters, right, So oil prices can 590 00:30:04,880 --> 00:30:09,800 Speaker 1: affect inflation um relatively soon in terms of the headline numbers, right, 591 00:30:09,920 --> 00:30:12,440 Speaker 1: And it will also have an impact, you know, more 592 00:30:13,680 --> 00:30:15,800 Speaker 1: drawn out on the real side of the economy. But 593 00:30:15,880 --> 00:30:18,240 Speaker 1: that's the kind of balance than we do as we 594 00:30:18,240 --> 00:30:22,080 Speaker 1: weigh our dual mandate goals. Diversity. People talk a lot 595 00:30:22,120 --> 00:30:24,040 Speaker 1: about that at the FED, and Janet Yell and our 596 00:30:24,120 --> 00:30:25,880 Speaker 1: FED chairs made it pretty clear that the FED is 597 00:30:25,880 --> 00:30:28,880 Speaker 1: really pushing in that direction. You're a woman, You're a 598 00:30:28,920 --> 00:30:31,600 Speaker 1: one who has Risen at the top of the academic 599 00:30:31,640 --> 00:30:35,280 Speaker 1: economic sphere of the FED. What what do you what 600 00:30:35,320 --> 00:30:37,520 Speaker 1: would you have to say about women economics, women at 601 00:30:37,560 --> 00:30:40,600 Speaker 1: the Federal Reserve, women in this sphere of the economy 602 00:30:40,600 --> 00:30:45,040 Speaker 1: and endeavor. I think everyone should become an economist. I'm 603 00:30:45,080 --> 00:30:48,680 Speaker 1: just pro economists, So no matter what you know, part 604 00:30:48,720 --> 00:30:50,600 Speaker 1: of the part of the spectrum you're in, I think 605 00:30:50,640 --> 00:30:52,360 Speaker 1: becoming an economist is a great thing, and I would 606 00:30:52,400 --> 00:30:55,240 Speaker 1: encourage everybody to do that. Now, seriously, the FED does 607 00:30:55,320 --> 00:31:00,280 Speaker 1: take diversity very um seriously. I think we've made some progress, 608 00:31:00,280 --> 00:31:03,400 Speaker 1: but there's certainly more progress we can do over time. 609 00:31:03,440 --> 00:31:06,320 Speaker 1: I think that's true of the economics profession as a whole, 610 00:31:06,320 --> 00:31:08,200 Speaker 1: and I think that's one of the challenges we face 611 00:31:08,280 --> 00:31:11,840 Speaker 1: in terms of our own diversity within the Federal Reserve system. 612 00:31:11,880 --> 00:31:16,840 Speaker 1: But you know, we're a institution that really values diversity 613 00:31:16,880 --> 00:31:21,440 Speaker 1: of views, and diversity of views is informed by your experience, 614 00:31:21,640 --> 00:31:25,200 Speaker 1: and so having a diverse workforce, having diversity on our 615 00:31:25,240 --> 00:31:28,600 Speaker 1: boards of directors, having diversity and our leadership is very 616 00:31:28,680 --> 00:31:32,920 Speaker 1: important because ultimately it results in better policy. At ten seconds, 617 00:31:32,960 --> 00:31:35,280 Speaker 1: would you encourage young women to look at economics it's 618 00:31:35,360 --> 00:31:36,920 Speaker 1: all more open to women now that it used to 619 00:31:36,920 --> 00:31:39,400 Speaker 1: be when we were doing it, and Beget definitely encouraged. 620 00:31:39,400 --> 00:31:42,400 Speaker 1: And I think it's a fascinating field, um, and I 621 00:31:42,400 --> 00:31:44,800 Speaker 1: think we need as many good minds, you know, working 622 00:31:44,800 --> 00:31:47,680 Speaker 1: on these topics as we can get. Laurettamester a great 623 00:31:47,720 --> 00:31:49,760 Speaker 1: mind working on this topic. Thank you so very much 624 00:31:49,800 --> 00:31:52,760 Speaker 1: for joining me. Thank you for having and coming to Cleveland. 625 00:31:52,800 --> 00:31:56,640 Speaker 1: The Reddamester, President, Federal Reserve Bank of Cleveland, joining us 626 00:31:56,680 --> 00:32:00,520 Speaker 1: today for an in depth conversation about monarch write policy 627 00:32:00,560 --> 00:32:01,040 Speaker 1: and the economy.