Speaker 1: Well and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, if it
Speaker 1: weren't for the coronavirus, this would be the week of
Speaker 1: a pretty important sort of gathering of the brightest minds
Speaker 1: in monetary policy feder reserve, central banking all around the world.
Speaker 1: That's kind of a big if, isn't it. Like, if
Speaker 1: it weren't for everything that threw into disarray, this other
Speaker 1: thing would be important. But yes, um, it is Jackson
Speaker 1: Whole Week. And Jackson Whole Week is traditionally when the
Speaker 1: sort of luminaries of economics gather to talk about the
Speaker 1: issues that are most pressing to them from an academic
Speaker 1: perspective and also from a real economy perspective. And it's
Speaker 1: usually the time when we have lots of interesting discussion,
Speaker 1: lots of interesting speeches coming out from policymakers, and lots
Speaker 1: of interesting academic papers as well. Right, And so today
Speaker 1: we are recording this on Wednesday, August, So by the
Speaker 1: time people here today's interview, um, the Jackson Whole event,
Speaker 1: it's actually still happening, but happening digitally sort of like
Speaker 1: all meetings are happening UH these days. But yes, this
Speaker 1: is the week of the famous Kansas City Fed Monetary
Speaker 1: Policy UH Symposium, and I think it comes at an
Speaker 1: extremely important and interesting time for the FED and for
Speaker 1: the economy and monetary policy. Yeah. Absolutely so. There there
Speaker 1: are two things I think that are really important this week,
Speaker 1: and one is sort of short term, and that's just
Speaker 1: the whole coronavirus induced economic crisis and the policy response
Speaker 1: to it. So clearly that's going to be up for
Speaker 1: debate and discussion at Jackson Hole this year. But the
Speaker 1: other one is a more long term development, which is
Speaker 1: that the Federal Reserve is rethinking its inflation targeting framework.
Speaker 1: So we could get something very interesting out of the
Speaker 1: fete this week. Yeah, that's exactly what I was thinking.
Speaker 1: It's like the two things happening at once. And I
Speaker 1: would actually even say it's beyond just the rethinking of
Speaker 1: the specific approach to monetary policy, and it's part of this.
Speaker 1: Even preceding coronavirus, there was the sort of rethinking of
Speaker 1: the role of monetary policy, the limits of monetary policy,
Speaker 1: that the economic costs of over reliance on monetary policy,
Speaker 1: what monetary policy actually does. So we really are in
Speaker 1: this moment where a sort of medium or short term
Speaker 1: economic situation is coinciding with a much sort of like bigger,
Speaker 1: deeper discussion that was already building to a head. Yeah. Absolutely,
Speaker 1: and the two are sort of feeding off of each other.
Speaker 1: So it's it's a very interesting moment in time, as
Speaker 1: you point out. So I am extremely excited about today's
Speaker 1: in your should be extremely special because we're going to
Speaker 1: be speaking to an actual active top Fed official today.
Speaker 1: Um our guest is well known. He is the president
Speaker 1: of the Minneapolis for A Reserve. He is also known
Speaker 1: during the last crisis when he was on the treasury
Speaker 1: side when he was involved with the workings of the
Speaker 1: Tart program, to a public figure for a long time
Speaker 1: now on the monetary policy side. Really interesting thinker Neil
Speaker 1: cash Carry is joining us, so we're going to be
Speaker 1: talking about the intersection of all these different things. So Neil,
Speaker 1: thank you very much for joining us. Thank you, Joe
Speaker 1: and Tracy, thanks for having me. Let's just start off
Speaker 1: with actually just this moment um in time. And I'm curious,
Speaker 1: like you know, the unemployment rate is back down to
Speaker 1: just over ten um. A lot of economic indicators have
Speaker 1: actually held up surprisingly well given the devastation. There's actually
Speaker 1: arguably v shaped recovery and housing auto is doing well,
Speaker 1: retail sales doing well. Have you been surprised by the
Speaker 1: strength of the economic data that we've seen so far.
Speaker 1: I think it cuts both ways. I mean, yes, in
Speaker 1: some sense the economy has bounced back, but I think
Speaker 1: that's because we've reopened more quickly than the health experts recommended.
Speaker 1: And so yes, it's great. I mean I want to
Speaker 1: put Americans back to work as quickly as possible. But
Speaker 1: if the if in doing so, we allow the virus
Speaker 1: to flare back up again and to start raging, continuing
Speaker 1: to rage across the country, then it seems like it's
Speaker 1: going to be a short term game gain, not a
Speaker 1: long term solution, and so I'm cautious about the recovery.
Speaker 1: M Um, I think you previously said that you're worried
Speaker 1: about a wave of bankruptcies. Can you maybe give us
Speaker 1: some color about what you're seeing um out in your
Speaker 1: region in the Midwest. Is that actually happening? And are
Speaker 1: you worried about contagion from bankruptcies to the financial system.
Speaker 1: Yes to both, I mean we're seeing it already with
Speaker 1: lots of small businesses restaurants that very quickly in a
Speaker 1: restaurant margins in good times pre COVID, we're pretty slim
Speaker 1: for most restaurants, and then when they get got shut
Speaker 1: because of the COVID crisis. A bridge was provided in
Speaker 1: the form of the p p P program from Congress,
Speaker 1: but even some restaurants said that bridge is not enough
Speaker 1: for us. We're gonna close up. So I've been surprised.
Speaker 1: Even in Minneapolis, some very well known restaurants have already
Speaker 1: closed up shop and said we're not going to reopen.
Speaker 1: And the longer this goes on, the more bankruptcies we're
Speaker 1: going to see. Unfortunately, restaurants, coffee shops, you know, gyms, etcetera.
Speaker 1: And think about this way. Some restaurants have said, well,
Speaker 1: we're going to reopen at fifty capacity. Well, if their
Speaker 1: margins were so slim at a percent capacity, how long
Speaker 1: can they run at fifty percent capacity to maintain social distancing?
Speaker 1: And yes, the longer this goes on, the more bankruptcies
Speaker 1: we're gonna see, both small, midsize and large business is
Speaker 1: and ultimately those losses roll up into the banking sector
Speaker 1: because if a restaurant goes out of business, then whoever
Speaker 1: held the lease where they're releasing their space, it's harder
Speaker 1: for them to make their mortgage payment. That ends up
Speaker 1: rolling up into the banking sector. And so there's great
Speaker 1: uncertainty about the path of the economy because there's great
Speaker 1: uncertainty about the path of the virus, and therefore there's
Speaker 1: great uncertainty about how many losses the banking sector is
Speaker 1: ultimately going to face. You said early on, I think
Speaker 1: I think it might have even been like in April, UM,
Speaker 1: I think you said in the ft that UM banks
Speaker 1: should stop paying dividends actually take this time to raise capital. UM.
Speaker 1: Do you still feel that that that would be a
Speaker 1: smart move? Are you still urging banks to take steps
Speaker 1: to both the their balance sheet because at this point
Speaker 1: investors really, you know, just don't seem particularly concerned about
Speaker 1: systemic financial system health. Well, I think I am still
Speaker 1: concerned about it. I think the reason you're seeing the
Speaker 1: markets recover the way they have is frankly because of
Speaker 1: the FED. I mean, the Federal Reserve has taken extraordinary
Speaker 1: action beginning in March, responding to the coronavirus. We're we've
Speaker 1: acted much more quickly and much more aggressively than the
Speaker 1: FED acted even in the two thousand eight crisis, and
Speaker 1: I applaud us for doing that. It was the right
Speaker 1: thing to do. So I think markets are saying, well,
Speaker 1: the FED has taken some of the financial risk off
Speaker 1: the table, so we can now focus more on the upside.
Speaker 1: But I think that you know, if you look at
Speaker 1: where bank stocks are, they're not performing as well as
Speaker 1: the broader stock market. I think there's still concerned that
Speaker 1: the losses that the banks are exposed to. It's really
Speaker 1: unclear and really uncertain, and so I'm still focused on it.
Speaker 1: Mhm h. You mentioned the policy response to the COVID
Speaker 1: nineteen crisis versus the policy response from the financial crisis
Speaker 1: of two thousand eight, and this is something that obviously
Speaker 1: Joe and I have been talking about a lot. But
Speaker 1: when you look at what the FED has done this year,
Speaker 1: what stands out to you as the most helpful policy
Speaker 1: and what would you have done perhaps differently, if anything. Basically,
Speaker 1: we just said through all of these myriad facilities, we said,
Speaker 1: we are going to exercise our lender of last resort
Speaker 1: function as aggressively as we need to to support the
Speaker 1: financial system and to support the economy and that I
Speaker 1: completely support it. And you know, there are certain programs
Speaker 1: that have been bigger uptake than others. Some programs you
Speaker 1: would argue, well, there's not much uptake because markets have
Speaker 1: something largely recovered. The whole theory of central banking is
Speaker 1: you in an emergency, you lend at a penalty rate.
Speaker 1: That penalty rate is relative to normal market conditions, not
Speaker 1: relative to stressed market conditions. And so if markets are recovering,
Speaker 1: so that market participants will say, well, we'll just transact
Speaker 1: with each other because we can get better terms from
Speaker 1: each other and we don't need to go to the
Speaker 1: FED for their penalty rate terms. In a sense, that
Speaker 1: means our programs have been effective. So I think we could,
Speaker 1: probably with the benefit of hindsight and over more time,
Speaker 1: look back at one program here, one program there, and
Speaker 1: say we might tweak this or that, But overall I
Speaker 1: would give Jairmyan Powell, the feder Reserve, my colleagues high
Speaker 1: marks for playing our role. But this is not like
Speaker 1: the O eight crisis. I mean, this is as you
Speaker 1: all know, this isn't first and foremost a health crisis,
Speaker 1: and so we are not the first responders the first
Speaker 1: responders with the doctors, the scientists, the nurses, and then
Speaker 1: Congress has been very bold so far. I think the
Speaker 1: question now is going to be what does Congress do
Speaker 1: from here? We're playing our part, but our tools are
Speaker 1: limited in this crisis. Well, so this gets to what
Speaker 1: I would say is probably one of the biggest sources
Speaker 1: of criticism of the FED, which is that when the
Speaker 1: FED does its part, but Congress maybe kind of only
Speaker 1: partially does its part, or does its part, it fits
Speaker 1: starts that it exacerbates inequality. And right now we have
Speaker 1: unemployment that's still over ten percent, but the stock market
Speaker 1: is higher than it ever was, and like the Nasdaq
Speaker 1: is up over this year, just extraordinary gains um in
Speaker 1: financial assets people who owned their house have seen in
Speaker 1: many cases housing has done really well. So what do
Speaker 1: you say to critics who say that a huge impact
Speaker 1: of these FED actions is to exacerbate inequality? And how
Speaker 1: do you think about the impact the sort of cost
Speaker 1: of increasing inequality when you weigh it against the benefits
Speaker 1: of easing to support the economy. Yeah, well, I would say,
Speaker 1: let's just for the sake of argument, let's just accept
Speaker 1: their premise. Let's say that the stock market is because
Speaker 1: of the FED, and housing prices is because of the FED.
Speaker 1: What's the alternative to try to keep the stock market down?
Speaker 1: Should we punish those who are out of work today
Speaker 1: by making it harder for them to find a job.
Speaker 1: The people who especially the anonymous trolls on Twitter, squawk
Speaker 1: about this year in year out, and we were finally
Speaker 1: seeing at the end of the recovery, real wage games
Speaker 1: wage gains net of inflation. We're growing the fastest for
Speaker 1: the lowest income Americans, and we were finally seeing a
Speaker 1: job market strong enough where we were bringing back in
Speaker 1: people who had been left on the sidelines. The most
Speaker 1: valuable asset the vast majority of Americans have is not
Speaker 1: their house because many Americans don't own a home. It's
Speaker 1: not stocks because they don't own stocks. It's their job.
Speaker 1: And by having a strong economy and a stronger recovery
Speaker 1: and a stronger job market, we are benefiting the vast
Speaker 1: majority of Americans. And again, I just go back and say,
Speaker 1: let's say your goal is to tamp down the stock market. Okay,
Speaker 1: let's go tamp down the stock market. But if the
Speaker 1: cost of that is to have more Americans out of work,
Speaker 1: with lower wage growth, that's a really high cost. In
Speaker 1: my book, I have a bunch more questions on inequality.
Speaker 1: But um, before we get there, you mentioned Twitter and
Speaker 1: anonymous trolls on Twitter, and I mean, you are an
Speaker 1: active presence on that platform, and I've always they were
Speaker 1: getting straight to the important, the really important things. But
Speaker 1: I've always wondered why, like, is there an element of
Speaker 1: masochism there, because, like Joe and I know that as
Speaker 1: soon as you tweet something about the FED on Twitter,
Speaker 1: you will get a bunch of people who are going, like, ah,
Speaker 1: the Fed, they don't know anything, ridiculous, you know, making
Speaker 1: the rich richer all of that, Like, why are you
Speaker 1: on that platform? And what is the benefit that you
Speaker 1: get out of it? Well, it's a good question. I mean,
Speaker 1: it was an experiment. When I joined the FED, I said,
Speaker 1: let me I think many people across the FED are
Speaker 1: the most you know j Powell, Jenny Yelling before him,
Speaker 1: want to increase transparency, want to make us more accessible
Speaker 1: to the public. So this was an experiment that I said,
Speaker 1: let me go try and see if this is a
Speaker 1: useful way to in a genuine, authentic way, engage with
Speaker 1: the public. And I think there's benefit to it. I
Speaker 1: do think that I have been able to get my
Speaker 1: message out. I have been able to engage with people
Speaker 1: who wanted to engage in a genuine way, and I
Speaker 1: think that's been positive. I mean the cost is, as
Speaker 1: you said, if the signal to noise ratio is quite
Speaker 1: low for every Ernie todes She, they're a hundred angry
Speaker 1: anonymous cranks out there, And how do you focus on
Speaker 1: finding the Ernie Twodesh She's who are doing really thoughtful
Speaker 1: analysis that I can learn from and just have to
Speaker 1: tune out the anonymous crank. So, you know, I don't
Speaker 1: know when when future presidents or whoever eventually succeeds me,
Speaker 1: will I recommend that they have an active Twitter presence.
Speaker 1: I'm not sure it hasn't. There hasn't been a big
Speaker 1: cost to me because I'm pretty I think I'm pretty
Speaker 1: comfortable just being criticized and tuning out the cranks. But
Speaker 1: you know, it's not overwhelmingly positive. I'll just say that.
Speaker 1: So let's get to uh, you know, this tension and
Speaker 1: it comes up on Twitter all the time, but it's
Speaker 1: really sort of proceed Twitter, which is that, Yes, perhaps
Speaker 1: monetary policy plays this role in inflating financial assets. But
Speaker 1: as you point out, the sort of number one asset
Speaker 1: that most people have is is their job. And ultimately
Speaker 1: we have to get the unemployment numbers down. But okay,
Speaker 1: so we agree ten unemployment at least, it's still long
Speaker 1: way from normal, just absolutely unacceptably high by any standards.
Speaker 1: But this gets to sort of the bigger question, and
Speaker 1: I think it's the one that proceeds coronavirus, which is,
Speaker 1: how in the future are you thinking about ways in
Speaker 1: which the FED could truly incorporate the employment mandate into
Speaker 1: its framework, Because we saw the FED first high grades
Speaker 1: post last crisis, and long before we reached full employment,
Speaker 1: we just kept dropping, no real inflation, no real wage gains.
Speaker 1: We saw a round of hikes eighteen that needed to
Speaker 1: be reversed twenty nineteen. Meanwhile the unemployment rate just kept dropping.
Speaker 1: How are you thinking about the challenge going forward of
Speaker 1: when we sort of have a normal economy, of not
Speaker 1: repeating some of the errors in the past where the
Speaker 1: FED high grades too early when there were still lots
Speaker 1: of labor gains to be had out there. Well, so,
Speaker 1: first of all, I agree with the premise of your question.
Speaker 1: The tightening cycle that began in was a mistake. It
Speaker 1: was predicated on a misreading of the labor market. We
Speaker 1: thought we were at full employment and or in some
Speaker 1: cases beyond it, and we needed to hurry up and
Speaker 1: raise rates before inflation came. And obviously inflation didn't come.
Speaker 1: So we have to learn from that, and we have
Speaker 1: to recognize that the vast majority of people want to work.
Speaker 1: You know, one of the big frustrations I have in
Speaker 1: the economics profession is every time there's a recession, they
Speaker 1: then immediately the economist immediately ratchet up this thing called
Speaker 1: the natural rate of unemployment, like all these people have
Speaker 1: been dislocated. Now the natural rate of unemployment is five
Speaker 1: or six and if you get below that, it's going
Speaker 1: to lead to inflation. And it's just bunk. It's total bunk.
Speaker 1: And so first thing we should do is stop doing that.
Speaker 1: The vast majority of Americans want to work, and have
Speaker 1: given the chance and decent wages, they will surprise us
Speaker 1: and continue to and to re enter the labor market.
Speaker 1: That's one of the things that we learned, I hope
Speaker 1: we've learned. I've learned in the last recovery that that
Speaker 1: is profoundly true, so we just we have to learn
Speaker 1: from that and not raise rates ahead of inflation. If
Speaker 1: you look at our inflation target it was officially adopted
Speaker 1: in two we basically undershot two percent the entire time,
Speaker 1: I mean, we blew it. And so let's not raise
Speaker 1: rates this time until we actually get inflation sustainably back
Speaker 1: at our target or even above it to make up
Speaker 1: for prior shortfalls. Mhm. So something I've been wondering. But
Speaker 1: if we say that the FED has been pretty bad
Speaker 1: about achieving its two percent inflation target, and that it's
Speaker 1: also difficult to confidently come up with an estimate of
Speaker 1: full employment, would it make more sense to target something
Speaker 1: like wages instead of the actual employment level. Mhm. Well,
Speaker 1: that's that's how we think it's supposed to work. So here,
Speaker 1: think about two bridges. One bridge is from how many
Speaker 1: people have jobs the unemployment rate or the inverse the
Speaker 1: employment rate, So you get the way it's supposed to work.
Speaker 1: As the labor market titans, people go back to work,
Speaker 1: businesses have to compete to find workers, and then that
Speaker 1: bids up wages. So the first bridge is between unemployment
Speaker 1: and wages, and then the second bridge is wage growth.
Speaker 1: Starts to pick up between wages and the broader measure
Speaker 1: of prices and inflation. So you're right, I would say
Speaker 1: that wages is better than focusing on the unemployment rate.
Speaker 1: But even better yet, let's just cut the bridges out
Speaker 1: and let's just focus on inflation. So a year more
Speaker 1: than a year ago, I proposed that the Committee adopted
Speaker 1: forward guidance that says we will not raise rates until
Speaker 1: core inflation gets back to two percent on a sustained basis.
Speaker 1: And by the way, I would note a few months
Speaker 1: later the e c B European Central Bank adopted a
Speaker 1: version of this publicly in their in their policy statement.
Speaker 1: I think forward guidance that is anchored to an outcome
Speaker 1: of actually achieving our inflation target would be a big
Speaker 1: step forward relative to where we are today. So you mentioned,
Speaker 1: um the inflation an outlook there on the inflation target,
Speaker 1: and one of the things that is supposedly up for
Speaker 1: a discussion at Jackson Hole is the notion of the
Speaker 1: FED moving to some sort of average inflation targeting. But
Speaker 1: I guess my question is are there any tools out
Speaker 1: there to make that policy approach any more effective than
Speaker 1: the previous inflation targeting regime, and exactly what would you
Speaker 1: at the central bank do differently to achieve average inflation
Speaker 1: of two percent more quickly? Wouldn't it make more sense
Speaker 1: to maybe just jettison the forecast of inflation rather than
Speaker 1: to actually change the policy approach. So rather than saying
Speaker 1: we're going to get an average two percent, why not
Speaker 1: just sort of get rid of that and target something
Speaker 1: else over the longer term? Well, I mean, are the
Speaker 1: number one job of central banks? That I mean, at
Speaker 1: first they were created for lender of lash resort, but
Speaker 1: beyond that, it's making sure that prices are in check.
Speaker 1: And we talk about our dual mandate that Congress has
Speaker 1: given us of stable prices and maximum employment. We can
Speaker 1: measure inflation. It's not of we can measure inflation, as
Speaker 1: you said earlier, Crazy, it's very difficult to know are
Speaker 1: we in fact at maximum employment? And so in my book,
Speaker 1: given the mistakes that we made in this recovery, I
Speaker 1: think a much stronger focus on actually achieving our inflation target.
Speaker 1: Some people have suggested adopting a formal makeup strategy like
Speaker 1: a price level target or a formal average inflation target
Speaker 1: UH to me mechanically tying ourselves to such a rule
Speaker 1: can be problematic because there might be circumstances that you
Speaker 1: don't want to stick to it. But I think that
Speaker 1: there are ways of being better, having more success in
Speaker 1: achieving our inflation target and not preemptively raising rates. So
Speaker 1: I want to go back to something you said, uh
Speaker 1: where you mentioned that economists have this sort of bad
Speaker 1: habit of every time there's a recession, they mark up
Speaker 1: what they view as the natural rate of unemployment. And
Speaker 1: so that implicitly means that if the FED were did
Speaker 1: take that seriously, it would tighten too soon. And just
Speaker 1: in general, you know, there's a lot of skepticism that
Speaker 1: you have about some of these sort of assumptions about
Speaker 1: this sort of relationship between employment and inflation. And I'm curious,
Speaker 1: like neither you nor the current FED chairman Powell have
Speaker 1: sort of formal academic economic training, and I'm just curious
Speaker 1: whether that gives you more comfort or your sort of
Speaker 1: um less attached to some of these old models, some
Speaker 1: of these models that posit some sort of mechanical relationship
Speaker 1: between this or that unemployment goes here, Therefore in play,
Speaker 1: SI will go up there if we don't do X.
Speaker 1: Do you feel like you can sort of be a
Speaker 1: little more skeptical or less tied to them, in part
Speaker 1: because you don't haven't spent years sort of in academia
Speaker 1: doing economic work, you know, I think so, I mean, look,
Speaker 1: I will say I benefit from the fact that we
Speaker 1: have a brilliant team of PhD economists at the Minneapolis
Speaker 1: FED and around the fudders Or system who I learned from,
Speaker 1: and I debate and I discussed. So I don't want
Speaker 1: to discount that they're enormously important part of the process.
Speaker 1: But I'm not when to some model I was taught
Speaker 1: for two years ago and graduate school that this is
Speaker 1: the way the world works, and you need to just
Speaker 1: think about the world through this one framework. And I
Speaker 1: think that, you know, just the discussion of the natural
Speaker 1: rate of unemployment, why is it that economists always assume
Speaker 1: when there's a recession, the natural rate of unemployment ratchets
Speaker 1: up and then only falls back down, only gradually over time.
Speaker 1: And they come up with all sorts of dislocations, fancy words, skills,
Speaker 1: mismatch skills, diminish boy, this is an enormously costly error
Speaker 1: that we keep making people want to work. And that's
Speaker 1: one of the things that we've learned, and if we
Speaker 1: just allowed the economy to recover, I think where they
Speaker 1: will continue to surprise us. And so yes, I do
Speaker 1: think that not being an economist has helped me at
Speaker 1: least see that. But that's not to say that economists
Speaker 1: can't see that too. So what is the reluctance so
Speaker 1: far to adopt a more formal forward guidance state contingent
Speaker 1: forward guidance framework? What do people what do people see
Speaker 1: at the FED when you're having these discussions. What are
Speaker 1: pers even as the cost of saying like, Okay, we're
Speaker 1: not even gonna think about thinking about raising rates until
Speaker 1: either inflation is above X for so long and or
Speaker 1: unemployment is below X. Why the why the discomfort with it?
Speaker 1: I don't think there is right now great discomfort with it.
Speaker 1: I think through the committee's work and the Chairman's comments,
Speaker 1: I think market expectations are that rates will be low
Speaker 1: for a long period of time, and so I don't
Speaker 1: feel like there's uh burning pressure that we need to
Speaker 1: change our forward guidance today to change market expectations. I
Speaker 1: think the committee already gone to good job setting expectations.
Speaker 1: So I think the work will comment you know, my
Speaker 1: guess is that we will adopt some more formal form
Speaker 1: of UH state contingent forward guidance. But the committee just
Speaker 1: hasn't gotten to that conclusion yet, but I think I
Speaker 1: suspect that we will get there. Um, you're generally considered
Speaker 1: to be one of the more dubbish people at the FED.
Speaker 1: I think that's a fair characterization. What do you say
Speaker 1: to people who argue, you know, to people who make
Speaker 1: the argument about the idea of the central bank running
Speaker 1: out of ammunition if you lower rates too early or
Speaker 1: for too long, it means when the next economic crisis
Speaker 1: comes along, the FED won't have enough firepower or the
Speaker 1: tools at its disposal to actually make a difference. What
Speaker 1: do you say to that argument. I mean, I'll be blunt.
Speaker 1: I think it's an absurd argument. And let's imagine that
Speaker 1: the CDC had told us a year ago that a
Speaker 1: terrible pandemic is coming. Should we have raised rates last
Speaker 1: year to slow the economy down so that we can
Speaker 1: then cut rates when the pandemic hit? It just makes
Speaker 1: no sense. And so I mean, people say all the time,
Speaker 1: you know, at the best analogy I have, let's say
Speaker 1: you're driving down the highway and you think that there
Speaker 1: may be a hill on the horizon. Should you slow
Speaker 1: down now so that you can floor when you get
Speaker 1: to the hill. Of course not. You should just maintain
Speaker 1: your speed and then if you only have less pedal
Speaker 1: to give, so be it. But slowing down in advance
Speaker 1: of the hill does not actually help you, And so
Speaker 1: it's just it's a nice sound bite until you stop
Speaker 1: and think it through, and then it just collapses. So
Speaker 1: obviously you mentioned at the outset that one of the
Speaker 1: most powerful things the Fed has done is really sort
Speaker 1: of established itself in its lender of last resort and
Speaker 1: really back up the corporate sector as a whole, not
Speaker 1: just the financial sector, but really sort of be there
Speaker 1: to back up the corporate bond market basically, and it
Speaker 1: has been incredibly powerful. And right after its announced we
Speaker 1: saw this huge, incredible rally in the credit markets, credit
Speaker 1: conditions eased. Are we ever going to get back to
Speaker 1: a point in which you know, monetary policy is going
Speaker 1: to be raising rates twenty five basis points cutting rates
Speaker 1: basis points or we now sort of in this permanent
Speaker 1: world in which the key monetary policy decisions are not
Speaker 1: the rate moves but the sort of like an hour,
Speaker 1: going to adopt a totally new policy or find some
Speaker 1: totally new framework or new idea. Are we is this is?
Speaker 1: This is interesting monetary policy. What we're doomed to for
Speaker 1: the of our lives? I don't think so. I mean,
Speaker 1: I think underneath the question you're asking is a question
Speaker 1: of when is the neutral interest rate and to climb
Speaker 1: back up to what we've been used to prior to
Speaker 1: the past ten years, and what is the neutral rate?
Speaker 1: That's the rate that clears savings and investment in the economy.
Speaker 1: And that really is when is there going to be
Speaker 1: a much greater demand for investment capital? Where are the
Speaker 1: big demands for capital today? And we think about Facebook
Speaker 1: and Twitter that we talked about Twitter earlier. These don't
Speaker 1: require much capital to create these programs. Even Uber doesn't
Speaker 1: require much capital. What requires a lot of capital oil
Speaker 1: investment in North Dakota and Texas, in Oklahoma, that's probably
Speaker 1: the biggest destination for capital. So when we see in
Speaker 1: our economy big demand for a lot of capital for
Speaker 1: positive r o I projects, that is when we would
Speaker 1: I would expect to see what we call our star,
Speaker 1: the neutral interest rate rise back up again and that
Speaker 1: will bring us away from the zero lower bound and
Speaker 1: then we'll get back to more of a normal monetary
Speaker 1: policy environment or remove rate up and down around that
Speaker 1: higher neutral level. The challenge for us all right now
Speaker 1: is the neutral rate is so low because of these
Speaker 1: other macroeconomic questions about investment. Uh, And that's why we
Speaker 1: have to do these extraordinary things, because we're near or
Speaker 1: at the what we call the effect of lower bound
Speaker 1: m hm. This is actually something that I've I've wondered
Speaker 1: for a while. But to what degree is the our
Speaker 1: star or the neutral rate idea driving monetary policy decisions
Speaker 1: at the FED? And and why did it seem to
Speaker 1: suddenly become popular? Like I think it was probably about
Speaker 1: four or five years ago. We really saw um a
Speaker 1: lot of policymakers and especially pal talking about our star
Speaker 1: in a way that FED chairs hadn't really done previously.
Speaker 1: Why did that happen? I think it happened because you know,
Speaker 1: we were all a little bit surprised that inflation didn't come.
Speaker 1: You know, rates are low relative to history, and everyone says,
Speaker 1: oh my gosh, we're at full employment or beyond full employment.
Speaker 1: That means inflation must be around the corner. And yet
Speaker 1: inflation didn't come. And so when you start looking at
Speaker 1: this and saying, why is an inflation showing up? Okay,
Speaker 1: one explanation is there's more slack in the labor market
Speaker 1: that we didn't appreciate. Another explanation is, hey, maybe we're
Speaker 1: not providing much accommodation. If our star is low, maybe
Speaker 1: we're not providing any accommodation, and we're just kind of
Speaker 1: following the economy along. And so I think the way
Speaker 1: that the economy responded, the way that inflation didn't materialize,
Speaker 1: forced all of us to say, hey, let's reexamine some
Speaker 1: of our assumptions. And one of those fundamental assumptions is
Speaker 1: what interest rate is neutral, what interest rate constrains the
Speaker 1: economy versus what interest rate stimulates the economy. So trying
Speaker 1: to figure out what is going, what are the set
Speaker 1: of economic conditions that will actually sort of raise our star,
Speaker 1: sort of create this demand for investment capital and so forth.
Speaker 1: And this really gets to what Tracy and I think
Speaker 1: we're talking in the beginning, which that even pre coronavirus
Speaker 1: and you just said it right there, which is that
Speaker 1: the sort of the surprise that monetary policy wasn't uh
Speaker 1: that we weren't seeing inflation. Do we need a handoff
Speaker 1: so to speak from UH monetary policy and fiscal policy.
Speaker 1: We saw this very robust spending with the Cares Act,
Speaker 1: but now that's expired and so far there's no deal
Speaker 1: to renew it, either to renew P p P or
Speaker 1: renew the unemployment insurance expansion. So a in the short term,
Speaker 1: how how significant of a problem will this be if
Speaker 1: we don't get that renewal. But in the long term,
Speaker 1: should there be a more sustained role for aggressive monetary
Speaker 1: or aggressive fiscal policy in reviving and maintaining economic expansion. Well,
Speaker 1: I think in the short term it's a big deal.
Speaker 1: It's a very big deal. And the reason, Tracey, you
Speaker 1: talked earlier about potential losses in the banking sector, the
Speaker 1: banking sector already got a huge bailout. They got a
Speaker 1: bailout because Americans who lost their jobs these additional six
Speaker 1: dollars a week, and that enabled them to make their
Speaker 1: credit card bills, make their auto payments, make their mortgage payments,
Speaker 1: and their rent payments, and that really supported the financial
Speaker 1: system as a whole, and the banking center in particular.
Speaker 1: So with those expiring boy I hope Congress comes back
Speaker 1: together to extend them. That's really necessary to sustain our
Speaker 1: economy until we get through this COVID crisis and we
Speaker 1: can all hopefully get back to normal sooner rather than later.
Speaker 1: Over the long run, I think the question is where
Speaker 1: should the government invest I mean I I look at
Speaker 1: it very differently. If the government said we want to
Speaker 1: go spend and why are the country for broadband? I
Speaker 1: think that's a no brainer that they should do it.
Speaker 1: We can afford it, and it's the right thing to do,
Speaker 1: and it would be good for our economy. But I
Speaker 1: would make a distinction between investments by the government, such
Speaker 1: as in broadband, versus just ongoing spending. You know, you
Speaker 1: can you the government can spend money, can support consumption
Speaker 1: as they are with the Cares Act, but that over
Speaker 1: the long term doesn't actually boost our economic potential. That
Speaker 1: just sustains consumption in the short run. So once we
Speaker 1: get through this, I think focusing the government's resources on
Speaker 1: real investment, I think that that would be that would
Speaker 1: largely pay for itself. So you mentioned you say that
Speaker 1: um spending on say infrastructure, say like broadband, would boost
Speaker 1: the potential of the economy more than spending that was
Speaker 1: just aimed at sort of maintaining and consumption. But on
Speaker 1: the other hand, if we had a sort of sustainable consumption,
Speaker 1: if households could always spend, if businesses were confident that
Speaker 1: households wouldn't have to retrench as fast in a downturn,
Speaker 1: might that make them more inclined to do capital investments
Speaker 1: with that confidence that in demand would be more stable
Speaker 1: in robust I can't say it's impossible. I haven't seen
Speaker 1: any evidence that that is true. When I talked to
Speaker 1: businesses about where they want to invest, it's much more
Speaker 1: a question of you know, where are we going to
Speaker 1: get the return at It's not that I've not business
Speaker 1: to say, well, I would make this investment in this
Speaker 1: new plant, but I think there may be a recession
Speaker 1: in five years. I haven't heard a lot of that.
Speaker 1: It more seems like where the technology breakthroughs that are
Speaker 1: going to lead to new industries, that are going to
Speaker 1: lead to expansion opportunities, new markets, etcetera. Uh So, to me,
Speaker 1: government investment, you know, government investment is is a murky
Speaker 1: thing in the best of times. You know, you know,
Speaker 1: you never know for sure if it's going to pay off.
Speaker 1: I think focusing on things that have a reasonable chance
Speaker 1: for a return makes more sense to me than just saying, hey,
Speaker 1: we're gonna support consumption forever for consumption sake. It's hard
Speaker 1: for me to see the r o I from that.
Speaker 1: I mean, there does seem to be a general consensus
Speaker 1: about the need for fiscal stimulus in the current situation.
Speaker 1: How do you see how do you see monetary policy
Speaker 1: interacting with fiscal stimulus or or amplifying it if that's possible, Well,
Speaker 1: I think that there's I think monetary policy is supportive
Speaker 1: by making sure that markets are functioning. You know, we
Speaker 1: saw stresses in the treasury market in acute part of
Speaker 1: March when everybody just got terrified by the coronavirus. Investors, businesses,
Speaker 1: individuals just said we want cash, and so they were
Speaker 1: shunning all types of financial assets. And so that's why
Speaker 1: the lender of last resort of the central bank stepping
Speaker 1: in was so important to provide that confidence to make
Speaker 1: sure markets are functioning. And so US continuing to provide
Speaker 1: that support will make it will ensure that their government
Speaker 1: can continue to go out and raise money to get
Speaker 1: us through this pandemic. So we're providing a complementary supportive role.
Speaker 1: But ultimately it's going to be up to Congress to say, hey,
Speaker 1: we're going to do more for the American people who
Speaker 1: have been laid off, We're gonna do do more for
Speaker 1: the businesses that have been dramatically affected by the COVID crisis.
Speaker 1: Only this only the Congress can do that, not the
Speaker 1: Central Bank. So Neil, I wanted to turn the conversation
Speaker 1: a little bit because you're, as mentioned, you know, you're
Speaker 1: the president of the Minneapolis Fed. Minneapolis is really, you know,
Speaker 1: the sort of the central location that catalyzed the protests
Speaker 1: that we've seen, uh this summer against racism, against police
Speaker 1: violence in the wake of the killing of George Floyd,
Speaker 1: and I want to talk a little bit about, you know,
Speaker 1: the Fed's role here. We had a guest on the
Speaker 1: podcast a few weeks ago, Congresswoman Iana Pressley, arguing that
Speaker 1: the FED itself, monetary policy itself, can do more to
Speaker 1: fight racial inequality. And she pointed out the fact that's
Speaker 1: sort of very easily easy to see in the charts,
Speaker 1: which is that the relationship between black unemployment and white
Speaker 1: unemployment is cyclical, and that during periods of during boon
Speaker 1: times that spread compressive and we start to see the
Speaker 1: unemployment rate between blacks and whites start to go down.
Speaker 1: And so she made the argument that this should be
Speaker 1: more of a focus for the FED and monetary policy.
Speaker 1: And I'm curious whether you share that and whether you
Speaker 1: think that monetary policy can play a positive role in
Speaker 1: addressing racial inequality in this country. Well, I think you
Speaker 1: know to our earlier discussion about not raising rates prematurely,
Speaker 1: I think monetary policy does have a role to play
Speaker 1: in helping workers who've been left on the sidelines by
Speaker 1: creating as strong and economic recovery as possible to bring
Speaker 1: everybody back in. The problem is, recessions do happen. They
Speaker 1: will happen in the future, shocks like the coronavirus will
Speaker 1: come out of nowhere, and then the problem is that
Speaker 1: if many of those folks who were last who last
Speaker 1: joined the labor force, are often the folks who are
Speaker 1: the first ones to lose their jobs in a downturn.
Speaker 1: So I do think monetary policy has a role to play,
Speaker 1: but it is unfortunately not the strongest or the most
Speaker 1: import tool. The most important tools are going to be
Speaker 1: from the fiscal authorities, from Congress in helping to create
Speaker 1: an economy where everybody can fully participate and everybody can benefit.
Speaker 1: There are just limits to what monetary policy can play, uh,
Speaker 1: and I think that's just the unfortunate reality. Are there
Speaker 1: specific things that monetary policymakers can do to help racial equality, like,
Speaker 1: for instance, could you have full employment targets for different
Speaker 1: racial or socio economic groups. And if you were to
Speaker 1: do something like that, why why should people have This
Speaker 1: is going to sound very cynical, but why should people
Speaker 1: have faith in your ability to help, you know, really
Speaker 1: entrenched problems such as inequality when arguably you've had difficulty
Speaker 1: reaching both the inflation target and the full employment target
Speaker 1: for for many years, or at least we're not entirely
Speaker 1: sure what full employment actually is at this point, right, Well,
Speaker 1: this is I mean, it's it's the core of those
Speaker 1: two things that we think that the maximum employment objective
Speaker 1: and the stable price objectives are like a seesaw where
Speaker 1: you're trading each other off. An optimal monetary policy, those
Speaker 1: two things should be intention For the last ten years,
Speaker 1: there's been no tension because we've undershot our inflation target
Speaker 1: and there's still been slack in the labor market that
Speaker 1: only happens I monetary policy is too tight. So let's
Speaker 1: assume that we learn from that and that we don't
Speaker 1: repeat that mistake again, and that we don't preemptively raise
Speaker 1: rates and cut off the expansion. Well let's imagine though,
Speaker 1: that we just said we're going to target black unemployment,
Speaker 1: and the black unemployment is our new maximum employment objective.
Speaker 1: The challenges what does that mean for inflation? And if
Speaker 1: you will say, well, we're gonna get black unemployment down
Speaker 1: to four percent, which would be terrific instead of you know,
Speaker 1: double what it normally is for white unemployment, it's usually
Speaker 1: a two to one relationship. If that then leads to
Speaker 1: losing our inflation target, meaning we hit three percent inflation
Speaker 1: or higher, then we're failing on that end of our
Speaker 1: dual mandate. And so I think that we need to
Speaker 1: learn everything we can from the experience in the last
Speaker 1: ten years. We need to push the labor market as
Speaker 1: hard as we can until we get to our two
Speaker 1: percent inflation target and maybe even a little bit above
Speaker 1: it if we're making up for you know, prior misses.
Speaker 1: But I think that if we have to keep our
Speaker 1: eyes on both ends of that seesaw and that's where
Speaker 1: just targeting one, you know, black unemployment as an example,
Speaker 1: or Hispanic unemployment, it may not actually work to balance
Speaker 1: out both sides of our dual mandate. We did see, however,
Speaker 1: that in the in the final years of the last expansion,
Speaker 1: there were numerous stories I think they were you know,
Speaker 1: I think you talked about them, and the chairman has
Speaker 1: talked about them, and there are lots in the media
Speaker 1: about how as labor markets got tighter, employers really did
Speaker 1: UM start to look to higher from pools of workers
Speaker 1: whom they had previously excluded. So, for example, UM former
Speaker 1: felons that maybe wouldn't pass an initial green for employers
Speaker 1: getting hired, getting retrained, employers paying to retrain them because
Speaker 1: again that competition for workers. So is there an argument that,
Speaker 1: regardless of UM, you know, whether there is a specific
Speaker 1: level to be targeted, that the composition or that gap
Speaker 1: in employment between different races should be a variable that
Speaker 1: you look at and should be something that you consider that. Okay,
Speaker 1: you know, perhaps there really is more room for labor
Speaker 1: market expansion because we'll start to see businesses invest and
Speaker 1: hire people that they were not hiring in early parts
Speaker 1: of the recovery. Absolutely no, I mean, trust me, I
Speaker 1: agree with that. And just as a friendly reminder, I'm
Speaker 1: the one person in the committee who dissented against all
Speaker 1: of our rate increases every time I was a voter
Speaker 1: for for exactly the reasons that you and Tracy are
Speaker 1: talking about that we are seeing these gains. I'm just
Speaker 1: simply saying there may be a limit to how far
Speaker 1: we can push that, and so we we can't just say, well,
Speaker 1: we're gonna ignore inflation and just target the labor market.
Speaker 1: One of our mandates is to make sure that we
Speaker 1: do have stable prices, and so let's push the labor
Speaker 1: market as hard as we can. Let's get all the
Speaker 1: games that you're just talking about subject to actually achieving
Speaker 1: our inflation target, and given our recent history of the
Speaker 1: last five or more years, that would actually help us
Speaker 1: achieve our inflation target. We've been very focused on the
Speaker 1: domestic situation in the US for obvious reasons and inequality
Speaker 1: within the US, But I wondered if we could sort
Speaker 1: of turn our gays internationally and talk a little bit
Speaker 1: about how the FED is thinking about the international economics system.
Speaker 1: To what extent do international financial conditions factor into your thinking,
Speaker 1: or I guess another way of phrasing this is does
Speaker 1: the FED feel like it is central banker to the
Speaker 1: world or does the FED feel like it has a
Speaker 1: responsibility to the wider world when it's thinking about us
Speaker 1: financial cond Honestly, we are really focused on what it
Speaker 1: means for the United States economy and the American people.
Speaker 1: And we have staff in Washington and staff around the
Speaker 1: federates or system run lots of analysis and lots of
Speaker 1: scenarios of what what's happening in other economies, but it's
Speaker 1: always through the lens of you know, if the if
Speaker 1: the world economy does poorly, that's probably gonna be a
Speaker 1: drag on the American economy. If there are financial disruptions
Speaker 1: in Europe, that's probably going to affect the American economy
Speaker 1: and the American financial system. And so we were created
Speaker 1: by Congress to represent and and support the U. S. Economy,
Speaker 1: and that's what our focus is. But the U. S.
Speaker 1: Economy is not isolated from the rest of the world,
Speaker 1: and so we do look at it predominantly through what
Speaker 1: does it mean for the American economy, But the rest
Speaker 1: of the world really matters a lot for the American economy. Neil.
Speaker 1: You know, as as I mentioned in the intro, you
Speaker 1: were active on the treasury side of things in the
Speaker 1: last crisis, and I'm just curious how you find the
Speaker 1: difference and how you know you probably when you joined
Speaker 1: the Minneapolis FED, you probably didn't expect to see another
Speaker 1: categor plasmic economic crisis, but here we are, we have one,
Speaker 1: and so I'm curious, like, sort of what what what
Speaker 1: have been your experience observations going from the treasury side
Speaker 1: last time to be uh on the ffon and stay
Speaker 1: this time. Well, you're right that, I mean, I just
Speaker 1: I can't believe it. I mean, I thought once in
Speaker 1: a lifetime, once in a hundred years or once in
Speaker 1: eighty years, would have an event like this. I can't
Speaker 1: believe it's happening again twelve years later. You know. Interestingly,
Speaker 1: having lived through that on the front lines and remembering
Speaker 1: how scary the O eight crisis was, it gives me
Speaker 1: confidence that we will get through it, that we as
Speaker 1: a country will come together to support the workers, to
Speaker 1: support the economy as a whole, and we will get
Speaker 1: through this. The question is how do we get through
Speaker 1: it inflicting as much as little pain as possible and
Speaker 1: as little hardship as possible, recognizing that there's so much
Speaker 1: that's out of our control. So interestingly, it's given me
Speaker 1: more confidence that we will get through this. We have
Speaker 1: the tools to get through it. But I also can't
Speaker 1: believe that we're in the middle of this kind of
Speaker 1: stuff again. So my last question is going to go
Speaker 1: back to social media and the anonymous Twitter trolls. And
Speaker 1: I don't mean to do a bunch of Sorry, I
Speaker 1: don't mean to do media naval gazing here, but I
Speaker 1: think it actually gets to something really important, which is
Speaker 1: that it feels like a lot of people really dislike
Speaker 1: and even hate the Federal Reserve at the moment, and
Speaker 1: you seem to be a beacon for a lot of
Speaker 1: that criticism because you've been very debbish. You know, you
Speaker 1: worked at Goldman Sachs, you got hired by Hank Paulson
Speaker 1: over at the Treasury. You don't necessarily have that academic
Speaker 1: background in economics. At what point does populist dislike of
Speaker 1: the Federal Reserve become an actual problem for monetary policy?
Speaker 1: Is that something on your radar or is it something
Speaker 1: that the Fed would ever consider? Oh, it does matter Ultimately,
Speaker 1: we need to have the confidence of the American people.
Speaker 1: We were created by Congress, we were accountable to Congress,
Speaker 1: and so public opinion does matter a lot. And I
Speaker 1: think one of part of the reason that Chairman Bernanke
Speaker 1: and then Chare Yelling and Chairman Powell and all of
Speaker 1: us have been working hard to increase transparency and to
Speaker 1: engage with the public is to make sure that they
Speaker 1: know us, that they have visibility into what that we're doing,
Speaker 1: so that hopefully they can have confidence in the actions
Speaker 1: that we're taking. I mean, the anonymous cranks on Twitter
Speaker 1: do not They're just They're just loud, angry voices in
Speaker 1: the corner. They're not representing the American people. This is
Speaker 1: what I find. So I'm using I go out pre
Speaker 1: pre COVID and I do town halls all the time
Speaker 1: all around my region six states. A couple hundred people
Speaker 1: will show up, I'll answer questions for an hour. It's
Speaker 1: all live streams, so it's totally transparent. Those are all
Speaker 1: totally civil people ask questions. Not everybody agrees with me.
Speaker 1: We have very thoughtful discussions, and yet that's so far
Speaker 1: removed from the angry cranks on Twitter. And that's what
Speaker 1: I just think is so I mean annoying, is that
Speaker 1: they're not representative of the American people at all. I also,
Speaker 1: my colleagues, do we meet with elected representative senators and
Speaker 1: congressmen and women from our regions all the time. They
Speaker 1: hear from their constituents and they share feedback with us,
Speaker 1: and so you know, Twitter, as you all know, Twitter
Speaker 1: is not real life. And I think that the Federal
Speaker 1: Reserve has earned the respect of the vast majority of
Speaker 1: the country, and we're gonna work hard to achieve the
Speaker 1: goals Congress has given us to maintain that respect and
Speaker 1: to maintain that confidence. So the real question is your
Speaker 1: fellow FOMC members, will you tell us all of their
Speaker 1: anonymous Twitter handles and the handles that they're tweeting under.
Speaker 1: That's that's what that's what we all want to know.
Speaker 1: They might be my biggest critics on Twitter. Well, I
Speaker 1: think we can wrap it up there. Neal Cash Carr
Speaker 1: is a real treat to get to talk about these
Speaker 1: things with you, and really appreciate you taking the time,
Speaker 1: and thank you so much for coming on. Love, Thank you,
Speaker 1: Joe and Tracy. I really enjoyed it great. Tracy, I
Speaker 1: thought that was a real treat I mean, you really
Speaker 1: just don't get many opportunities to chat with someone active
Speaker 1: in monetary policy sort of talk big pictures, So I
Speaker 1: thought that was pretty cool. Yeah, and uh, the great
Speaker 1: thing about is that he does straddle the worlds of banking,
Speaker 1: fiscal and monetary policy by dint of his career history.
Speaker 1: So it's really great to talk to him. And of
Speaker 1: course next year he's going to be a voting member
Speaker 1: as well. I mean, it really is. I don't think
Speaker 1: it could be underscored enough. It really is just an
Speaker 1: extremely interesting and important time. And there were all these
Speaker 1: pretty big debates, like all these questions about the framework, inflation,
Speaker 1: catch up strategies, monetary to fiscal handoff, like they were
Speaker 1: all being discussed prior to this crisis. And it really
Speaker 1: the degree to which this crisis has brought all these
Speaker 1: issues to a four really just sort of makes it
Speaker 1: what could potentially be a really big pivot point in
Speaker 1: economic history. Yeah, it feels like we talk a lot
Speaker 1: about the coronavirus crisis having accelerated a bunch of different
Speaker 1: economic trends, but of course one of the trends that
Speaker 1: it's accelerated is this big question mark over the efficacy
Speaker 1: of monetary policy. And I also feel like we should
Speaker 1: just mention again that we recorded this on August. It's
Speaker 1: the day before Jackson Whole Um. So we don't know
Speaker 1: what's going to be announced there, whether there's going to
Speaker 1: be this big overhaul of the fense inflation framework, but
Speaker 1: that will be something interesting to find out, Yeah, something
Speaker 1: that I think it's interesting too. And even though Neil
Speaker 1: is not a trained academic economist, he still is a
Speaker 1: very much an adherent to this idea that there is
Speaker 1: this inherent or that there's um employment inflation trade off.
Speaker 1: And so I think when people think about like, Okay,
Speaker 1: they're revisiting their framework, they're visiting their strategy, you know,
Speaker 1: and I hear that, it's like, yes, they are revisiting it,
Speaker 1: but it's in with a fairly narrow set of prior assumption.
Speaker 1: It's not a radical departure, it's not a sort of
Speaker 1: like complete rethinking. It's like, yes, there is this tradeoff,
Speaker 1: Yes there is a at some level, there is this
Speaker 1: tension between employment, the strength of the labor market, and inflation.
Speaker 1: But within that uh, within that framework, what can we
Speaker 1: do to make the outcomes better? But you know, I
Speaker 1: do think that sort of when we talk about the FED,
Speaker 1: it is a sort of it's a small c conservative institution.
Speaker 1: It has these assumptions, and even something like a multi
Speaker 1: year look at the strategy, it's most likely going to
Speaker 1: be something you know, and we sort of think about
Speaker 1: their new approach, it's going to be pretty incremental. I
Speaker 1: mean to me, the more interesting thing besides changes to
Speaker 1: the actual target framework is just how they are estimating
Speaker 1: the various stars that go into our star, the assumptions
Speaker 1: about full employment, um and and things like that. I
Speaker 1: find that much more fascinating. And if you think of
Speaker 1: the FED as a conservative institution, then the way it's
Speaker 1: measuring these different variables is probably going to be more
Speaker 1: important than the target itself. So yeah, that's something I'd
Speaker 1: be looking out for from Jackson Hole. Yeah, I'm I'm
Speaker 1: very excited to see what we learn over the next
Speaker 1: couple of days, which, by the time people listen to
Speaker 1: this will be in the past. Yes, Okay, hopefully this
Speaker 1: conversation is not completely outdated by the time it errors,
Speaker 1: but I don't think it will. Fingers. These are pretty
Speaker 1: big questions. This has been another episode of the All
Speaker 1: Thoughts Podcast. I'm Tracy Alloway. You can follow me on
Speaker 1: Twitter at Tracy Alloway. I'm Joe Wisenthal. You could follow
Speaker 1: me on Twitter at the Stalwart. And you should follow
Speaker 1: our guest on Twitter, Neil cash Carr, president of the
Speaker 1: Minneapolis Fed. His handle is at Neil cash Cary. And
Speaker 1: if you're a angry Fed hater gold Bug, you should
Speaker 1: like show up at one of the meetings and like
Speaker 1: talking person and don't just troll troll online, but definitely
Speaker 1: follow him. He's a great follow. Follow our producer Laura Carlston.
Speaker 1: She's at Laura M. Carlston. Follow the Bloomberg head of podcast,
Speaker 1: Francesca Levie at Francesca Today, and check out all of
Speaker 1: our podcasts under the handle at podcast. Thanks for listening