1 00:00:11,039 --> 00:00:14,640 Speaker 1: Well and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,720 --> 00:00:18,680 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, if it 3 00:00:19,160 --> 00:00:23,919 Speaker 1: weren't for the coronavirus, this would be the week of 4 00:00:24,120 --> 00:00:28,840 Speaker 1: a pretty important sort of gathering of the brightest minds 5 00:00:29,160 --> 00:00:33,280 Speaker 1: in monetary policy feder reserve, central banking all around the world. 6 00:00:33,680 --> 00:00:36,040 Speaker 1: That's kind of a big if, isn't it. Like, if 7 00:00:36,080 --> 00:00:40,080 Speaker 1: it weren't for everything that threw into disarray, this other 8 00:00:40,120 --> 00:00:43,159 Speaker 1: thing would be important. But yes, um, it is Jackson 9 00:00:43,200 --> 00:00:46,519 Speaker 1: Whole Week. And Jackson Whole Week is traditionally when the 10 00:00:47,159 --> 00:00:50,919 Speaker 1: sort of luminaries of economics gather to talk about the 11 00:00:51,040 --> 00:00:53,720 Speaker 1: issues that are most pressing to them from an academic 12 00:00:53,720 --> 00:00:57,120 Speaker 1: perspective and also from a real economy perspective. And it's 13 00:00:57,160 --> 00:00:59,880 Speaker 1: usually the time when we have lots of interesting discussion, 14 00:01:00,280 --> 00:01:05,320 Speaker 1: lots of interesting speeches coming out from policymakers, and lots 15 00:01:05,319 --> 00:01:09,520 Speaker 1: of interesting academic papers as well. Right, And so today 16 00:01:10,040 --> 00:01:14,320 Speaker 1: we are recording this on Wednesday, August, So by the 17 00:01:14,360 --> 00:01:18,399 Speaker 1: time people here today's interview, um, the Jackson Whole event, 18 00:01:18,520 --> 00:01:22,360 Speaker 1: it's actually still happening, but happening digitally sort of like 19 00:01:22,400 --> 00:01:25,680 Speaker 1: all meetings are happening UH these days. But yes, this 20 00:01:25,800 --> 00:01:29,520 Speaker 1: is the week of the famous Kansas City Fed Monetary 21 00:01:29,560 --> 00:01:33,800 Speaker 1: Policy UH Symposium, and I think it comes at an 22 00:01:33,840 --> 00:01:38,679 Speaker 1: extremely important and interesting time for the FED and for 23 00:01:38,720 --> 00:01:42,880 Speaker 1: the economy and monetary policy. Yeah. Absolutely so. There there 24 00:01:42,920 --> 00:01:46,280 Speaker 1: are two things I think that are really important this week, 25 00:01:46,319 --> 00:01:48,560 Speaker 1: and one is sort of short term, and that's just 26 00:01:49,240 --> 00:01:53,760 Speaker 1: the whole coronavirus induced economic crisis and the policy response 27 00:01:53,840 --> 00:01:56,480 Speaker 1: to it. So clearly that's going to be up for 28 00:01:56,560 --> 00:01:59,720 Speaker 1: debate and discussion at Jackson Hole this year. But the 29 00:01:59,760 --> 00:02:02,360 Speaker 1: other one is a more long term development, which is 30 00:02:02,400 --> 00:02:08,080 Speaker 1: that the Federal Reserve is rethinking its inflation targeting framework. 31 00:02:08,200 --> 00:02:10,800 Speaker 1: So we could get something very interesting out of the 32 00:02:10,840 --> 00:02:13,640 Speaker 1: fete this week. Yeah, that's exactly what I was thinking. 33 00:02:13,639 --> 00:02:15,800 Speaker 1: It's like the two things happening at once. And I 34 00:02:15,800 --> 00:02:18,600 Speaker 1: would actually even say it's beyond just the rethinking of 35 00:02:18,639 --> 00:02:22,560 Speaker 1: the specific approach to monetary policy, and it's part of this. 36 00:02:23,120 --> 00:02:27,480 Speaker 1: Even preceding coronavirus, there was the sort of rethinking of 37 00:02:27,760 --> 00:02:30,959 Speaker 1: the role of monetary policy, the limits of monetary policy, 38 00:02:31,320 --> 00:02:35,560 Speaker 1: that the economic costs of over reliance on monetary policy, 39 00:02:35,639 --> 00:02:38,400 Speaker 1: what monetary policy actually does. So we really are in 40 00:02:38,480 --> 00:02:41,760 Speaker 1: this moment where a sort of medium or short term 41 00:02:42,000 --> 00:02:46,959 Speaker 1: economic situation is coinciding with a much sort of like bigger, 42 00:02:47,040 --> 00:02:50,760 Speaker 1: deeper discussion that was already building to a head. Yeah. Absolutely, 43 00:02:50,800 --> 00:02:52,799 Speaker 1: and the two are sort of feeding off of each other. 44 00:02:52,880 --> 00:02:55,359 Speaker 1: So it's it's a very interesting moment in time, as 45 00:02:55,360 --> 00:02:59,760 Speaker 1: you point out. So I am extremely excited about today's 46 00:02:59,800 --> 00:03:02,600 Speaker 1: in your should be extremely special because we're going to 47 00:03:02,639 --> 00:03:07,880 Speaker 1: be speaking to an actual active top Fed official today. 48 00:03:08,440 --> 00:03:12,320 Speaker 1: Um our guest is well known. He is the president 49 00:03:12,440 --> 00:03:16,280 Speaker 1: of the Minneapolis for A Reserve. He is also known 50 00:03:16,360 --> 00:03:19,679 Speaker 1: during the last crisis when he was on the treasury 51 00:03:19,760 --> 00:03:23,160 Speaker 1: side when he was involved with the workings of the 52 00:03:23,200 --> 00:03:26,400 Speaker 1: Tart program, to a public figure for a long time 53 00:03:26,680 --> 00:03:31,480 Speaker 1: now on the monetary policy side. Really interesting thinker Neil 54 00:03:31,560 --> 00:03:33,959 Speaker 1: cash Carry is joining us, so we're going to be 55 00:03:34,120 --> 00:03:37,800 Speaker 1: talking about the intersection of all these different things. So Neil, 56 00:03:37,920 --> 00:03:40,920 Speaker 1: thank you very much for joining us. Thank you, Joe 57 00:03:40,920 --> 00:03:44,480 Speaker 1: and Tracy, thanks for having me. Let's just start off 58 00:03:44,520 --> 00:03:48,480 Speaker 1: with actually just this moment um in time. And I'm curious, 59 00:03:48,520 --> 00:03:51,080 Speaker 1: like you know, the unemployment rate is back down to 60 00:03:51,480 --> 00:03:55,960 Speaker 1: just over ten um. A lot of economic indicators have 61 00:03:56,080 --> 00:04:00,840 Speaker 1: actually held up surprisingly well given the devastation. There's actually 62 00:04:01,000 --> 00:04:04,680 Speaker 1: arguably v shaped recovery and housing auto is doing well, 63 00:04:05,120 --> 00:04:08,560 Speaker 1: retail sales doing well. Have you been surprised by the 64 00:04:08,560 --> 00:04:11,200 Speaker 1: strength of the economic data that we've seen so far. 65 00:04:11,920 --> 00:04:13,600 Speaker 1: I think it cuts both ways. I mean, yes, in 66 00:04:13,640 --> 00:04:16,560 Speaker 1: some sense the economy has bounced back, but I think 67 00:04:16,560 --> 00:04:20,800 Speaker 1: that's because we've reopened more quickly than the health experts recommended. 68 00:04:20,839 --> 00:04:23,120 Speaker 1: And so yes, it's great. I mean I want to 69 00:04:23,160 --> 00:04:26,039 Speaker 1: put Americans back to work as quickly as possible. But 70 00:04:26,120 --> 00:04:29,520 Speaker 1: if the if in doing so, we allow the virus 71 00:04:29,560 --> 00:04:32,600 Speaker 1: to flare back up again and to start raging, continuing 72 00:04:32,640 --> 00:04:35,120 Speaker 1: to rage across the country, then it seems like it's 73 00:04:35,120 --> 00:04:37,640 Speaker 1: going to be a short term game gain, not a 74 00:04:37,720 --> 00:04:40,839 Speaker 1: long term solution, and so I'm cautious about the recovery. 75 00:04:41,640 --> 00:04:44,680 Speaker 1: M Um, I think you previously said that you're worried 76 00:04:44,680 --> 00:04:47,840 Speaker 1: about a wave of bankruptcies. Can you maybe give us 77 00:04:47,880 --> 00:04:52,080 Speaker 1: some color about what you're seeing um out in your 78 00:04:52,120 --> 00:04:55,720 Speaker 1: region in the Midwest. Is that actually happening? And are 79 00:04:55,760 --> 00:04:59,480 Speaker 1: you worried about contagion from bankruptcies to the financial system. 80 00:05:00,560 --> 00:05:03,320 Speaker 1: Yes to both, I mean we're seeing it already with 81 00:05:03,720 --> 00:05:07,000 Speaker 1: lots of small businesses restaurants that very quickly in a 82 00:05:07,040 --> 00:05:11,039 Speaker 1: restaurant margins in good times pre COVID, we're pretty slim 83 00:05:11,120 --> 00:05:14,080 Speaker 1: for most restaurants, and then when they get got shut 84 00:05:14,200 --> 00:05:17,520 Speaker 1: because of the COVID crisis. A bridge was provided in 85 00:05:17,560 --> 00:05:20,200 Speaker 1: the form of the p p P program from Congress, 86 00:05:20,240 --> 00:05:22,640 Speaker 1: but even some restaurants said that bridge is not enough 87 00:05:22,680 --> 00:05:24,839 Speaker 1: for us. We're gonna close up. So I've been surprised. 88 00:05:25,160 --> 00:05:28,680 Speaker 1: Even in Minneapolis, some very well known restaurants have already 89 00:05:28,680 --> 00:05:30,680 Speaker 1: closed up shop and said we're not going to reopen. 90 00:05:31,120 --> 00:05:34,560 Speaker 1: And the longer this goes on, the more bankruptcies we're 91 00:05:34,600 --> 00:05:39,640 Speaker 1: going to see. Unfortunately, restaurants, coffee shops, you know, gyms, etcetera. 92 00:05:40,160 --> 00:05:42,840 Speaker 1: And think about this way. Some restaurants have said, well, 93 00:05:42,839 --> 00:05:46,120 Speaker 1: we're going to reopen at fifty capacity. Well, if their 94 00:05:46,160 --> 00:05:49,560 Speaker 1: margins were so slim at a percent capacity, how long 95 00:05:49,600 --> 00:05:53,600 Speaker 1: can they run at fifty percent capacity to maintain social distancing? 96 00:05:54,040 --> 00:05:57,400 Speaker 1: And yes, the longer this goes on, the more bankruptcies 97 00:05:57,400 --> 00:06:00,240 Speaker 1: we're gonna see, both small, midsize and large business is 98 00:06:00,560 --> 00:06:03,440 Speaker 1: and ultimately those losses roll up into the banking sector 99 00:06:03,520 --> 00:06:07,680 Speaker 1: because if a restaurant goes out of business, then whoever 100 00:06:07,800 --> 00:06:10,960 Speaker 1: held the lease where they're releasing their space, it's harder 101 00:06:11,000 --> 00:06:12,880 Speaker 1: for them to make their mortgage payment. That ends up 102 00:06:12,960 --> 00:06:15,119 Speaker 1: rolling up into the banking sector. And so there's great 103 00:06:15,200 --> 00:06:18,680 Speaker 1: uncertainty about the path of the economy because there's great 104 00:06:18,760 --> 00:06:21,479 Speaker 1: uncertainty about the path of the virus, and therefore there's 105 00:06:21,520 --> 00:06:24,720 Speaker 1: great uncertainty about how many losses the banking sector is 106 00:06:24,800 --> 00:06:28,560 Speaker 1: ultimately going to face. You said early on, I think 107 00:06:28,880 --> 00:06:31,080 Speaker 1: I think it might have even been like in April, UM, 108 00:06:31,120 --> 00:06:34,040 Speaker 1: I think you said in the ft that UM banks 109 00:06:34,040 --> 00:06:38,760 Speaker 1: should stop paying dividends actually take this time to raise capital. UM. 110 00:06:38,839 --> 00:06:41,520 Speaker 1: Do you still feel that that that would be a 111 00:06:41,600 --> 00:06:44,680 Speaker 1: smart move? Are you still urging banks to take steps 112 00:06:44,680 --> 00:06:46,920 Speaker 1: to both the their balance sheet because at this point 113 00:06:47,760 --> 00:06:51,479 Speaker 1: investors really, you know, just don't seem particularly concerned about 114 00:06:51,520 --> 00:06:55,279 Speaker 1: systemic financial system health. Well, I think I am still 115 00:06:55,279 --> 00:06:57,400 Speaker 1: concerned about it. I think the reason you're seeing the 116 00:06:57,480 --> 00:07:01,200 Speaker 1: markets recover the way they have is frankly because of 117 00:07:01,240 --> 00:07:03,680 Speaker 1: the FED. I mean, the Federal Reserve has taken extraordinary 118 00:07:03,720 --> 00:07:07,920 Speaker 1: action beginning in March, responding to the coronavirus. We're we've 119 00:07:07,960 --> 00:07:11,880 Speaker 1: acted much more quickly and much more aggressively than the 120 00:07:11,880 --> 00:07:14,520 Speaker 1: FED acted even in the two thousand eight crisis, and 121 00:07:14,560 --> 00:07:16,320 Speaker 1: I applaud us for doing that. It was the right 122 00:07:16,320 --> 00:07:18,600 Speaker 1: thing to do. So I think markets are saying, well, 123 00:07:18,600 --> 00:07:21,000 Speaker 1: the FED has taken some of the financial risk off 124 00:07:21,000 --> 00:07:24,120 Speaker 1: the table, so we can now focus more on the upside. 125 00:07:24,520 --> 00:07:25,920 Speaker 1: But I think that you know, if you look at 126 00:07:25,920 --> 00:07:29,280 Speaker 1: where bank stocks are, they're not performing as well as 127 00:07:29,320 --> 00:07:31,800 Speaker 1: the broader stock market. I think there's still concerned that 128 00:07:31,880 --> 00:07:35,040 Speaker 1: the losses that the banks are exposed to. It's really 129 00:07:35,240 --> 00:07:38,320 Speaker 1: unclear and really uncertain, and so I'm still focused on it. 130 00:07:39,040 --> 00:07:43,040 Speaker 1: Mhm h. You mentioned the policy response to the COVID 131 00:07:43,120 --> 00:07:47,080 Speaker 1: nineteen crisis versus the policy response from the financial crisis 132 00:07:47,080 --> 00:07:49,640 Speaker 1: of two thousand eight, and this is something that obviously 133 00:07:49,720 --> 00:07:51,640 Speaker 1: Joe and I have been talking about a lot. But 134 00:07:52,120 --> 00:07:55,400 Speaker 1: when you look at what the FED has done this year, 135 00:07:55,800 --> 00:07:59,600 Speaker 1: what stands out to you as the most helpful policy 136 00:07:59,760 --> 00:08:06,560 Speaker 1: and what would you have done perhaps differently, if anything. Basically, 137 00:08:06,640 --> 00:08:10,320 Speaker 1: we just said through all of these myriad facilities, we said, 138 00:08:10,360 --> 00:08:13,000 Speaker 1: we are going to exercise our lender of last resort 139 00:08:13,080 --> 00:08:15,680 Speaker 1: function as aggressively as we need to to support the 140 00:08:15,720 --> 00:08:18,880 Speaker 1: financial system and to support the economy and that I 141 00:08:19,120 --> 00:08:21,480 Speaker 1: completely support it. And you know, there are certain programs 142 00:08:21,480 --> 00:08:24,440 Speaker 1: that have been bigger uptake than others. Some programs you 143 00:08:24,480 --> 00:08:27,480 Speaker 1: would argue, well, there's not much uptake because markets have 144 00:08:27,600 --> 00:08:30,720 Speaker 1: something largely recovered. The whole theory of central banking is 145 00:08:30,720 --> 00:08:33,360 Speaker 1: you in an emergency, you lend at a penalty rate. 146 00:08:33,679 --> 00:08:37,880 Speaker 1: That penalty rate is relative to normal market conditions, not 147 00:08:37,960 --> 00:08:42,480 Speaker 1: relative to stressed market conditions. And so if markets are recovering, 148 00:08:42,520 --> 00:08:44,880 Speaker 1: so that market participants will say, well, we'll just transact 149 00:08:44,920 --> 00:08:47,160 Speaker 1: with each other because we can get better terms from 150 00:08:47,200 --> 00:08:48,640 Speaker 1: each other and we don't need to go to the 151 00:08:48,640 --> 00:08:51,640 Speaker 1: FED for their penalty rate terms. In a sense, that 152 00:08:51,679 --> 00:08:54,760 Speaker 1: means our programs have been effective. So I think we could, 153 00:08:54,760 --> 00:08:57,120 Speaker 1: probably with the benefit of hindsight and over more time, 154 00:08:57,120 --> 00:08:59,600 Speaker 1: look back at one program here, one program there, and 155 00:08:59,640 --> 00:09:02,040 Speaker 1: say we might tweak this or that, But overall I 156 00:09:02,080 --> 00:09:04,720 Speaker 1: would give Jairmyan Powell, the feder Reserve, my colleagues high 157 00:09:04,720 --> 00:09:07,880 Speaker 1: marks for playing our role. But this is not like 158 00:09:07,920 --> 00:09:09,480 Speaker 1: the O eight crisis. I mean, this is as you 159 00:09:09,520 --> 00:09:12,160 Speaker 1: all know, this isn't first and foremost a health crisis, 160 00:09:12,559 --> 00:09:15,160 Speaker 1: and so we are not the first responders the first 161 00:09:15,160 --> 00:09:17,839 Speaker 1: responders with the doctors, the scientists, the nurses, and then 162 00:09:17,880 --> 00:09:20,880 Speaker 1: Congress has been very bold so far. I think the 163 00:09:20,960 --> 00:09:23,200 Speaker 1: question now is going to be what does Congress do 164 00:09:23,280 --> 00:09:26,160 Speaker 1: from here? We're playing our part, but our tools are 165 00:09:26,200 --> 00:09:30,040 Speaker 1: limited in this crisis. Well, so this gets to what 166 00:09:30,080 --> 00:09:33,840 Speaker 1: I would say is probably one of the biggest sources 167 00:09:33,840 --> 00:09:37,520 Speaker 1: of criticism of the FED, which is that when the 168 00:09:37,559 --> 00:09:40,640 Speaker 1: FED does its part, but Congress maybe kind of only 169 00:09:41,000 --> 00:09:43,400 Speaker 1: partially does its part, or does its part, it fits 170 00:09:43,520 --> 00:09:46,760 Speaker 1: starts that it exacerbates inequality. And right now we have 171 00:09:46,840 --> 00:09:50,960 Speaker 1: unemployment that's still over ten percent, but the stock market 172 00:09:51,160 --> 00:09:53,559 Speaker 1: is higher than it ever was, and like the Nasdaq 173 00:09:53,760 --> 00:09:57,880 Speaker 1: is up over this year, just extraordinary gains um in 174 00:09:57,960 --> 00:10:01,240 Speaker 1: financial assets people who owned their house have seen in 175 00:10:01,280 --> 00:10:04,960 Speaker 1: many cases housing has done really well. So what do 176 00:10:05,040 --> 00:10:08,880 Speaker 1: you say to critics who say that a huge impact 177 00:10:09,000 --> 00:10:12,560 Speaker 1: of these FED actions is to exacerbate inequality? And how 178 00:10:12,600 --> 00:10:16,160 Speaker 1: do you think about the impact the sort of cost 179 00:10:16,320 --> 00:10:19,800 Speaker 1: of increasing inequality when you weigh it against the benefits 180 00:10:19,880 --> 00:10:23,560 Speaker 1: of easing to support the economy. Yeah, well, I would say, 181 00:10:23,679 --> 00:10:25,960 Speaker 1: let's just for the sake of argument, let's just accept 182 00:10:26,080 --> 00:10:29,640 Speaker 1: their premise. Let's say that the stock market is because 183 00:10:29,679 --> 00:10:32,800 Speaker 1: of the FED, and housing prices is because of the FED. 184 00:10:33,600 --> 00:10:36,680 Speaker 1: What's the alternative to try to keep the stock market down? 185 00:10:36,720 --> 00:10:39,040 Speaker 1: Should we punish those who are out of work today 186 00:10:39,240 --> 00:10:41,160 Speaker 1: by making it harder for them to find a job. 187 00:10:41,400 --> 00:10:45,040 Speaker 1: The people who especially the anonymous trolls on Twitter, squawk 188 00:10:45,080 --> 00:10:48,120 Speaker 1: about this year in year out, and we were finally 189 00:10:48,280 --> 00:10:52,640 Speaker 1: seeing at the end of the recovery, real wage games 190 00:10:52,800 --> 00:10:55,960 Speaker 1: wage gains net of inflation. We're growing the fastest for 191 00:10:56,120 --> 00:10:58,760 Speaker 1: the lowest income Americans, and we were finally seeing a 192 00:10:58,840 --> 00:11:01,640 Speaker 1: job market strong enough where we were bringing back in 193 00:11:01,720 --> 00:11:04,480 Speaker 1: people who had been left on the sidelines. The most 194 00:11:04,520 --> 00:11:07,760 Speaker 1: valuable asset the vast majority of Americans have is not 195 00:11:07,880 --> 00:11:10,640 Speaker 1: their house because many Americans don't own a home. It's 196 00:11:10,679 --> 00:11:13,600 Speaker 1: not stocks because they don't own stocks. It's their job. 197 00:11:14,120 --> 00:11:17,479 Speaker 1: And by having a strong economy and a stronger recovery 198 00:11:17,520 --> 00:11:20,360 Speaker 1: and a stronger job market, we are benefiting the vast 199 00:11:20,360 --> 00:11:22,440 Speaker 1: majority of Americans. And again, I just go back and say, 200 00:11:22,840 --> 00:11:26,559 Speaker 1: let's say your goal is to tamp down the stock market. Okay, 201 00:11:26,600 --> 00:11:28,400 Speaker 1: let's go tamp down the stock market. But if the 202 00:11:28,440 --> 00:11:31,240 Speaker 1: cost of that is to have more Americans out of work, 203 00:11:31,280 --> 00:11:34,280 Speaker 1: with lower wage growth, that's a really high cost. In 204 00:11:34,320 --> 00:11:37,479 Speaker 1: my book, I have a bunch more questions on inequality. 205 00:11:37,679 --> 00:11:40,800 Speaker 1: But um, before we get there, you mentioned Twitter and 206 00:11:40,840 --> 00:11:43,959 Speaker 1: anonymous trolls on Twitter, and I mean, you are an 207 00:11:43,960 --> 00:11:47,760 Speaker 1: active presence on that platform, and I've always they were 208 00:11:47,760 --> 00:11:50,880 Speaker 1: getting straight to the important, the really important things. But 209 00:11:51,000 --> 00:11:54,480 Speaker 1: I've always wondered why, like, is there an element of 210 00:11:54,520 --> 00:11:57,160 Speaker 1: masochism there, because, like Joe and I know that as 211 00:11:57,160 --> 00:11:59,600 Speaker 1: soon as you tweet something about the FED on Twitter, 212 00:11:59,720 --> 00:12:02,200 Speaker 1: you will get a bunch of people who are going, like, ah, 213 00:12:02,280 --> 00:12:05,280 Speaker 1: the Fed, they don't know anything, ridiculous, you know, making 214 00:12:05,320 --> 00:12:07,840 Speaker 1: the rich richer all of that, Like, why are you 215 00:12:07,920 --> 00:12:10,160 Speaker 1: on that platform? And what is the benefit that you 216 00:12:10,160 --> 00:12:13,600 Speaker 1: get out of it? Well, it's a good question. I mean, 217 00:12:13,640 --> 00:12:15,880 Speaker 1: it was an experiment. When I joined the FED, I said, 218 00:12:15,960 --> 00:12:18,640 Speaker 1: let me I think many people across the FED are 219 00:12:18,679 --> 00:12:21,120 Speaker 1: the most you know j Powell, Jenny Yelling before him, 220 00:12:21,600 --> 00:12:24,400 Speaker 1: want to increase transparency, want to make us more accessible 221 00:12:24,440 --> 00:12:27,080 Speaker 1: to the public. So this was an experiment that I said, 222 00:12:27,120 --> 00:12:29,120 Speaker 1: let me go try and see if this is a 223 00:12:29,200 --> 00:12:31,560 Speaker 1: useful way to in a genuine, authentic way, engage with 224 00:12:31,600 --> 00:12:34,280 Speaker 1: the public. And I think there's benefit to it. I 225 00:12:34,320 --> 00:12:36,640 Speaker 1: do think that I have been able to get my 226 00:12:36,720 --> 00:12:38,960 Speaker 1: message out. I have been able to engage with people 227 00:12:38,960 --> 00:12:41,360 Speaker 1: who wanted to engage in a genuine way, and I 228 00:12:41,400 --> 00:12:44,560 Speaker 1: think that's been positive. I mean the cost is, as 229 00:12:44,600 --> 00:12:47,240 Speaker 1: you said, if the signal to noise ratio is quite 230 00:12:47,240 --> 00:12:50,320 Speaker 1: low for every Ernie todes She, they're a hundred angry 231 00:12:50,320 --> 00:12:53,280 Speaker 1: anonymous cranks out there, And how do you focus on 232 00:12:53,360 --> 00:12:55,880 Speaker 1: finding the Ernie Twodesh She's who are doing really thoughtful 233 00:12:55,920 --> 00:12:58,080 Speaker 1: analysis that I can learn from and just have to 234 00:12:58,120 --> 00:13:01,480 Speaker 1: tune out the anonymous crank. So, you know, I don't 235 00:13:01,520 --> 00:13:04,720 Speaker 1: know when when future presidents or whoever eventually succeeds me, 236 00:13:04,720 --> 00:13:07,240 Speaker 1: will I recommend that they have an active Twitter presence. 237 00:13:07,440 --> 00:13:10,079 Speaker 1: I'm not sure it hasn't. There hasn't been a big 238 00:13:10,120 --> 00:13:12,920 Speaker 1: cost to me because I'm pretty I think I'm pretty 239 00:13:12,920 --> 00:13:16,760 Speaker 1: comfortable just being criticized and tuning out the cranks. But 240 00:13:17,000 --> 00:13:19,719 Speaker 1: you know, it's not overwhelmingly positive. I'll just say that. 241 00:13:34,600 --> 00:13:37,920 Speaker 1: So let's get to uh, you know, this tension and 242 00:13:37,960 --> 00:13:39,880 Speaker 1: it comes up on Twitter all the time, but it's 243 00:13:39,920 --> 00:13:44,439 Speaker 1: really sort of proceed Twitter, which is that, Yes, perhaps 244 00:13:44,640 --> 00:13:49,200 Speaker 1: monetary policy plays this role in inflating financial assets. But 245 00:13:49,280 --> 00:13:51,880 Speaker 1: as you point out, the sort of number one asset 246 00:13:51,920 --> 00:13:54,960 Speaker 1: that most people have is is their job. And ultimately 247 00:13:55,520 --> 00:13:59,040 Speaker 1: we have to get the unemployment numbers down. But okay, 248 00:13:59,080 --> 00:14:03,439 Speaker 1: so we agree ten unemployment at least, it's still long 249 00:14:03,520 --> 00:14:08,920 Speaker 1: way from normal, just absolutely unacceptably high by any standards. 250 00:14:08,960 --> 00:14:11,440 Speaker 1: But this gets to sort of the bigger question, and 251 00:14:11,480 --> 00:14:14,720 Speaker 1: I think it's the one that proceeds coronavirus, which is, 252 00:14:15,240 --> 00:14:19,320 Speaker 1: how in the future are you thinking about ways in 253 00:14:19,360 --> 00:14:24,080 Speaker 1: which the FED could truly incorporate the employment mandate into 254 00:14:24,200 --> 00:14:27,640 Speaker 1: its framework, Because we saw the FED first high grades 255 00:14:27,720 --> 00:14:32,400 Speaker 1: post last crisis, and long before we reached full employment, 256 00:14:32,560 --> 00:14:36,640 Speaker 1: we just kept dropping, no real inflation, no real wage gains. 257 00:14:36,960 --> 00:14:40,400 Speaker 1: We saw a round of hikes eighteen that needed to 258 00:14:40,400 --> 00:14:43,880 Speaker 1: be reversed twenty nineteen. Meanwhile the unemployment rate just kept dropping. 259 00:14:44,600 --> 00:14:47,760 Speaker 1: How are you thinking about the challenge going forward of 260 00:14:47,840 --> 00:14:51,760 Speaker 1: when we sort of have a normal economy, of not 261 00:14:51,880 --> 00:14:54,840 Speaker 1: repeating some of the errors in the past where the 262 00:14:54,880 --> 00:14:57,600 Speaker 1: FED high grades too early when there were still lots 263 00:14:57,640 --> 00:15:00,600 Speaker 1: of labor gains to be had out there. Well, so, 264 00:15:00,800 --> 00:15:03,480 Speaker 1: first of all, I agree with the premise of your question. 265 00:15:03,920 --> 00:15:07,280 Speaker 1: The tightening cycle that began in was a mistake. It 266 00:15:07,400 --> 00:15:09,840 Speaker 1: was predicated on a misreading of the labor market. We 267 00:15:09,960 --> 00:15:12,160 Speaker 1: thought we were at full employment and or in some 268 00:15:12,200 --> 00:15:13,840 Speaker 1: cases beyond it, and we needed to hurry up and 269 00:15:13,920 --> 00:15:17,120 Speaker 1: raise rates before inflation came. And obviously inflation didn't come. 270 00:15:17,400 --> 00:15:18,920 Speaker 1: So we have to learn from that, and we have 271 00:15:18,960 --> 00:15:22,120 Speaker 1: to recognize that the vast majority of people want to work. 272 00:15:22,200 --> 00:15:24,040 Speaker 1: You know, one of the big frustrations I have in 273 00:15:24,080 --> 00:15:28,120 Speaker 1: the economics profession is every time there's a recession, they 274 00:15:28,120 --> 00:15:31,320 Speaker 1: then immediately the economist immediately ratchet up this thing called 275 00:15:31,640 --> 00:15:34,200 Speaker 1: the natural rate of unemployment, like all these people have 276 00:15:34,280 --> 00:15:38,040 Speaker 1: been dislocated. Now the natural rate of unemployment is five 277 00:15:38,120 --> 00:15:39,960 Speaker 1: or six and if you get below that, it's going 278 00:15:40,040 --> 00:15:43,440 Speaker 1: to lead to inflation. And it's just bunk. It's total bunk. 279 00:15:44,040 --> 00:15:46,680 Speaker 1: And so first thing we should do is stop doing that. 280 00:15:47,240 --> 00:15:49,800 Speaker 1: The vast majority of Americans want to work, and have 281 00:15:49,920 --> 00:15:52,920 Speaker 1: given the chance and decent wages, they will surprise us 282 00:15:53,200 --> 00:15:55,600 Speaker 1: and continue to and to re enter the labor market. 283 00:15:55,600 --> 00:15:57,400 Speaker 1: That's one of the things that we learned, I hope 284 00:15:57,440 --> 00:16:00,720 Speaker 1: we've learned. I've learned in the last recovery that that 285 00:16:00,840 --> 00:16:03,440 Speaker 1: is profoundly true, so we just we have to learn 286 00:16:03,440 --> 00:16:06,760 Speaker 1: from that and not raise rates ahead of inflation. If 287 00:16:06,800 --> 00:16:09,400 Speaker 1: you look at our inflation target it was officially adopted 288 00:16:09,400 --> 00:16:13,480 Speaker 1: in two we basically undershot two percent the entire time, 289 00:16:13,960 --> 00:16:16,720 Speaker 1: I mean, we blew it. And so let's not raise 290 00:16:16,840 --> 00:16:21,520 Speaker 1: rates this time until we actually get inflation sustainably back 291 00:16:21,560 --> 00:16:23,960 Speaker 1: at our target or even above it to make up 292 00:16:24,000 --> 00:16:28,600 Speaker 1: for prior shortfalls. Mhm. So something I've been wondering. But 293 00:16:28,640 --> 00:16:31,360 Speaker 1: if we say that the FED has been pretty bad 294 00:16:31,400 --> 00:16:35,520 Speaker 1: about achieving its two percent inflation target, and that it's 295 00:16:35,520 --> 00:16:39,240 Speaker 1: also difficult to confidently come up with an estimate of 296 00:16:39,480 --> 00:16:43,480 Speaker 1: full employment, would it make more sense to target something 297 00:16:43,600 --> 00:16:49,080 Speaker 1: like wages instead of the actual employment level. Mhm. Well, 298 00:16:49,080 --> 00:16:51,600 Speaker 1: that's that's how we think it's supposed to work. So here, 299 00:16:52,000 --> 00:16:55,440 Speaker 1: think about two bridges. One bridge is from how many 300 00:16:55,440 --> 00:16:58,720 Speaker 1: people have jobs the unemployment rate or the inverse the 301 00:16:58,800 --> 00:17:01,920 Speaker 1: employment rate, So you get the way it's supposed to work. 302 00:17:02,000 --> 00:17:04,399 Speaker 1: As the labor market titans, people go back to work, 303 00:17:04,800 --> 00:17:07,639 Speaker 1: businesses have to compete to find workers, and then that 304 00:17:07,680 --> 00:17:10,880 Speaker 1: bids up wages. So the first bridge is between unemployment 305 00:17:11,320 --> 00:17:14,520 Speaker 1: and wages, and then the second bridge is wage growth. 306 00:17:14,560 --> 00:17:17,840 Speaker 1: Starts to pick up between wages and the broader measure 307 00:17:17,920 --> 00:17:21,320 Speaker 1: of prices and inflation. So you're right, I would say 308 00:17:21,320 --> 00:17:24,320 Speaker 1: that wages is better than focusing on the unemployment rate. 309 00:17:24,520 --> 00:17:27,080 Speaker 1: But even better yet, let's just cut the bridges out 310 00:17:27,359 --> 00:17:29,760 Speaker 1: and let's just focus on inflation. So a year more 311 00:17:29,760 --> 00:17:32,800 Speaker 1: than a year ago, I proposed that the Committee adopted 312 00:17:32,800 --> 00:17:36,040 Speaker 1: forward guidance that says we will not raise rates until 313 00:17:36,119 --> 00:17:39,800 Speaker 1: core inflation gets back to two percent on a sustained basis. 314 00:17:40,040 --> 00:17:41,520 Speaker 1: And by the way, I would note a few months 315 00:17:41,600 --> 00:17:44,440 Speaker 1: later the e c B European Central Bank adopted a 316 00:17:44,560 --> 00:17:47,879 Speaker 1: version of this publicly in their in their policy statement. 317 00:17:47,920 --> 00:17:51,120 Speaker 1: I think forward guidance that is anchored to an outcome 318 00:17:51,359 --> 00:17:54,520 Speaker 1: of actually achieving our inflation target would be a big 319 00:17:54,600 --> 00:17:58,960 Speaker 1: step forward relative to where we are today. So you mentioned, 320 00:17:59,119 --> 00:18:01,720 Speaker 1: um the inflation an outlook there on the inflation target, 321 00:18:01,760 --> 00:18:04,080 Speaker 1: and one of the things that is supposedly up for 322 00:18:04,119 --> 00:18:06,919 Speaker 1: a discussion at Jackson Hole is the notion of the 323 00:18:06,920 --> 00:18:11,280 Speaker 1: FED moving to some sort of average inflation targeting. But 324 00:18:11,640 --> 00:18:14,880 Speaker 1: I guess my question is are there any tools out 325 00:18:14,920 --> 00:18:19,000 Speaker 1: there to make that policy approach any more effective than 326 00:18:19,040 --> 00:18:25,199 Speaker 1: the previous inflation targeting regime, and exactly what would you 327 00:18:25,320 --> 00:18:28,840 Speaker 1: at the central bank do differently to achieve average inflation 328 00:18:28,880 --> 00:18:31,480 Speaker 1: of two percent more quickly? Wouldn't it make more sense 329 00:18:31,480 --> 00:18:34,560 Speaker 1: to maybe just jettison the forecast of inflation rather than 330 00:18:34,600 --> 00:18:37,640 Speaker 1: to actually change the policy approach. So rather than saying 331 00:18:37,640 --> 00:18:40,120 Speaker 1: we're going to get an average two percent, why not 332 00:18:40,240 --> 00:18:42,960 Speaker 1: just sort of get rid of that and target something 333 00:18:43,000 --> 00:18:45,920 Speaker 1: else over the longer term? Well, I mean, are the 334 00:18:46,000 --> 00:18:47,879 Speaker 1: number one job of central banks? That I mean, at 335 00:18:47,880 --> 00:18:49,879 Speaker 1: first they were created for lender of lash resort, but 336 00:18:49,960 --> 00:18:53,120 Speaker 1: beyond that, it's making sure that prices are in check. 337 00:18:53,160 --> 00:18:54,879 Speaker 1: And we talk about our dual mandate that Congress has 338 00:18:54,880 --> 00:18:58,360 Speaker 1: given us of stable prices and maximum employment. We can 339 00:18:58,400 --> 00:19:01,640 Speaker 1: measure inflation. It's not of we can measure inflation, as 340 00:19:01,680 --> 00:19:04,640 Speaker 1: you said earlier, Crazy, it's very difficult to know are 341 00:19:04,720 --> 00:19:07,760 Speaker 1: we in fact at maximum employment? And so in my book, 342 00:19:08,200 --> 00:19:10,840 Speaker 1: given the mistakes that we made in this recovery, I 343 00:19:10,880 --> 00:19:14,280 Speaker 1: think a much stronger focus on actually achieving our inflation target. 344 00:19:14,440 --> 00:19:17,720 Speaker 1: Some people have suggested adopting a formal makeup strategy like 345 00:19:17,760 --> 00:19:20,879 Speaker 1: a price level target or a formal average inflation target 346 00:19:21,359 --> 00:19:24,520 Speaker 1: UH to me mechanically tying ourselves to such a rule 347 00:19:25,160 --> 00:19:27,960 Speaker 1: can be problematic because there might be circumstances that you 348 00:19:27,960 --> 00:19:29,560 Speaker 1: don't want to stick to it. But I think that 349 00:19:29,600 --> 00:19:33,359 Speaker 1: there are ways of being better, having more success in 350 00:19:33,359 --> 00:19:37,879 Speaker 1: achieving our inflation target and not preemptively raising rates. So 351 00:19:37,920 --> 00:19:40,600 Speaker 1: I want to go back to something you said, uh 352 00:19:40,600 --> 00:19:43,280 Speaker 1: where you mentioned that economists have this sort of bad 353 00:19:43,320 --> 00:19:45,760 Speaker 1: habit of every time there's a recession, they mark up 354 00:19:45,800 --> 00:19:48,200 Speaker 1: what they view as the natural rate of unemployment. And 355 00:19:48,320 --> 00:19:52,160 Speaker 1: so that implicitly means that if the FED were did 356 00:19:52,160 --> 00:19:54,760 Speaker 1: take that seriously, it would tighten too soon. And just 357 00:19:54,840 --> 00:19:58,280 Speaker 1: in general, you know, there's a lot of skepticism that 358 00:19:58,440 --> 00:20:01,320 Speaker 1: you have about some of these sort of assumptions about 359 00:20:01,400 --> 00:20:06,160 Speaker 1: this sort of relationship between employment and inflation. And I'm curious, 360 00:20:06,240 --> 00:20:11,560 Speaker 1: like neither you nor the current FED chairman Powell have 361 00:20:12,440 --> 00:20:15,960 Speaker 1: sort of formal academic economic training, and I'm just curious 362 00:20:16,440 --> 00:20:20,159 Speaker 1: whether that gives you more comfort or your sort of 363 00:20:20,240 --> 00:20:22,760 Speaker 1: um less attached to some of these old models, some 364 00:20:22,800 --> 00:20:26,080 Speaker 1: of these models that posit some sort of mechanical relationship 365 00:20:26,160 --> 00:20:29,200 Speaker 1: between this or that unemployment goes here, Therefore in play, 366 00:20:29,200 --> 00:20:30,959 Speaker 1: SI will go up there if we don't do X. 367 00:20:31,520 --> 00:20:33,680 Speaker 1: Do you feel like you can sort of be a 368 00:20:33,720 --> 00:20:36,120 Speaker 1: little more skeptical or less tied to them, in part 369 00:20:36,200 --> 00:20:40,640 Speaker 1: because you don't haven't spent years sort of in academia 370 00:20:40,720 --> 00:20:44,280 Speaker 1: doing economic work, you know, I think so, I mean, look, 371 00:20:44,320 --> 00:20:46,159 Speaker 1: I will say I benefit from the fact that we 372 00:20:46,160 --> 00:20:48,679 Speaker 1: have a brilliant team of PhD economists at the Minneapolis 373 00:20:48,760 --> 00:20:51,760 Speaker 1: FED and around the fudders Or system who I learned from, 374 00:20:51,800 --> 00:20:54,159 Speaker 1: and I debate and I discussed. So I don't want 375 00:20:54,200 --> 00:20:57,400 Speaker 1: to discount that they're enormously important part of the process. 376 00:20:57,400 --> 00:20:59,840 Speaker 1: But I'm not when to some model I was taught 377 00:20:59,840 --> 00:21:02,040 Speaker 1: for two years ago and graduate school that this is 378 00:21:02,080 --> 00:21:03,680 Speaker 1: the way the world works, and you need to just 379 00:21:03,720 --> 00:21:05,800 Speaker 1: think about the world through this one framework. And I 380 00:21:05,840 --> 00:21:08,280 Speaker 1: think that, you know, just the discussion of the natural 381 00:21:08,320 --> 00:21:11,840 Speaker 1: rate of unemployment, why is it that economists always assume 382 00:21:12,160 --> 00:21:15,320 Speaker 1: when there's a recession, the natural rate of unemployment ratchets 383 00:21:15,400 --> 00:21:18,879 Speaker 1: up and then only falls back down, only gradually over time. 384 00:21:19,080 --> 00:21:22,760 Speaker 1: And they come up with all sorts of dislocations, fancy words, skills, 385 00:21:22,840 --> 00:21:27,520 Speaker 1: mismatch skills, diminish boy, this is an enormously costly error 386 00:21:27,560 --> 00:21:30,800 Speaker 1: that we keep making people want to work. And that's 387 00:21:30,840 --> 00:21:32,040 Speaker 1: one of the things that we've learned, and if we 388 00:21:32,119 --> 00:21:33,959 Speaker 1: just allowed the economy to recover, I think where they 389 00:21:33,960 --> 00:21:36,600 Speaker 1: will continue to surprise us. And so yes, I do 390 00:21:36,680 --> 00:21:39,080 Speaker 1: think that not being an economist has helped me at 391 00:21:39,160 --> 00:21:42,320 Speaker 1: least see that. But that's not to say that economists 392 00:21:42,320 --> 00:21:47,680 Speaker 1: can't see that too. So what is the reluctance so 393 00:21:47,760 --> 00:21:52,920 Speaker 1: far to adopt a more formal forward guidance state contingent 394 00:21:53,000 --> 00:21:56,800 Speaker 1: forward guidance framework? What do people what do people see 395 00:21:57,200 --> 00:21:59,639 Speaker 1: at the FED when you're having these discussions. What are 396 00:21:59,680 --> 00:22:02,680 Speaker 1: pers even as the cost of saying like, Okay, we're 397 00:22:02,680 --> 00:22:05,919 Speaker 1: not even gonna think about thinking about raising rates until 398 00:22:06,200 --> 00:22:10,120 Speaker 1: either inflation is above X for so long and or 399 00:22:10,200 --> 00:22:13,359 Speaker 1: unemployment is below X. Why the why the discomfort with it? 400 00:22:13,600 --> 00:22:15,959 Speaker 1: I don't think there is right now great discomfort with it. 401 00:22:16,000 --> 00:22:19,159 Speaker 1: I think through the committee's work and the Chairman's comments, 402 00:22:19,200 --> 00:22:22,160 Speaker 1: I think market expectations are that rates will be low 403 00:22:22,280 --> 00:22:24,800 Speaker 1: for a long period of time, and so I don't 404 00:22:24,800 --> 00:22:27,840 Speaker 1: feel like there's uh burning pressure that we need to 405 00:22:27,920 --> 00:22:31,040 Speaker 1: change our forward guidance today to change market expectations. I 406 00:22:31,040 --> 00:22:34,400 Speaker 1: think the committee already gone to good job setting expectations. 407 00:22:34,400 --> 00:22:36,560 Speaker 1: So I think the work will comment you know, my 408 00:22:36,640 --> 00:22:38,960 Speaker 1: guess is that we will adopt some more formal form 409 00:22:39,000 --> 00:22:42,280 Speaker 1: of UH state contingent forward guidance. But the committee just 410 00:22:42,320 --> 00:22:45,679 Speaker 1: hasn't gotten to that conclusion yet, but I think I 411 00:22:45,800 --> 00:22:49,440 Speaker 1: suspect that we will get there. Um, you're generally considered 412 00:22:49,480 --> 00:22:52,920 Speaker 1: to be one of the more dubbish people at the FED. 413 00:22:53,119 --> 00:22:56,000 Speaker 1: I think that's a fair characterization. What do you say 414 00:22:56,040 --> 00:22:58,600 Speaker 1: to people who argue, you know, to people who make 415 00:22:58,600 --> 00:23:01,439 Speaker 1: the argument about the idea of the central bank running 416 00:23:01,440 --> 00:23:05,119 Speaker 1: out of ammunition if you lower rates too early or 417 00:23:05,240 --> 00:23:08,000 Speaker 1: for too long, it means when the next economic crisis 418 00:23:08,040 --> 00:23:12,119 Speaker 1: comes along, the FED won't have enough firepower or the 419 00:23:12,119 --> 00:23:15,000 Speaker 1: tools at its disposal to actually make a difference. What 420 00:23:15,040 --> 00:23:17,840 Speaker 1: do you say to that argument. I mean, I'll be blunt. 421 00:23:17,880 --> 00:23:20,920 Speaker 1: I think it's an absurd argument. And let's imagine that 422 00:23:21,600 --> 00:23:25,000 Speaker 1: the CDC had told us a year ago that a 423 00:23:25,080 --> 00:23:28,200 Speaker 1: terrible pandemic is coming. Should we have raised rates last 424 00:23:28,280 --> 00:23:32,360 Speaker 1: year to slow the economy down so that we can 425 00:23:32,400 --> 00:23:35,240 Speaker 1: then cut rates when the pandemic hit? It just makes 426 00:23:35,280 --> 00:23:38,240 Speaker 1: no sense. And so I mean, people say all the time, 427 00:23:38,640 --> 00:23:40,680 Speaker 1: you know, at the best analogy I have, let's say 428 00:23:40,680 --> 00:23:43,400 Speaker 1: you're driving down the highway and you think that there 429 00:23:43,440 --> 00:23:46,280 Speaker 1: may be a hill on the horizon. Should you slow 430 00:23:46,320 --> 00:23:48,840 Speaker 1: down now so that you can floor when you get 431 00:23:48,880 --> 00:23:51,640 Speaker 1: to the hill. Of course not. You should just maintain 432 00:23:51,680 --> 00:23:54,080 Speaker 1: your speed and then if you only have less pedal 433 00:23:54,160 --> 00:23:57,320 Speaker 1: to give, so be it. But slowing down in advance 434 00:23:57,359 --> 00:23:59,360 Speaker 1: of the hill does not actually help you, And so 435 00:24:00,040 --> 00:24:02,920 Speaker 1: it's just it's a nice sound bite until you stop 436 00:24:02,920 --> 00:24:06,240 Speaker 1: and think it through, and then it just collapses. So 437 00:24:06,640 --> 00:24:09,280 Speaker 1: obviously you mentioned at the outset that one of the 438 00:24:09,359 --> 00:24:12,320 Speaker 1: most powerful things the Fed has done is really sort 439 00:24:12,359 --> 00:24:15,359 Speaker 1: of established itself in its lender of last resort and 440 00:24:15,440 --> 00:24:18,159 Speaker 1: really back up the corporate sector as a whole, not 441 00:24:18,320 --> 00:24:20,760 Speaker 1: just the financial sector, but really sort of be there 442 00:24:21,119 --> 00:24:23,560 Speaker 1: to back up the corporate bond market basically, and it 443 00:24:23,640 --> 00:24:26,240 Speaker 1: has been incredibly powerful. And right after its announced we 444 00:24:26,280 --> 00:24:30,919 Speaker 1: saw this huge, incredible rally in the credit markets, credit 445 00:24:30,960 --> 00:24:33,399 Speaker 1: conditions eased. Are we ever going to get back to 446 00:24:33,480 --> 00:24:36,600 Speaker 1: a point in which you know, monetary policy is going 447 00:24:36,640 --> 00:24:41,080 Speaker 1: to be raising rates twenty five basis points cutting rates 448 00:24:41,600 --> 00:24:44,200 Speaker 1: basis points or we now sort of in this permanent 449 00:24:44,840 --> 00:24:48,439 Speaker 1: world in which the key monetary policy decisions are not 450 00:24:48,680 --> 00:24:51,200 Speaker 1: the rate moves but the sort of like an hour, 451 00:24:51,280 --> 00:24:53,399 Speaker 1: going to adopt a totally new policy or find some 452 00:24:53,560 --> 00:24:56,919 Speaker 1: totally new framework or new idea. Are we is this is? 453 00:24:56,960 --> 00:24:59,760 Speaker 1: This is interesting monetary policy. What we're doomed to for 454 00:24:59,760 --> 00:25:01,679 Speaker 1: the of our lives? I don't think so. I mean, 455 00:25:01,720 --> 00:25:05,159 Speaker 1: I think underneath the question you're asking is a question 456 00:25:05,200 --> 00:25:07,560 Speaker 1: of when is the neutral interest rate and to climb 457 00:25:07,560 --> 00:25:10,240 Speaker 1: back up to what we've been used to prior to 458 00:25:10,280 --> 00:25:12,679 Speaker 1: the past ten years, and what is the neutral rate? 459 00:25:12,760 --> 00:25:16,560 Speaker 1: That's the rate that clears savings and investment in the economy. 460 00:25:16,640 --> 00:25:18,399 Speaker 1: And that really is when is there going to be 461 00:25:18,440 --> 00:25:21,560 Speaker 1: a much greater demand for investment capital? Where are the 462 00:25:21,640 --> 00:25:25,399 Speaker 1: big demands for capital today? And we think about Facebook 463 00:25:25,400 --> 00:25:27,960 Speaker 1: and Twitter that we talked about Twitter earlier. These don't 464 00:25:27,960 --> 00:25:31,240 Speaker 1: require much capital to create these programs. Even Uber doesn't 465 00:25:31,280 --> 00:25:35,000 Speaker 1: require much capital. What requires a lot of capital oil 466 00:25:35,040 --> 00:25:37,920 Speaker 1: investment in North Dakota and Texas, in Oklahoma, that's probably 467 00:25:37,920 --> 00:25:41,320 Speaker 1: the biggest destination for capital. So when we see in 468 00:25:41,359 --> 00:25:44,879 Speaker 1: our economy big demand for a lot of capital for 469 00:25:45,240 --> 00:25:48,280 Speaker 1: positive r o I projects, that is when we would 470 00:25:48,400 --> 00:25:50,800 Speaker 1: I would expect to see what we call our star, 471 00:25:50,880 --> 00:25:53,280 Speaker 1: the neutral interest rate rise back up again and that 472 00:25:53,320 --> 00:25:55,840 Speaker 1: will bring us away from the zero lower bound and 473 00:25:55,880 --> 00:25:58,440 Speaker 1: then we'll get back to more of a normal monetary 474 00:25:58,440 --> 00:26:01,479 Speaker 1: policy environment or remove rate up and down around that 475 00:26:01,600 --> 00:26:04,360 Speaker 1: higher neutral level. The challenge for us all right now 476 00:26:04,480 --> 00:26:06,760 Speaker 1: is the neutral rate is so low because of these 477 00:26:06,760 --> 00:26:11,439 Speaker 1: other macroeconomic questions about investment. Uh, And that's why we 478 00:26:11,480 --> 00:26:14,280 Speaker 1: have to do these extraordinary things, because we're near or 479 00:26:14,400 --> 00:26:16,639 Speaker 1: at the what we call the effect of lower bound 480 00:26:17,240 --> 00:26:20,160 Speaker 1: m hm. This is actually something that I've I've wondered 481 00:26:20,200 --> 00:26:23,360 Speaker 1: for a while. But to what degree is the our 482 00:26:23,480 --> 00:26:28,760 Speaker 1: star or the neutral rate idea driving monetary policy decisions 483 00:26:28,800 --> 00:26:32,080 Speaker 1: at the FED? And and why did it seem to 484 00:26:32,119 --> 00:26:35,919 Speaker 1: suddenly become popular? Like I think it was probably about 485 00:26:35,920 --> 00:26:38,840 Speaker 1: four or five years ago. We really saw um a 486 00:26:38,840 --> 00:26:42,760 Speaker 1: lot of policymakers and especially pal talking about our star 487 00:26:42,960 --> 00:26:46,960 Speaker 1: in a way that FED chairs hadn't really done previously. 488 00:26:47,040 --> 00:26:50,679 Speaker 1: Why did that happen? I think it happened because you know, 489 00:26:50,880 --> 00:26:53,960 Speaker 1: we were all a little bit surprised that inflation didn't come. 490 00:26:54,560 --> 00:26:58,040 Speaker 1: You know, rates are low relative to history, and everyone says, 491 00:26:58,040 --> 00:27:01,160 Speaker 1: oh my gosh, we're at full employment or beyond full employment. 492 00:27:01,160 --> 00:27:03,520 Speaker 1: That means inflation must be around the corner. And yet 493 00:27:03,560 --> 00:27:06,480 Speaker 1: inflation didn't come. And so when you start looking at 494 00:27:06,520 --> 00:27:08,680 Speaker 1: this and saying, why is an inflation showing up? Okay, 495 00:27:08,720 --> 00:27:11,639 Speaker 1: one explanation is there's more slack in the labor market 496 00:27:11,680 --> 00:27:15,160 Speaker 1: that we didn't appreciate. Another explanation is, hey, maybe we're 497 00:27:15,160 --> 00:27:18,840 Speaker 1: not providing much accommodation. If our star is low, maybe 498 00:27:18,880 --> 00:27:21,919 Speaker 1: we're not providing any accommodation, and we're just kind of 499 00:27:21,960 --> 00:27:24,720 Speaker 1: following the economy along. And so I think the way 500 00:27:24,760 --> 00:27:28,520 Speaker 1: that the economy responded, the way that inflation didn't materialize, 501 00:27:28,960 --> 00:27:32,520 Speaker 1: forced all of us to say, hey, let's reexamine some 502 00:27:32,600 --> 00:27:35,840 Speaker 1: of our assumptions. And one of those fundamental assumptions is 503 00:27:36,560 --> 00:27:40,399 Speaker 1: what interest rate is neutral, what interest rate constrains the 504 00:27:40,440 --> 00:27:44,960 Speaker 1: economy versus what interest rate stimulates the economy. So trying 505 00:27:44,960 --> 00:27:47,440 Speaker 1: to figure out what is going, what are the set 506 00:27:47,440 --> 00:27:51,240 Speaker 1: of economic conditions that will actually sort of raise our star, 507 00:27:51,400 --> 00:27:55,679 Speaker 1: sort of create this demand for investment capital and so forth. 508 00:27:56,119 --> 00:27:58,640 Speaker 1: And this really gets to what Tracy and I think 509 00:27:58,680 --> 00:28:01,800 Speaker 1: we're talking in the beginning, which that even pre coronavirus 510 00:28:02,160 --> 00:28:04,080 Speaker 1: and you just said it right there, which is that 511 00:28:04,160 --> 00:28:08,240 Speaker 1: the sort of the surprise that monetary policy wasn't uh 512 00:28:08,359 --> 00:28:12,120 Speaker 1: that we weren't seeing inflation. Do we need a handoff 513 00:28:12,200 --> 00:28:15,679 Speaker 1: so to speak from UH monetary policy and fiscal policy. 514 00:28:15,760 --> 00:28:18,840 Speaker 1: We saw this very robust spending with the Cares Act, 515 00:28:19,119 --> 00:28:22,000 Speaker 1: but now that's expired and so far there's no deal 516 00:28:22,119 --> 00:28:25,639 Speaker 1: to renew it, either to renew P p P or 517 00:28:25,720 --> 00:28:30,400 Speaker 1: renew the unemployment insurance expansion. So a in the short term, 518 00:28:30,680 --> 00:28:33,520 Speaker 1: how how significant of a problem will this be if 519 00:28:33,560 --> 00:28:36,520 Speaker 1: we don't get that renewal. But in the long term, 520 00:28:36,640 --> 00:28:40,200 Speaker 1: should there be a more sustained role for aggressive monetary 521 00:28:40,320 --> 00:28:47,440 Speaker 1: or aggressive fiscal policy in reviving and maintaining economic expansion. Well, 522 00:28:47,480 --> 00:28:49,280 Speaker 1: I think in the short term it's a big deal. 523 00:28:49,400 --> 00:28:51,200 Speaker 1: It's a very big deal. And the reason, Tracey, you 524 00:28:51,280 --> 00:28:54,640 Speaker 1: talked earlier about potential losses in the banking sector, the 525 00:28:54,680 --> 00:28:57,360 Speaker 1: banking sector already got a huge bailout. They got a 526 00:28:57,360 --> 00:29:00,760 Speaker 1: bailout because Americans who lost their jobs these additional six 527 00:29:01,120 --> 00:29:03,400 Speaker 1: dollars a week, and that enabled them to make their 528 00:29:03,440 --> 00:29:06,920 Speaker 1: credit card bills, make their auto payments, make their mortgage payments, 529 00:29:06,920 --> 00:29:11,000 Speaker 1: and their rent payments, and that really supported the financial 530 00:29:11,000 --> 00:29:13,400 Speaker 1: system as a whole, and the banking center in particular. 531 00:29:13,600 --> 00:29:16,240 Speaker 1: So with those expiring boy I hope Congress comes back 532 00:29:16,280 --> 00:29:20,840 Speaker 1: together to extend them. That's really necessary to sustain our 533 00:29:20,880 --> 00:29:24,040 Speaker 1: economy until we get through this COVID crisis and we 534 00:29:24,040 --> 00:29:27,040 Speaker 1: can all hopefully get back to normal sooner rather than later. 535 00:29:27,600 --> 00:29:30,800 Speaker 1: Over the long run, I think the question is where 536 00:29:30,800 --> 00:29:32,880 Speaker 1: should the government invest I mean I I look at 537 00:29:32,880 --> 00:29:35,080 Speaker 1: it very differently. If the government said we want to 538 00:29:35,080 --> 00:29:38,840 Speaker 1: go spend and why are the country for broadband? I 539 00:29:38,880 --> 00:29:41,560 Speaker 1: think that's a no brainer that they should do it. 540 00:29:41,600 --> 00:29:43,720 Speaker 1: We can afford it, and it's the right thing to do, 541 00:29:43,760 --> 00:29:45,600 Speaker 1: and it would be good for our economy. But I 542 00:29:45,600 --> 00:29:48,760 Speaker 1: would make a distinction between investments by the government, such 543 00:29:48,800 --> 00:29:52,040 Speaker 1: as in broadband, versus just ongoing spending. You know, you 544 00:29:52,080 --> 00:29:54,720 Speaker 1: can you the government can spend money, can support consumption 545 00:29:54,760 --> 00:29:57,240 Speaker 1: as they are with the Cares Act, but that over 546 00:29:57,240 --> 00:30:00,920 Speaker 1: the long term doesn't actually boost our economic potential. That 547 00:30:01,000 --> 00:30:04,240 Speaker 1: just sustains consumption in the short run. So once we 548 00:30:04,280 --> 00:30:07,239 Speaker 1: get through this, I think focusing the government's resources on 549 00:30:07,400 --> 00:30:10,360 Speaker 1: real investment, I think that that would be that would 550 00:30:10,600 --> 00:30:14,280 Speaker 1: largely pay for itself. So you mentioned you say that 551 00:30:14,400 --> 00:30:19,840 Speaker 1: um spending on say infrastructure, say like broadband, would boost 552 00:30:19,840 --> 00:30:23,080 Speaker 1: the potential of the economy more than spending that was 553 00:30:23,280 --> 00:30:28,280 Speaker 1: just aimed at sort of maintaining and consumption. But on 554 00:30:28,320 --> 00:30:31,600 Speaker 1: the other hand, if we had a sort of sustainable consumption, 555 00:30:31,800 --> 00:30:35,080 Speaker 1: if households could always spend, if businesses were confident that 556 00:30:35,120 --> 00:30:37,800 Speaker 1: households wouldn't have to retrench as fast in a downturn, 557 00:30:38,360 --> 00:30:42,120 Speaker 1: might that make them more inclined to do capital investments 558 00:30:42,520 --> 00:30:46,040 Speaker 1: with that confidence that in demand would be more stable 559 00:30:46,080 --> 00:30:50,600 Speaker 1: in robust I can't say it's impossible. I haven't seen 560 00:30:50,600 --> 00:30:52,840 Speaker 1: any evidence that that is true. When I talked to 561 00:30:52,880 --> 00:30:55,680 Speaker 1: businesses about where they want to invest, it's much more 562 00:30:55,720 --> 00:30:57,760 Speaker 1: a question of you know, where are we going to 563 00:30:57,840 --> 00:31:00,520 Speaker 1: get the return at It's not that I've not business 564 00:31:00,520 --> 00:31:02,800 Speaker 1: to say, well, I would make this investment in this 565 00:31:02,840 --> 00:31:04,640 Speaker 1: new plant, but I think there may be a recession 566 00:31:04,680 --> 00:31:07,480 Speaker 1: in five years. I haven't heard a lot of that. 567 00:31:07,840 --> 00:31:10,840 Speaker 1: It more seems like where the technology breakthroughs that are 568 00:31:10,840 --> 00:31:13,280 Speaker 1: going to lead to new industries, that are going to 569 00:31:13,400 --> 00:31:18,360 Speaker 1: lead to expansion opportunities, new markets, etcetera. Uh So, to me, 570 00:31:19,320 --> 00:31:23,000 Speaker 1: government investment, you know, government investment is is a murky 571 00:31:23,040 --> 00:31:25,240 Speaker 1: thing in the best of times. You know, you know, 572 00:31:25,360 --> 00:31:27,560 Speaker 1: you never know for sure if it's going to pay off. 573 00:31:27,840 --> 00:31:29,800 Speaker 1: I think focusing on things that have a reasonable chance 574 00:31:29,840 --> 00:31:33,000 Speaker 1: for a return makes more sense to me than just saying, hey, 575 00:31:33,000 --> 00:31:36,720 Speaker 1: we're gonna support consumption forever for consumption sake. It's hard 576 00:31:36,720 --> 00:31:38,560 Speaker 1: for me to see the r o I from that. 577 00:31:39,520 --> 00:31:42,600 Speaker 1: I mean, there does seem to be a general consensus 578 00:31:42,640 --> 00:31:47,000 Speaker 1: about the need for fiscal stimulus in the current situation. 579 00:31:47,200 --> 00:31:50,480 Speaker 1: How do you see how do you see monetary policy 580 00:31:50,760 --> 00:31:57,600 Speaker 1: interacting with fiscal stimulus or or amplifying it if that's possible, Well, 581 00:31:57,640 --> 00:32:01,240 Speaker 1: I think that there's I think monetary policy is supportive 582 00:32:01,520 --> 00:32:03,480 Speaker 1: by making sure that markets are functioning. You know, we 583 00:32:03,520 --> 00:32:07,360 Speaker 1: saw stresses in the treasury market in acute part of 584 00:32:07,520 --> 00:32:12,760 Speaker 1: March when everybody just got terrified by the coronavirus. Investors, businesses, 585 00:32:12,800 --> 00:32:15,800 Speaker 1: individuals just said we want cash, and so they were 586 00:32:15,800 --> 00:32:18,520 Speaker 1: shunning all types of financial assets. And so that's why 587 00:32:18,560 --> 00:32:21,320 Speaker 1: the lender of last resort of the central bank stepping 588 00:32:21,320 --> 00:32:23,880 Speaker 1: in was so important to provide that confidence to make 589 00:32:23,920 --> 00:32:27,600 Speaker 1: sure markets are functioning. And so US continuing to provide 590 00:32:27,600 --> 00:32:31,120 Speaker 1: that support will make it will ensure that their government 591 00:32:31,160 --> 00:32:34,080 Speaker 1: can continue to go out and raise money to get 592 00:32:34,160 --> 00:32:37,960 Speaker 1: us through this pandemic. So we're providing a complementary supportive role. 593 00:32:38,280 --> 00:32:41,080 Speaker 1: But ultimately it's going to be up to Congress to say, hey, 594 00:32:41,120 --> 00:32:42,959 Speaker 1: we're going to do more for the American people who 595 00:32:42,960 --> 00:32:45,120 Speaker 1: have been laid off, We're gonna do do more for 596 00:32:45,160 --> 00:32:48,640 Speaker 1: the businesses that have been dramatically affected by the COVID crisis. 597 00:32:48,680 --> 00:32:51,200 Speaker 1: Only this only the Congress can do that, not the 598 00:32:51,240 --> 00:33:10,800 Speaker 1: Central Bank. So Neil, I wanted to turn the conversation 599 00:33:10,800 --> 00:33:13,280 Speaker 1: a little bit because you're, as mentioned, you know, you're 600 00:33:13,320 --> 00:33:17,760 Speaker 1: the president of the Minneapolis Fed. Minneapolis is really, you know, 601 00:33:17,800 --> 00:33:22,560 Speaker 1: the sort of the central location that catalyzed the protests 602 00:33:22,840 --> 00:33:27,320 Speaker 1: that we've seen, uh this summer against racism, against police 603 00:33:27,480 --> 00:33:30,200 Speaker 1: violence in the wake of the killing of George Floyd, 604 00:33:30,600 --> 00:33:32,800 Speaker 1: and I want to talk a little bit about, you know, 605 00:33:32,920 --> 00:33:35,800 Speaker 1: the Fed's role here. We had a guest on the 606 00:33:35,840 --> 00:33:39,720 Speaker 1: podcast a few weeks ago, Congresswoman Iana Pressley, arguing that 607 00:33:40,000 --> 00:33:43,760 Speaker 1: the FED itself, monetary policy itself, can do more to 608 00:33:44,080 --> 00:33:47,840 Speaker 1: fight racial inequality. And she pointed out the fact that's 609 00:33:47,840 --> 00:33:50,360 Speaker 1: sort of very easily easy to see in the charts, 610 00:33:50,400 --> 00:33:53,920 Speaker 1: which is that the relationship between black unemployment and white 611 00:33:54,000 --> 00:33:57,560 Speaker 1: unemployment is cyclical, and that during periods of during boon 612 00:33:57,640 --> 00:34:01,440 Speaker 1: times that spread compressive and we start to see the 613 00:34:01,520 --> 00:34:04,920 Speaker 1: unemployment rate between blacks and whites start to go down. 614 00:34:05,520 --> 00:34:07,440 Speaker 1: And so she made the argument that this should be 615 00:34:07,640 --> 00:34:10,960 Speaker 1: more of a focus for the FED and monetary policy. 616 00:34:11,000 --> 00:34:13,920 Speaker 1: And I'm curious whether you share that and whether you 617 00:34:13,960 --> 00:34:19,040 Speaker 1: think that monetary policy can play a positive role in 618 00:34:19,680 --> 00:34:23,239 Speaker 1: addressing racial inequality in this country. Well, I think you 619 00:34:23,320 --> 00:34:26,759 Speaker 1: know to our earlier discussion about not raising rates prematurely, 620 00:34:27,239 --> 00:34:30,000 Speaker 1: I think monetary policy does have a role to play 621 00:34:30,040 --> 00:34:33,640 Speaker 1: in helping workers who've been left on the sidelines by 622 00:34:33,800 --> 00:34:37,520 Speaker 1: creating as strong and economic recovery as possible to bring 623 00:34:37,560 --> 00:34:40,440 Speaker 1: everybody back in. The problem is, recessions do happen. They 624 00:34:40,480 --> 00:34:43,600 Speaker 1: will happen in the future, shocks like the coronavirus will 625 00:34:43,640 --> 00:34:45,920 Speaker 1: come out of nowhere, and then the problem is that 626 00:34:45,960 --> 00:34:48,440 Speaker 1: if many of those folks who were last who last 627 00:34:48,520 --> 00:34:50,880 Speaker 1: joined the labor force, are often the folks who are 628 00:34:50,920 --> 00:34:53,080 Speaker 1: the first ones to lose their jobs in a downturn. 629 00:34:53,400 --> 00:34:55,960 Speaker 1: So I do think monetary policy has a role to play, 630 00:34:56,000 --> 00:34:59,200 Speaker 1: but it is unfortunately not the strongest or the most 631 00:34:59,640 --> 00:35:02,200 Speaker 1: import tool. The most important tools are going to be 632 00:35:02,239 --> 00:35:05,839 Speaker 1: from the fiscal authorities, from Congress in helping to create 633 00:35:05,840 --> 00:35:09,920 Speaker 1: an economy where everybody can fully participate and everybody can benefit. 634 00:35:09,960 --> 00:35:13,400 Speaker 1: There are just limits to what monetary policy can play, uh, 635 00:35:13,520 --> 00:35:17,640 Speaker 1: and I think that's just the unfortunate reality. Are there 636 00:35:17,640 --> 00:35:25,480 Speaker 1: specific things that monetary policymakers can do to help racial equality, like, 637 00:35:25,520 --> 00:35:30,480 Speaker 1: for instance, could you have full employment targets for different 638 00:35:30,600 --> 00:35:33,960 Speaker 1: racial or socio economic groups. And if you were to 639 00:35:34,000 --> 00:35:38,440 Speaker 1: do something like that, why why should people have This 640 00:35:38,480 --> 00:35:41,000 Speaker 1: is going to sound very cynical, but why should people 641 00:35:41,040 --> 00:35:45,480 Speaker 1: have faith in your ability to help, you know, really 642 00:35:45,600 --> 00:35:50,000 Speaker 1: entrenched problems such as inequality when arguably you've had difficulty 643 00:35:50,120 --> 00:35:54,680 Speaker 1: reaching both the inflation target and the full employment target 644 00:35:54,760 --> 00:35:57,040 Speaker 1: for for many years, or at least we're not entirely 645 00:35:57,080 --> 00:36:01,440 Speaker 1: sure what full employment actually is at this point, right, Well, 646 00:36:01,440 --> 00:36:03,359 Speaker 1: this is I mean, it's it's the core of those 647 00:36:03,360 --> 00:36:07,920 Speaker 1: two things that we think that the maximum employment objective 648 00:36:08,080 --> 00:36:11,359 Speaker 1: and the stable price objectives are like a seesaw where 649 00:36:11,360 --> 00:36:14,040 Speaker 1: you're trading each other off. An optimal monetary policy, those 650 00:36:14,040 --> 00:36:16,879 Speaker 1: two things should be intention For the last ten years, 651 00:36:16,920 --> 00:36:20,000 Speaker 1: there's been no tension because we've undershot our inflation target 652 00:36:20,200 --> 00:36:22,520 Speaker 1: and there's still been slack in the labor market that 653 00:36:22,600 --> 00:36:25,879 Speaker 1: only happens I monetary policy is too tight. So let's 654 00:36:25,920 --> 00:36:27,919 Speaker 1: assume that we learn from that and that we don't 655 00:36:27,960 --> 00:36:31,359 Speaker 1: repeat that mistake again, and that we don't preemptively raise 656 00:36:31,520 --> 00:36:35,040 Speaker 1: rates and cut off the expansion. Well let's imagine though, 657 00:36:35,040 --> 00:36:37,120 Speaker 1: that we just said we're going to target black unemployment, 658 00:36:37,160 --> 00:36:40,799 Speaker 1: and the black unemployment is our new maximum employment objective. 659 00:36:41,760 --> 00:36:44,640 Speaker 1: The challenges what does that mean for inflation? And if 660 00:36:44,680 --> 00:36:46,839 Speaker 1: you will say, well, we're gonna get black unemployment down 661 00:36:46,840 --> 00:36:50,080 Speaker 1: to four percent, which would be terrific instead of you know, 662 00:36:50,160 --> 00:36:52,399 Speaker 1: double what it normally is for white unemployment, it's usually 663 00:36:52,400 --> 00:36:55,640 Speaker 1: a two to one relationship. If that then leads to 664 00:36:56,560 --> 00:36:59,360 Speaker 1: losing our inflation target, meaning we hit three percent inflation 665 00:36:59,520 --> 00:37:02,239 Speaker 1: or higher, then we're failing on that end of our 666 00:37:02,320 --> 00:37:05,040 Speaker 1: dual mandate. And so I think that we need to 667 00:37:05,120 --> 00:37:07,200 Speaker 1: learn everything we can from the experience in the last 668 00:37:07,239 --> 00:37:09,640 Speaker 1: ten years. We need to push the labor market as 669 00:37:09,640 --> 00:37:12,000 Speaker 1: hard as we can until we get to our two 670 00:37:12,000 --> 00:37:14,399 Speaker 1: percent inflation target and maybe even a little bit above 671 00:37:14,440 --> 00:37:16,480 Speaker 1: it if we're making up for you know, prior misses. 672 00:37:16,840 --> 00:37:18,560 Speaker 1: But I think that if we have to keep our 673 00:37:18,600 --> 00:37:22,640 Speaker 1: eyes on both ends of that seesaw and that's where 674 00:37:22,680 --> 00:37:26,000 Speaker 1: just targeting one, you know, black unemployment as an example, 675 00:37:26,080 --> 00:37:29,760 Speaker 1: or Hispanic unemployment, it may not actually work to balance 676 00:37:29,760 --> 00:37:34,000 Speaker 1: out both sides of our dual mandate. We did see, however, 677 00:37:34,280 --> 00:37:37,719 Speaker 1: that in the in the final years of the last expansion, 678 00:37:37,719 --> 00:37:40,680 Speaker 1: there were numerous stories I think they were you know, 679 00:37:40,920 --> 00:37:43,080 Speaker 1: I think you talked about them, and the chairman has 680 00:37:43,120 --> 00:37:44,680 Speaker 1: talked about them, and there are lots in the media 681 00:37:44,719 --> 00:37:48,439 Speaker 1: about how as labor markets got tighter, employers really did 682 00:37:48,760 --> 00:37:52,280 Speaker 1: UM start to look to higher from pools of workers 683 00:37:52,600 --> 00:37:56,680 Speaker 1: whom they had previously excluded. So, for example, UM former 684 00:37:56,800 --> 00:38:01,400 Speaker 1: felons that maybe wouldn't pass an initial green for employers 685 00:38:01,880 --> 00:38:05,919 Speaker 1: getting hired, getting retrained, employers paying to retrain them because 686 00:38:05,920 --> 00:38:10,120 Speaker 1: again that competition for workers. So is there an argument that, 687 00:38:10,880 --> 00:38:14,120 Speaker 1: regardless of UM, you know, whether there is a specific 688 00:38:14,200 --> 00:38:18,760 Speaker 1: level to be targeted, that the composition or that gap 689 00:38:18,880 --> 00:38:23,319 Speaker 1: in employment between different races should be a variable that 690 00:38:23,360 --> 00:38:27,160 Speaker 1: you look at and should be something that you consider that. Okay, 691 00:38:27,400 --> 00:38:30,200 Speaker 1: you know, perhaps there really is more room for labor 692 00:38:30,239 --> 00:38:34,600 Speaker 1: market expansion because we'll start to see businesses invest and 693 00:38:34,719 --> 00:38:37,640 Speaker 1: hire people that they were not hiring in early parts 694 00:38:37,640 --> 00:38:40,840 Speaker 1: of the recovery. Absolutely no, I mean, trust me, I 695 00:38:40,920 --> 00:38:44,520 Speaker 1: agree with that. And just as a friendly reminder, I'm 696 00:38:44,560 --> 00:38:46,799 Speaker 1: the one person in the committee who dissented against all 697 00:38:46,840 --> 00:38:48,680 Speaker 1: of our rate increases every time I was a voter 698 00:38:49,239 --> 00:38:51,560 Speaker 1: for for exactly the reasons that you and Tracy are 699 00:38:51,600 --> 00:38:54,560 Speaker 1: talking about that we are seeing these gains. I'm just 700 00:38:54,600 --> 00:38:56,960 Speaker 1: simply saying there may be a limit to how far 701 00:38:57,000 --> 00:38:59,359 Speaker 1: we can push that, and so we we can't just say, well, 702 00:38:59,360 --> 00:39:02,360 Speaker 1: we're gonna ignore inflation and just target the labor market. 703 00:39:02,920 --> 00:39:04,520 Speaker 1: One of our mandates is to make sure that we 704 00:39:04,560 --> 00:39:07,200 Speaker 1: do have stable prices, and so let's push the labor 705 00:39:07,239 --> 00:39:09,640 Speaker 1: market as hard as we can. Let's get all the 706 00:39:09,680 --> 00:39:13,080 Speaker 1: games that you're just talking about subject to actually achieving 707 00:39:13,080 --> 00:39:16,279 Speaker 1: our inflation target, and given our recent history of the 708 00:39:16,360 --> 00:39:18,759 Speaker 1: last five or more years, that would actually help us 709 00:39:18,800 --> 00:39:22,960 Speaker 1: achieve our inflation target. We've been very focused on the 710 00:39:23,000 --> 00:39:26,600 Speaker 1: domestic situation in the US for obvious reasons and inequality 711 00:39:26,840 --> 00:39:29,680 Speaker 1: within the US, But I wondered if we could sort 712 00:39:29,719 --> 00:39:32,879 Speaker 1: of turn our gays internationally and talk a little bit 713 00:39:32,920 --> 00:39:39,000 Speaker 1: about how the FED is thinking about the international economics system. 714 00:39:39,600 --> 00:39:45,840 Speaker 1: To what extent do international financial conditions factor into your thinking, 715 00:39:46,000 --> 00:39:48,560 Speaker 1: or I guess another way of phrasing this is does 716 00:39:48,640 --> 00:39:52,600 Speaker 1: the FED feel like it is central banker to the 717 00:39:52,640 --> 00:39:55,520 Speaker 1: world or does the FED feel like it has a 718 00:39:55,560 --> 00:39:59,239 Speaker 1: responsibility to the wider world when it's thinking about us 719 00:39:59,280 --> 00:40:03,520 Speaker 1: financial cond Honestly, we are really focused on what it 720 00:40:03,560 --> 00:40:06,800 Speaker 1: means for the United States economy and the American people. 721 00:40:07,239 --> 00:40:10,160 Speaker 1: And we have staff in Washington and staff around the 722 00:40:10,160 --> 00:40:13,239 Speaker 1: federates or system run lots of analysis and lots of 723 00:40:13,280 --> 00:40:16,480 Speaker 1: scenarios of what what's happening in other economies, but it's 724 00:40:16,520 --> 00:40:18,839 Speaker 1: always through the lens of you know, if the if 725 00:40:18,880 --> 00:40:21,800 Speaker 1: the world economy does poorly, that's probably gonna be a 726 00:40:21,880 --> 00:40:25,080 Speaker 1: drag on the American economy. If there are financial disruptions 727 00:40:25,080 --> 00:40:28,000 Speaker 1: in Europe, that's probably going to affect the American economy 728 00:40:28,040 --> 00:40:31,160 Speaker 1: and the American financial system. And so we were created 729 00:40:31,200 --> 00:40:34,480 Speaker 1: by Congress to represent and and support the U. S. Economy, 730 00:40:34,800 --> 00:40:36,800 Speaker 1: and that's what our focus is. But the U. S. 731 00:40:36,840 --> 00:40:39,040 Speaker 1: Economy is not isolated from the rest of the world, 732 00:40:39,040 --> 00:40:41,400 Speaker 1: and so we do look at it predominantly through what 733 00:40:41,400 --> 00:40:43,399 Speaker 1: does it mean for the American economy, But the rest 734 00:40:43,400 --> 00:40:46,279 Speaker 1: of the world really matters a lot for the American economy. Neil. 735 00:40:46,440 --> 00:40:48,880 Speaker 1: You know, as as I mentioned in the intro, you 736 00:40:48,920 --> 00:40:51,640 Speaker 1: were active on the treasury side of things in the 737 00:40:51,719 --> 00:40:54,520 Speaker 1: last crisis, and I'm just curious how you find the 738 00:40:54,640 --> 00:40:57,200 Speaker 1: difference and how you know you probably when you joined 739 00:40:57,239 --> 00:40:59,640 Speaker 1: the Minneapolis FED, you probably didn't expect to see another 740 00:40:59,719 --> 00:41:03,480 Speaker 1: categor plasmic economic crisis, but here we are, we have one, 741 00:41:03,520 --> 00:41:05,640 Speaker 1: and so I'm curious, like, sort of what what what 742 00:41:05,760 --> 00:41:09,479 Speaker 1: have been your experience observations going from the treasury side 743 00:41:09,560 --> 00:41:12,080 Speaker 1: last time to be uh on the ffon and stay 744 00:41:12,120 --> 00:41:14,440 Speaker 1: this time. Well, you're right that, I mean, I just 745 00:41:15,080 --> 00:41:17,400 Speaker 1: I can't believe it. I mean, I thought once in 746 00:41:17,400 --> 00:41:19,920 Speaker 1: a lifetime, once in a hundred years or once in 747 00:41:19,920 --> 00:41:21,480 Speaker 1: eighty years, would have an event like this. I can't 748 00:41:21,520 --> 00:41:24,880 Speaker 1: believe it's happening again twelve years later. You know. Interestingly, 749 00:41:24,920 --> 00:41:26,960 Speaker 1: having lived through that on the front lines and remembering 750 00:41:26,960 --> 00:41:30,080 Speaker 1: how scary the O eight crisis was, it gives me 751 00:41:30,160 --> 00:41:32,400 Speaker 1: confidence that we will get through it, that we as 752 00:41:32,400 --> 00:41:35,600 Speaker 1: a country will come together to support the workers, to 753 00:41:35,680 --> 00:41:38,799 Speaker 1: support the economy as a whole, and we will get 754 00:41:38,840 --> 00:41:41,200 Speaker 1: through this. The question is how do we get through 755 00:41:41,239 --> 00:41:44,799 Speaker 1: it inflicting as much as little pain as possible and 756 00:41:44,840 --> 00:41:48,040 Speaker 1: as little hardship as possible, recognizing that there's so much 757 00:41:48,080 --> 00:41:50,480 Speaker 1: that's out of our control. So interestingly, it's given me 758 00:41:50,520 --> 00:41:52,920 Speaker 1: more confidence that we will get through this. We have 759 00:41:53,040 --> 00:41:55,200 Speaker 1: the tools to get through it. But I also can't 760 00:41:55,200 --> 00:41:56,719 Speaker 1: believe that we're in the middle of this kind of 761 00:41:56,800 --> 00:42:00,440 Speaker 1: stuff again. So my last question is going to go 762 00:42:00,480 --> 00:42:03,680 Speaker 1: back to social media and the anonymous Twitter trolls. And 763 00:42:03,760 --> 00:42:06,360 Speaker 1: I don't mean to do a bunch of Sorry, I 764 00:42:06,400 --> 00:42:08,840 Speaker 1: don't mean to do media naval gazing here, but I 765 00:42:08,880 --> 00:42:11,279 Speaker 1: think it actually gets to something really important, which is 766 00:42:11,320 --> 00:42:15,239 Speaker 1: that it feels like a lot of people really dislike 767 00:42:15,400 --> 00:42:18,520 Speaker 1: and even hate the Federal Reserve at the moment, and 768 00:42:18,680 --> 00:42:21,560 Speaker 1: you seem to be a beacon for a lot of 769 00:42:21,560 --> 00:42:24,680 Speaker 1: that criticism because you've been very debbish. You know, you 770 00:42:24,719 --> 00:42:27,520 Speaker 1: worked at Goldman Sachs, you got hired by Hank Paulson 771 00:42:27,760 --> 00:42:31,200 Speaker 1: over at the Treasury. You don't necessarily have that academic 772 00:42:31,239 --> 00:42:37,480 Speaker 1: background in economics. At what point does populist dislike of 773 00:42:37,600 --> 00:42:42,920 Speaker 1: the Federal Reserve become an actual problem for monetary policy? 774 00:42:43,040 --> 00:42:45,799 Speaker 1: Is that something on your radar or is it something 775 00:42:45,800 --> 00:42:50,400 Speaker 1: that the Fed would ever consider? Oh, it does matter Ultimately, 776 00:42:50,440 --> 00:42:53,400 Speaker 1: we need to have the confidence of the American people. 777 00:42:53,520 --> 00:42:56,040 Speaker 1: We were created by Congress, we were accountable to Congress, 778 00:42:56,600 --> 00:43:00,320 Speaker 1: and so public opinion does matter a lot. And I 779 00:43:00,320 --> 00:43:03,320 Speaker 1: think one of part of the reason that Chairman Bernanke 780 00:43:03,480 --> 00:43:05,360 Speaker 1: and then Chare Yelling and Chairman Powell and all of 781 00:43:05,440 --> 00:43:08,239 Speaker 1: us have been working hard to increase transparency and to 782 00:43:08,320 --> 00:43:10,799 Speaker 1: engage with the public is to make sure that they 783 00:43:10,840 --> 00:43:13,800 Speaker 1: know us, that they have visibility into what that we're doing, 784 00:43:14,160 --> 00:43:16,320 Speaker 1: so that hopefully they can have confidence in the actions 785 00:43:16,360 --> 00:43:19,200 Speaker 1: that we're taking. I mean, the anonymous cranks on Twitter 786 00:43:19,680 --> 00:43:23,680 Speaker 1: do not They're just They're just loud, angry voices in 787 00:43:23,680 --> 00:43:25,840 Speaker 1: the corner. They're not representing the American people. This is 788 00:43:25,840 --> 00:43:27,920 Speaker 1: what I find. So I'm using I go out pre 789 00:43:28,239 --> 00:43:30,840 Speaker 1: pre COVID and I do town halls all the time 790 00:43:31,239 --> 00:43:34,479 Speaker 1: all around my region six states. A couple hundred people 791 00:43:34,480 --> 00:43:37,920 Speaker 1: will show up, I'll answer questions for an hour. It's 792 00:43:37,920 --> 00:43:40,879 Speaker 1: all live streams, so it's totally transparent. Those are all 793 00:43:41,000 --> 00:43:44,600 Speaker 1: totally civil people ask questions. Not everybody agrees with me. 794 00:43:44,640 --> 00:43:47,960 Speaker 1: We have very thoughtful discussions, and yet that's so far 795 00:43:48,040 --> 00:43:51,880 Speaker 1: removed from the angry cranks on Twitter. And that's what 796 00:43:51,960 --> 00:43:54,839 Speaker 1: I just think is so I mean annoying, is that 797 00:43:55,040 --> 00:43:58,040 Speaker 1: they're not representative of the American people at all. I also, 798 00:43:58,360 --> 00:44:01,560 Speaker 1: my colleagues, do we meet with elected representative senators and 799 00:44:01,600 --> 00:44:04,839 Speaker 1: congressmen and women from our regions all the time. They 800 00:44:04,880 --> 00:44:07,000 Speaker 1: hear from their constituents and they share feedback with us, 801 00:44:07,000 --> 00:44:09,920 Speaker 1: and so you know, Twitter, as you all know, Twitter 802 00:44:10,040 --> 00:44:13,280 Speaker 1: is not real life. And I think that the Federal 803 00:44:13,280 --> 00:44:16,040 Speaker 1: Reserve has earned the respect of the vast majority of 804 00:44:16,080 --> 00:44:19,080 Speaker 1: the country, and we're gonna work hard to achieve the 805 00:44:19,080 --> 00:44:22,080 Speaker 1: goals Congress has given us to maintain that respect and 806 00:44:22,080 --> 00:44:26,000 Speaker 1: to maintain that confidence. So the real question is your 807 00:44:26,080 --> 00:44:28,880 Speaker 1: fellow FOMC members, will you tell us all of their 808 00:44:28,920 --> 00:44:32,399 Speaker 1: anonymous Twitter handles and the handles that they're tweeting under. 809 00:44:32,600 --> 00:44:34,319 Speaker 1: That's that's what that's what we all want to know. 810 00:44:34,600 --> 00:44:40,120 Speaker 1: They might be my biggest critics on Twitter. Well, I 811 00:44:40,160 --> 00:44:42,439 Speaker 1: think we can wrap it up there. Neal Cash Carr 812 00:44:42,600 --> 00:44:45,640 Speaker 1: is a real treat to get to talk about these 813 00:44:45,640 --> 00:44:48,000 Speaker 1: things with you, and really appreciate you taking the time, 814 00:44:48,000 --> 00:44:51,239 Speaker 1: and thank you so much for coming on. Love, Thank you, 815 00:44:51,320 --> 00:45:11,200 Speaker 1: Joe and Tracy. I really enjoyed it great. Tracy, I 816 00:45:11,200 --> 00:45:12,879 Speaker 1: thought that was a real treat I mean, you really 817 00:45:12,920 --> 00:45:17,320 Speaker 1: just don't get many opportunities to chat with someone active 818 00:45:17,520 --> 00:45:20,880 Speaker 1: in monetary policy sort of talk big pictures, So I 819 00:45:20,920 --> 00:45:24,040 Speaker 1: thought that was pretty cool. Yeah, and uh, the great 820 00:45:24,040 --> 00:45:28,480 Speaker 1: thing about is that he does straddle the worlds of banking, 821 00:45:29,080 --> 00:45:33,160 Speaker 1: fiscal and monetary policy by dint of his career history. 822 00:45:33,239 --> 00:45:34,880 Speaker 1: So it's really great to talk to him. And of 823 00:45:34,920 --> 00:45:37,480 Speaker 1: course next year he's going to be a voting member 824 00:45:37,640 --> 00:45:40,600 Speaker 1: as well. I mean, it really is. I don't think 825 00:45:40,600 --> 00:45:43,040 Speaker 1: it could be underscored enough. It really is just an 826 00:45:43,040 --> 00:45:46,920 Speaker 1: extremely interesting and important time. And there were all these 827 00:45:47,400 --> 00:45:51,480 Speaker 1: pretty big debates, like all these questions about the framework, inflation, 828 00:45:51,560 --> 00:45:55,600 Speaker 1: catch up strategies, monetary to fiscal handoff, like they were 829 00:45:55,600 --> 00:45:59,680 Speaker 1: all being discussed prior to this crisis. And it really 830 00:46:00,120 --> 00:46:03,160 Speaker 1: the degree to which this crisis has brought all these 831 00:46:03,200 --> 00:46:05,799 Speaker 1: issues to a four really just sort of makes it 832 00:46:05,840 --> 00:46:08,520 Speaker 1: what could potentially be a really big pivot point in 833 00:46:08,560 --> 00:46:11,480 Speaker 1: economic history. Yeah, it feels like we talk a lot 834 00:46:11,480 --> 00:46:15,320 Speaker 1: about the coronavirus crisis having accelerated a bunch of different 835 00:46:15,360 --> 00:46:17,640 Speaker 1: economic trends, but of course one of the trends that 836 00:46:17,719 --> 00:46:21,000 Speaker 1: it's accelerated is this big question mark over the efficacy 837 00:46:21,239 --> 00:46:25,280 Speaker 1: of monetary policy. And I also feel like we should 838 00:46:25,280 --> 00:46:29,239 Speaker 1: just mention again that we recorded this on August. It's 839 00:46:29,360 --> 00:46:33,320 Speaker 1: the day before Jackson Whole Um. So we don't know 840 00:46:33,360 --> 00:46:35,520 Speaker 1: what's going to be announced there, whether there's going to 841 00:46:35,560 --> 00:46:39,040 Speaker 1: be this big overhaul of the fense inflation framework, but 842 00:46:39,480 --> 00:46:43,640 Speaker 1: that will be something interesting to find out, Yeah, something 843 00:46:43,680 --> 00:46:47,720 Speaker 1: that I think it's interesting too. And even though Neil 844 00:46:48,040 --> 00:46:53,560 Speaker 1: is not a trained academic economist, he still is a 845 00:46:53,800 --> 00:46:57,719 Speaker 1: very much an adherent to this idea that there is 846 00:46:57,800 --> 00:47:02,960 Speaker 1: this inherent or that there's um employment inflation trade off. 847 00:47:02,960 --> 00:47:05,280 Speaker 1: And so I think when people think about like, Okay, 848 00:47:05,320 --> 00:47:09,759 Speaker 1: they're revisiting their framework, they're visiting their strategy, you know, 849 00:47:09,760 --> 00:47:12,520 Speaker 1: and I hear that, it's like, yes, they are revisiting it, 850 00:47:12,560 --> 00:47:17,880 Speaker 1: but it's in with a fairly narrow set of prior assumption. 851 00:47:18,280 --> 00:47:22,279 Speaker 1: It's not a radical departure, it's not a sort of 852 00:47:22,280 --> 00:47:25,520 Speaker 1: like complete rethinking. It's like, yes, there is this tradeoff, 853 00:47:26,080 --> 00:47:28,440 Speaker 1: Yes there is a at some level, there is this 854 00:47:28,560 --> 00:47:33,400 Speaker 1: tension between employment, the strength of the labor market, and inflation. 855 00:47:34,239 --> 00:47:37,319 Speaker 1: But within that uh, within that framework, what can we 856 00:47:37,360 --> 00:47:39,400 Speaker 1: do to make the outcomes better? But you know, I 857 00:47:39,440 --> 00:47:41,640 Speaker 1: do think that sort of when we talk about the FED, 858 00:47:41,840 --> 00:47:45,400 Speaker 1: it is a sort of it's a small c conservative institution. 859 00:47:45,480 --> 00:47:48,760 Speaker 1: It has these assumptions, and even something like a multi 860 00:47:48,880 --> 00:47:52,719 Speaker 1: year look at the strategy, it's most likely going to 861 00:47:52,760 --> 00:47:54,959 Speaker 1: be something you know, and we sort of think about 862 00:47:54,960 --> 00:47:57,920 Speaker 1: their new approach, it's going to be pretty incremental. I 863 00:47:57,960 --> 00:48:02,080 Speaker 1: mean to me, the more interesting thing besides changes to 864 00:48:02,239 --> 00:48:07,040 Speaker 1: the actual target framework is just how they are estimating 865 00:48:07,480 --> 00:48:11,040 Speaker 1: the various stars that go into our star, the assumptions 866 00:48:11,040 --> 00:48:14,520 Speaker 1: about full employment, um and and things like that. I 867 00:48:14,560 --> 00:48:16,719 Speaker 1: find that much more fascinating. And if you think of 868 00:48:16,719 --> 00:48:20,279 Speaker 1: the FED as a conservative institution, then the way it's 869 00:48:20,360 --> 00:48:23,080 Speaker 1: measuring these different variables is probably going to be more 870 00:48:23,120 --> 00:48:28,040 Speaker 1: important than the target itself. So yeah, that's something I'd 871 00:48:28,040 --> 00:48:31,720 Speaker 1: be looking out for from Jackson Hole. Yeah, I'm I'm 872 00:48:31,880 --> 00:48:35,520 Speaker 1: very excited to see what we learn over the next 873 00:48:35,520 --> 00:48:37,520 Speaker 1: couple of days, which, by the time people listen to 874 00:48:37,560 --> 00:48:41,279 Speaker 1: this will be in the past. Yes, Okay, hopefully this 875 00:48:41,360 --> 00:48:44,919 Speaker 1: conversation is not completely outdated by the time it errors, 876 00:48:45,000 --> 00:48:47,720 Speaker 1: but I don't think it will. Fingers. These are pretty 877 00:48:47,719 --> 00:48:52,040 Speaker 1: big questions. This has been another episode of the All 878 00:48:52,040 --> 00:48:54,799 Speaker 1: Thoughts Podcast. I'm Tracy Alloway. You can follow me on 879 00:48:54,840 --> 00:48:59,640 Speaker 1: Twitter at Tracy Alloway. I'm Joe Wisenthal. You could follow 880 00:48:59,680 --> 00:49:02,800 Speaker 1: me on Twitter at the Stalwart. And you should follow 881 00:49:02,920 --> 00:49:05,080 Speaker 1: our guest on Twitter, Neil cash Carr, president of the 882 00:49:05,080 --> 00:49:08,960 Speaker 1: Minneapolis Fed. His handle is at Neil cash Cary. And 883 00:49:09,000 --> 00:49:11,640 Speaker 1: if you're a angry Fed hater gold Bug, you should 884 00:49:11,680 --> 00:49:13,279 Speaker 1: like show up at one of the meetings and like 885 00:49:13,400 --> 00:49:17,040 Speaker 1: talking person and don't just troll troll online, but definitely 886 00:49:17,080 --> 00:49:20,640 Speaker 1: follow him. He's a great follow. Follow our producer Laura Carlston. 887 00:49:20,840 --> 00:49:24,560 Speaker 1: She's at Laura M. Carlston. Follow the Bloomberg head of podcast, 888 00:49:24,600 --> 00:49:28,000 Speaker 1: Francesca Levie at Francesca Today, and check out all of 889 00:49:28,040 --> 00:49:31,760 Speaker 1: our podcasts under the handle at podcast. Thanks for listening