1 00:00:02,720 --> 00:00:16,480 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,560 --> 00:00:22,239 Speaker 2: Hello and welcome to another episode of the Odd Lots podcast. 3 00:00:22,320 --> 00:00:24,640 Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway. 4 00:00:24,840 --> 00:00:29,200 Speaker 2: So, Tracy, we are recording this on Thursday, August twenty First, 5 00:00:29,240 --> 00:00:32,200 Speaker 2: we are here at Jackson Hall. I need to note 6 00:00:32,400 --> 00:00:35,520 Speaker 2: at the beginning we're recording this before the big Polo speech. 7 00:00:35,560 --> 00:00:37,280 Speaker 2: I don't really think it matters too much because this, 8 00:00:37,640 --> 00:00:39,280 Speaker 2: but I just want to like get that out of 9 00:00:39,280 --> 00:00:40,680 Speaker 2: the way a little timing context. 10 00:00:41,600 --> 00:00:44,960 Speaker 3: We're not going to talk about that speech for obvious reasons. 11 00:00:44,960 --> 00:00:46,239 Speaker 3: We don't know what's going to be said. But what 12 00:00:46,280 --> 00:00:48,920 Speaker 3: we can talk about is the economy right now. That's 13 00:00:48,960 --> 00:00:51,519 Speaker 3: not going to change between you know, right now and 14 00:00:51,640 --> 00:00:52,640 Speaker 3: tomorrow morning. 15 00:00:52,400 --> 00:00:55,800 Speaker 2: Hopefully when Rivers comes out. Probably it's not going to 16 00:00:56,160 --> 00:00:58,800 Speaker 2: change much. But you know, we've been very lucky. We've 17 00:00:58,800 --> 00:01:01,360 Speaker 2: been talking to a lot of regional Fed presidents and 18 00:01:01,480 --> 00:01:03,240 Speaker 2: it's really cool that we have access to them. 19 00:01:03,480 --> 00:01:05,520 Speaker 3: Yes, and it's good to get a range of opinions 20 00:01:05,520 --> 00:01:08,679 Speaker 3: as well, because as we've been discussing, the economy does 21 00:01:08,720 --> 00:01:10,880 Speaker 3: look very uncertain right now, and you could make a 22 00:01:10,920 --> 00:01:14,760 Speaker 3: case for everything from a rate cut to holding to 23 00:01:15,240 --> 00:01:19,520 Speaker 3: possibly even maybe hiking, which you know Jeff Schmidt kind 24 00:01:19,520 --> 00:01:21,200 Speaker 3: of alluded to when we interviewed him. 25 00:01:21,520 --> 00:01:24,080 Speaker 2: Yeah, No, it was pretty extraordinary that, like, look, you 26 00:01:24,080 --> 00:01:26,800 Speaker 2: could make a point that stock markets in your record highs, 27 00:01:27,120 --> 00:01:30,560 Speaker 2: credit spreads in your record lows, employment low, and inflation 28 00:01:30,680 --> 00:01:33,280 Speaker 2: still warm where we talk about RAE cuts. Anyway, we 29 00:01:33,360 --> 00:01:36,160 Speaker 2: got to keep getting more takes and perspectives on this 30 00:01:36,240 --> 00:01:39,399 Speaker 2: from the people who actually think about this the best. 31 00:01:39,440 --> 00:01:42,000 Speaker 3: And can we get a prize if we interview every 32 00:01:42,080 --> 00:01:42,800 Speaker 3: FED president? 33 00:01:43,400 --> 00:01:44,400 Speaker 4: Well we should try. 34 00:01:44,400 --> 00:01:45,720 Speaker 2: There's got to there should be a name for that. 35 00:01:45,840 --> 00:01:48,240 Speaker 2: But we have a guest, perfect guest, someone we've talked 36 00:01:48,240 --> 00:01:51,600 Speaker 2: to on the podcast before. Very excited to have live 37 00:01:51,720 --> 00:01:55,880 Speaker 2: here in Jackson Hall, past Oddlot's guests, Chicago Fed President 38 00:01:55,880 --> 00:01:57,920 Speaker 2: Austin Gouldsby. So, Austin, thank you so much. 39 00:01:57,920 --> 00:01:59,880 Speaker 4: I'm gonna give you a prize. Now, I drove you. 40 00:02:00,520 --> 00:02:03,200 Speaker 4: I just got here. It just got in an hour 41 00:02:03,280 --> 00:02:06,960 Speaker 4: and a half ago. I believe that I've driven the 42 00:02:07,000 --> 00:02:10,680 Speaker 4: farthest of anybody to begin here. And one of the 43 00:02:10,720 --> 00:02:16,000 Speaker 4: things I did on the way was finish my fiftieth 44 00:02:16,080 --> 00:02:20,840 Speaker 4: state on North Dakota. And it turns out there's a collise. 45 00:02:20,880 --> 00:02:23,560 Speaker 4: A lot of people North dakost their last day and 46 00:02:23,600 --> 00:02:27,280 Speaker 4: there's officially a club called the Best for Last Club, 47 00:02:27,840 --> 00:02:31,040 Speaker 4: and I joined the Best for Last club. So who's 48 00:02:31,080 --> 00:02:34,640 Speaker 4: going to be your twelfth Reserve bank president? They're going 49 00:02:34,680 --> 00:02:35,440 Speaker 4: to get a prize. 50 00:02:35,480 --> 00:02:37,920 Speaker 2: Congratulations. I saw your road trip, like on Twitter. I 51 00:02:37,919 --> 00:02:38,959 Speaker 2: saw that you're posting. 52 00:02:39,080 --> 00:02:41,680 Speaker 4: So there are some amazing national parks on the on 53 00:02:41,720 --> 00:02:41,960 Speaker 4: the way. 54 00:02:41,960 --> 00:02:44,919 Speaker 2: We're a great country, don't Yeah, we got amazing country. 55 00:02:46,080 --> 00:02:48,560 Speaker 2: How's the economy look at you these days? 56 00:02:48,600 --> 00:02:53,080 Speaker 4: Well, depends which direction you're facing. As you know, I 57 00:02:53,200 --> 00:02:57,760 Speaker 4: thought for Q one, coming into April, it was looking 58 00:02:57,800 --> 00:03:02,160 Speaker 4: pretty good. We had to stay bowl full employment. The 59 00:03:02,240 --> 00:03:06,919 Speaker 4: unemployment rate a little above four inflation while having been 60 00:03:06,960 --> 00:03:11,040 Speaker 4: above the target for four years, looked to me like 61 00:03:11,080 --> 00:03:13,240 Speaker 4: it was heading It was coming down and down and 62 00:03:13,280 --> 00:03:16,799 Speaker 4: down and was headed to two percent, and so I thought, 63 00:03:17,200 --> 00:03:22,080 Speaker 4: reasonable approximation rates need to start heading down to where 64 00:03:22,080 --> 00:03:24,040 Speaker 4: we think they're going to settle, which is a fair 65 00:03:24,080 --> 00:03:28,280 Speaker 4: bit below where where we were, then where we are today. 66 00:03:28,480 --> 00:03:31,399 Speaker 4: Then we go through some bumps. I've heard of them, 67 00:03:31,440 --> 00:03:33,360 Speaker 4: through a bunch of dirt in the air. All of 68 00:03:33,360 --> 00:03:36,680 Speaker 4: this stuff that it's like is the economy still where 69 00:03:36,720 --> 00:03:40,080 Speaker 4: it was in January February March, or are we on 70 00:03:40,200 --> 00:03:46,840 Speaker 4: some different path. I still closet the hope slash think 71 00:03:47,520 --> 00:03:53,280 Speaker 4: that we're where we were before, and that tariffs important 72 00:03:53,280 --> 00:03:57,000 Speaker 4: goods are only eleven percent of GDP. If they'll kind 73 00:03:57,040 --> 00:04:00,560 Speaker 4: of stay in their lane, if we don't keep escalating them, 74 00:04:01,040 --> 00:04:05,680 Speaker 4: if we don't willing nearly apply them to intermediate goods 75 00:04:05,720 --> 00:04:10,000 Speaker 4: so that they turn into higher cost of production, it'd 76 00:04:10,000 --> 00:04:14,160 Speaker 4: probably be okay. And we had a couple of months 77 00:04:14,280 --> 00:04:19,560 Speaker 4: of benign inflation numbers, and then we got the last 78 00:04:19,600 --> 00:04:24,360 Speaker 4: inflation number, which is a little less benign, and the 79 00:04:24,480 --> 00:04:27,480 Speaker 4: rise of services inflation through me for a little bit 80 00:04:27,480 --> 00:04:31,440 Speaker 4: of a cross current. So I'd say I've still got 81 00:04:31,440 --> 00:04:34,720 Speaker 4: one eye on inflation. We're now four and a half 82 00:04:34,800 --> 00:04:37,920 Speaker 4: years above the target. It's one thing to be four 83 00:04:37,920 --> 00:04:40,240 Speaker 4: and a half years above the target, but we're still 84 00:04:40,279 --> 00:04:43,920 Speaker 4: clearly trending down. If we start trending up and you 85 00:04:44,080 --> 00:04:48,680 Speaker 4: start seeing inflation rising in non tariff affected categories like 86 00:04:48,760 --> 00:04:50,760 Speaker 4: what we saw in services, then am I get a 87 00:04:50,800 --> 00:04:54,440 Speaker 4: little more nervous on that side? And on the job side, 88 00:04:54,760 --> 00:04:58,480 Speaker 4: I still feel like we're something like stable full employment. 89 00:04:59,480 --> 00:05:04,320 Speaker 4: The re visions they are concerning. We also know that 90 00:05:04,400 --> 00:05:09,280 Speaker 4: the labor supply and population growth when there's big immigration 91 00:05:09,880 --> 00:05:15,080 Speaker 4: things happening, add a lot of noise to just monthly payroll. 92 00:05:15,279 --> 00:05:18,280 Speaker 4: So I don't want to over index on that. I 93 00:05:18,360 --> 00:05:23,120 Speaker 4: want to take multiple measures. The four horsemen of truth 94 00:05:23,160 --> 00:05:27,800 Speaker 4: and justice, in my view, are rates. They're less susceptible 95 00:05:28,200 --> 00:05:32,600 Speaker 4: to the immigration and population labor support problems. They're the 96 00:05:32,680 --> 00:05:36,800 Speaker 4: unemployment rate, the hiring rate, the layoff rate, the vacancy rate. 97 00:05:37,440 --> 00:05:40,960 Speaker 4: If you look at those rates, three of them still 98 00:05:41,080 --> 00:05:44,400 Speaker 4: say this is basically full employment, and it's looking fine. 99 00:05:44,480 --> 00:05:48,880 Speaker 4: It looks very similar to twenty eighteen, twenty nineteen, a 100 00:05:48,920 --> 00:05:53,720 Speaker 4: strong job market. The hiring rate is low, and if 101 00:05:53,720 --> 00:05:57,720 Speaker 4: you talk to parents of kids graduating from college, you 102 00:05:57,800 --> 00:06:00,760 Speaker 4: hear it's tough to get a job. We're in a 103 00:06:00,920 --> 00:06:06,960 Speaker 4: low separations, low hiring environment. But that might be full employment. Okay. 104 00:06:07,040 --> 00:06:09,720 Speaker 4: So that's why I say I don't come to it 105 00:06:10,480 --> 00:06:16,520 Speaker 4: averse to cutting of rates. If we get through this 106 00:06:17,240 --> 00:06:20,520 Speaker 4: and we can get some stuff settled on the tariff side, 107 00:06:21,520 --> 00:06:24,080 Speaker 4: we might easily still be on the golden path. It 108 00:06:24,160 --> 00:06:27,680 Speaker 4: might still make perfect sense to keep going down. But 109 00:06:27,839 --> 00:06:30,120 Speaker 4: we've just got a couple of flags at the same time. 110 00:06:30,720 --> 00:06:32,960 Speaker 3: I think you just hit all of our talking points 111 00:06:33,080 --> 00:06:37,799 Speaker 3: in that one. We will dig into all these things, 112 00:06:37,880 --> 00:06:40,680 Speaker 3: but just before we do, I have one question. Maybe 113 00:06:40,720 --> 00:06:44,320 Speaker 3: it's a bit like asking someone who their favorite child is, 114 00:06:44,560 --> 00:06:47,360 Speaker 3: But what's occupying most of your headspace at the moment? 115 00:06:47,960 --> 00:06:50,839 Speaker 4: Felt to say Chicago is your favorite bank? And I 116 00:06:50,839 --> 00:06:52,960 Speaker 4: was going to say good choice, good choice. 117 00:06:53,080 --> 00:06:54,919 Speaker 3: No, is it inflation or the labor market? What are 118 00:06:54,960 --> 00:06:56,400 Speaker 3: you thinking most about? 119 00:06:58,600 --> 00:07:03,000 Speaker 4: I'd say inflation. I'm still thinking inflation. If we had 120 00:07:03,680 --> 00:07:06,920 Speaker 4: four be nine months of inflation that looked like those 121 00:07:07,040 --> 00:07:10,920 Speaker 4: kind of early ones, that would have helped me be 122 00:07:11,160 --> 00:07:14,160 Speaker 4: much more comfortable with the idea. It's not going to 123 00:07:14,200 --> 00:07:17,800 Speaker 4: be you know, tariff state in their eleven percent lane. 124 00:07:17,920 --> 00:07:20,960 Speaker 4: People aren't freaking out. It's gonna be fine. Let's just 125 00:07:21,040 --> 00:07:24,320 Speaker 4: go think about the employment side. Now that we are 126 00:07:24,520 --> 00:07:28,440 Speaker 4: seeing a couple of bumps and things ticking up, I 127 00:07:28,520 --> 00:07:32,400 Speaker 4: fear we we gotta think about that inflation side. Just 128 00:07:32,480 --> 00:07:34,520 Speaker 4: given what the history was. If we were having this 129 00:07:34,600 --> 00:07:39,440 Speaker 4: discussion in twenty nineteen and we hadn't had the team 130 00:07:39,560 --> 00:07:43,480 Speaker 4: transitory and the very same arguments like nah, nah, this 131 00:07:43,600 --> 00:07:47,160 Speaker 4: is a one time thing, and so the inflation should 132 00:07:47,200 --> 00:07:50,120 Speaker 4: just go away real quickly. If we hadn't had that, 133 00:07:50,880 --> 00:07:53,320 Speaker 4: I would be much more comfortable making that argument. But 134 00:07:53,480 --> 00:07:56,679 Speaker 4: now that I don't even like using that word. 135 00:07:56,800 --> 00:07:59,240 Speaker 3: Plus, everyone has experienced inflation. 136 00:07:59,080 --> 00:08:02,920 Speaker 4: Everyone's experience, so they're more hyped up. They're more amped up. 137 00:08:03,080 --> 00:08:05,600 Speaker 4: Not hyped up there, they're amped up to see it. 138 00:08:05,920 --> 00:08:10,080 Speaker 4: And look, you see this consumer confidence numbers going down, 139 00:08:10,120 --> 00:08:15,640 Speaker 4: your somewhat significantly survey measures of inflation expectations, which I, 140 00:08:16,120 --> 00:08:20,080 Speaker 4: in fairness always said I put less weight on than 141 00:08:20,160 --> 00:08:23,640 Speaker 4: market based measures. That said, I don't put zero weight 142 00:08:23,720 --> 00:08:27,360 Speaker 4: on them. And if you see people in surveys as 143 00:08:27,440 --> 00:08:29,360 Speaker 4: what do you think inflation is going to be over 144 00:08:29,400 --> 00:08:33,280 Speaker 4: the next one year, two years, now even longer, they're 145 00:08:33,840 --> 00:08:37,120 Speaker 4: saying it's higher. So we got to think about that. 146 00:08:37,320 --> 00:08:40,280 Speaker 2: You mentioned those labor market revisions, and when we got 147 00:08:40,280 --> 00:08:43,600 Speaker 2: that last job supporters mediocre, but even more than mediocre, 148 00:08:43,600 --> 00:08:45,920 Speaker 2: as it was the pull down of the prior two months. 149 00:08:46,360 --> 00:08:48,640 Speaker 2: And there's actually it strikes me as two ways of 150 00:08:48,679 --> 00:08:51,520 Speaker 2: looking at this. One is, oh, you know what, the 151 00:08:51,720 --> 00:08:55,920 Speaker 2: labor market is really decelerating. Probably we have to have 152 00:08:55,960 --> 00:08:58,320 Speaker 2: cut soon if we want to hold on to full employment. 153 00:08:58,640 --> 00:09:01,120 Speaker 2: But there's another tig. It actually has come up in 154 00:09:01,160 --> 00:09:05,360 Speaker 2: a couple of recent episodes, which is, well, yeah, that 155 00:09:05,520 --> 00:09:07,480 Speaker 2: was the post April second volatility. 156 00:09:07,679 --> 00:09:09,439 Speaker 4: We're through that now that. 157 00:09:09,559 --> 00:09:12,880 Speaker 2: Actually we have more tariff certainty than we certainly have 158 00:09:12,920 --> 00:09:14,400 Speaker 2: more terre if certainty. 159 00:09:13,960 --> 00:09:14,520 Speaker 4: Than we did. 160 00:09:14,960 --> 00:09:17,080 Speaker 2: That was maybe the trough. We got an S and 161 00:09:17,080 --> 00:09:20,400 Speaker 2: P flash PMI today that actually showed a positive employment rading. 162 00:09:20,800 --> 00:09:23,600 Speaker 2: This came up in our conversation with Jeff Schmid, who's 163 00:09:23,640 --> 00:09:27,040 Speaker 2: throwing this event for the Kansas City event, that maybe 164 00:09:27,080 --> 00:09:30,480 Speaker 2: that was the cyclical low for the year. Just the 165 00:09:30,559 --> 00:09:31,600 Speaker 2: craziness of those. 166 00:09:31,440 --> 00:09:34,199 Speaker 4: Couple of months fascinating. I thought, you're going to go 167 00:09:34,280 --> 00:09:37,120 Speaker 4: totally different. Okay, So those are two schools of thought, 168 00:09:37,960 --> 00:09:44,200 Speaker 4: both of which are premised on using monthly payroll as 169 00:09:44,200 --> 00:09:46,360 Speaker 4: an indicator of where we are in the business cycle, 170 00:09:46,520 --> 00:09:53,080 Speaker 4: and in normal times that's perfectly appropriate. My third category 171 00:09:53,600 --> 00:09:59,640 Speaker 4: is at moments when there are population growth shifts and 172 00:09:59,720 --> 00:10:05,960 Speaker 4: labor supply, especially from immigration, be careful using monthly payroll 173 00:10:07,760 --> 00:10:10,880 Speaker 4: the business site that wasn't one of them because and 174 00:10:11,080 --> 00:10:14,520 Speaker 4: I have no is it remorse not remorse? I have 175 00:10:14,600 --> 00:10:18,440 Speaker 4: no I don't feel guilty talking about this topic now, 176 00:10:18,600 --> 00:10:21,360 Speaker 4: because you can go back and look a year and 177 00:10:21,360 --> 00:10:25,960 Speaker 4: a half ago and more, when we were getting jobs 178 00:10:26,040 --> 00:10:29,560 Speaker 4: numbers that were far higher than what we thought the 179 00:10:29,600 --> 00:10:33,400 Speaker 4: break even was. There was a one group that was saying, 180 00:10:33,760 --> 00:10:37,719 Speaker 4: we're about to have inflation kick way back up, because 181 00:10:38,280 --> 00:10:42,079 Speaker 4: one hundred and eighty thousand jobs a month is faster 182 00:10:42,640 --> 00:10:45,120 Speaker 4: than break even. Break even is like eighty five thousand 183 00:10:45,160 --> 00:10:49,080 Speaker 4: a month, So we're overheating. And at that time I said, 184 00:10:50,040 --> 00:10:53,840 Speaker 4: not pay no attention, but pay less attention than you 185 00:10:53,960 --> 00:10:57,240 Speaker 4: normally would to what the payroll and jobs numbers say, 186 00:10:57,480 --> 00:11:00,520 Speaker 4: because we know there's a whole bunch of immigrant that's 187 00:11:00,559 --> 00:11:03,680 Speaker 4: happening behind the scenes that is not showing up yet. 188 00:11:04,320 --> 00:11:07,680 Speaker 4: Now when we look back, everybody says, oh, yeah, obviously 189 00:11:07,800 --> 00:11:11,640 Speaker 4: that's why we generate as many jobs. This is just 190 00:11:11,720 --> 00:11:16,480 Speaker 4: the exact same idea, but in reverse. Now it may 191 00:11:16,600 --> 00:11:20,600 Speaker 4: prove not to be true. This might be an indicator 192 00:11:20,640 --> 00:11:23,240 Speaker 4: of the business cycle. But we learned the last time 193 00:11:23,240 --> 00:11:29,880 Speaker 4: around that those four horsemen of truth were rates, not aggregates. Okay, 194 00:11:29,960 --> 00:11:33,520 Speaker 4: so if you don't know what the population growth rate is, 195 00:11:34,040 --> 00:11:37,600 Speaker 4: or if it's different than what you expected, be extra 196 00:11:37,800 --> 00:11:43,720 Speaker 4: suspicious about total payroll, employment, and total GDP growth. So 197 00:11:44,360 --> 00:11:48,280 Speaker 4: if you started to see GDP growth overall is slowing down, 198 00:11:48,400 --> 00:11:54,120 Speaker 4: but the components don't really suggest that, or if you 199 00:11:54,320 --> 00:11:59,120 Speaker 4: start seeing payroll growth you characterize it as mediocre. I 200 00:11:59,120 --> 00:12:02,559 Speaker 4: don't think it's like seventy five thousand that's right around 201 00:12:02,600 --> 00:12:07,000 Speaker 4: the break. Even if you're seventy five thousand plus or 202 00:12:07,040 --> 00:12:09,920 Speaker 4: minus one hundred thousand, which is normally what you are 203 00:12:10,320 --> 00:12:14,640 Speaker 4: for monthly payroll, you're gonna get months where you have 204 00:12:15,120 --> 00:12:18,679 Speaker 4: low payroll. And then if you add this immigration thing 205 00:12:18,720 --> 00:12:21,000 Speaker 4: on top of it, Like I say, I'm not saying 206 00:12:21,080 --> 00:12:25,000 Speaker 4: ignore it, I'm just saying, be very careful. I was 207 00:12:25,520 --> 00:12:28,200 Speaker 4: a little not puzzled, but I was a little concerned 208 00:12:28,640 --> 00:12:33,559 Speaker 4: that the market reaction seemed to be let's take our 209 00:12:33,760 --> 00:12:39,280 Speaker 4: understanding of monthly payroll numbers circa twenty eighteen and say 210 00:12:39,840 --> 00:12:42,320 Speaker 4: that must mean we're on the verge of recession. If 211 00:12:42,400 --> 00:12:45,160 Speaker 4: that's where your head is that you say, well, a 212 00:12:45,240 --> 00:12:48,839 Speaker 4: low monthly payroll in the past has been an indicator 213 00:12:49,440 --> 00:12:53,760 Speaker 4: the beginning of recession, then you got to explain why 214 00:12:53,800 --> 00:12:56,600 Speaker 4: these other ones don't show that. Why is the layoff 215 00:12:56,720 --> 00:12:59,679 Speaker 4: rate as low as it is. You haven't seen it 216 00:12:59,760 --> 00:13:03,280 Speaker 4: up to can layoffs. The vacancy rate is actually rising 217 00:13:03,320 --> 00:13:08,439 Speaker 4: a little and is better than it was in twenty nineteen. 218 00:13:08,880 --> 00:13:12,480 Speaker 4: I think. So this doesn't look like a normal business 219 00:13:12,520 --> 00:13:15,720 Speaker 4: cycle yet if it starts to I'll be the first 220 00:13:15,760 --> 00:13:19,160 Speaker 4: one saying this is what the beginning of a recession 221 00:13:19,200 --> 00:13:19,600 Speaker 4: looks like. 222 00:13:19,920 --> 00:13:23,000 Speaker 3: So the idea is that weaker payrolls can be offset 223 00:13:23,240 --> 00:13:26,120 Speaker 3: or are being offset by weaker labor supply because we're 224 00:13:26,120 --> 00:13:28,080 Speaker 3: getting less immigration, so the break even. 225 00:13:27,920 --> 00:13:29,960 Speaker 4: Rate is at the break evenness it is less. 226 00:13:30,080 --> 00:13:34,280 Speaker 3: Yeah, okay, you mentioned the market reaction. Just then, can 227 00:13:34,320 --> 00:13:36,000 Speaker 3: we talk a little bit more about the market, because, 228 00:13:36,040 --> 00:13:38,959 Speaker 3: as Joe mentioned, you know, stocks are still kind of 229 00:13:39,200 --> 00:13:42,000 Speaker 3: nearer their record highs. I know they've been falling a 230 00:13:42,000 --> 00:13:45,199 Speaker 3: bit this week. Credit spreads at like a twenty seven 231 00:13:45,280 --> 00:13:49,320 Speaker 3: year low. I still hear FED officials talk about rates 232 00:13:49,360 --> 00:13:53,080 Speaker 3: being restrictive even though inflation is still above target. But 233 00:13:53,120 --> 00:13:55,160 Speaker 3: when I look at the market, when I look at 234 00:13:55,200 --> 00:13:58,760 Speaker 3: financial conditions, it doesn't look that restrictive to me. 235 00:14:00,040 --> 00:14:05,199 Speaker 4: Careful, we're just in the weird glass onion version of 236 00:14:05,240 --> 00:14:09,800 Speaker 4: the same discussions we've been having for several years now 237 00:14:10,200 --> 00:14:12,360 Speaker 4: that I've been in the Fed. I'm coming on three years. 238 00:14:13,480 --> 00:14:18,080 Speaker 4: At that time, it was positive supply shocks, and the 239 00:14:18,160 --> 00:14:22,400 Speaker 4: whole question was are we about to reoverheat? Do we 240 00:14:22,480 --> 00:14:25,240 Speaker 4: need to maintain do we need to keep raising, Do 241 00:14:25,240 --> 00:14:27,240 Speaker 4: we need to maintain the rates this high? Or can 242 00:14:27,280 --> 00:14:32,560 Speaker 4: we start cutting. I kind of think that a large 243 00:14:32,600 --> 00:14:38,320 Speaker 4: component of what's in expectations and what's in the market's 244 00:14:38,320 --> 00:14:43,640 Speaker 4: reaction is the reflection problem. That if they think that 245 00:14:43,680 --> 00:14:49,120 Speaker 4: the FED is going to succeed, then you could see 246 00:14:49,160 --> 00:14:53,760 Speaker 4: conditions loosen, but that wouldn't be a reason that the 247 00:14:53,880 --> 00:14:59,480 Speaker 4: FED should raise necessarily because they're premised on thinking that 248 00:14:59,520 --> 00:15:02,080 Speaker 4: it's going to work. That's what I was saying before, 249 00:15:02,080 --> 00:15:04,920 Speaker 4: and I kind of now think in the same way. 250 00:15:05,120 --> 00:15:09,360 Speaker 4: It might be an indication. But if you just look 251 00:15:09,360 --> 00:15:12,840 Speaker 4: at rates and you look at kind of the traditional 252 00:15:13,920 --> 00:15:18,560 Speaker 4: credit channels of monetary policy, I still think that rates 253 00:15:18,640 --> 00:15:22,680 Speaker 4: are relatively restrictive. And so that's why I say, if 254 00:15:22,720 --> 00:15:26,240 Speaker 4: you start to see deterioration in the labor market, you 255 00:15:26,280 --> 00:15:29,800 Speaker 4: start to see layoffs going up, and it starts looking 256 00:15:29,840 --> 00:15:33,440 Speaker 4: more like a the turning point in the labor market, 257 00:15:34,320 --> 00:15:37,080 Speaker 4: then I think we're going to have to seriously contemplate 258 00:15:37,320 --> 00:15:41,880 Speaker 4: cutting of rates. If we're in an environment where we're 259 00:15:41,960 --> 00:15:45,960 Speaker 4: actually in pretty stable full employment and the only thing 260 00:15:46,000 --> 00:15:50,440 Speaker 4: that's happening is population is making the break even monthly 261 00:15:50,560 --> 00:15:56,280 Speaker 4: jobs number forty thousand instead of one hundred thousand, and 262 00:15:56,640 --> 00:15:59,200 Speaker 4: inflation is going up in a bunch of categories that 263 00:15:59,240 --> 00:16:02,600 Speaker 4: are not Terear related. Now, we got to be a 264 00:16:02,600 --> 00:16:04,440 Speaker 4: little more circumspective. 265 00:16:19,760 --> 00:16:21,280 Speaker 2: So I want to ask a question. It's something that 266 00:16:21,320 --> 00:16:25,040 Speaker 2: I'm very increasingly interested in and want to talk to 267 00:16:25,080 --> 00:16:28,080 Speaker 2: a lot more people about, et cetera. But their aspects 268 00:16:28,080 --> 00:16:29,800 Speaker 2: of this economy that, as you say, may kind of 269 00:16:29,800 --> 00:16:33,120 Speaker 2: resemble twenty eighteen, twenty nineteen, et cetera. One thing that 270 00:16:33,160 --> 00:16:36,640 Speaker 2: strikes me it's very different is the long term rate 271 00:16:36,920 --> 00:16:40,560 Speaker 2: and the implied therefore what people will call the neutral 272 00:16:40,640 --> 00:16:43,600 Speaker 2: rate or whatever. And maybe rate cuts are coming soon, 273 00:16:43,640 --> 00:16:45,800 Speaker 2: but the market is not expecting at deep cutting cycle 274 00:16:45,800 --> 00:16:49,520 Speaker 2: of that terminal rates. What's changed? What's the fundamental difference 275 00:16:49,720 --> 00:16:52,640 Speaker 2: in twenty twenty five verse twenty eighteen such that for 276 00:16:52,720 --> 00:16:56,040 Speaker 2: the Fed to hit it's two percent inflation target, the 277 00:16:56,080 --> 00:16:58,720 Speaker 2: market is pricing in so much higher rates than what 278 00:16:58,840 --> 00:17:00,240 Speaker 2: it had anticipated. 279 00:17:00,240 --> 00:17:03,400 Speaker 4: To COVID, I don't I mean, I should ask you, 280 00:17:03,400 --> 00:17:08,160 Speaker 4: You've talked a lot of no. I would say there's 281 00:17:08,200 --> 00:17:11,520 Speaker 4: one way to look at that that if you asked historically, 282 00:17:12,040 --> 00:17:15,960 Speaker 4: which of those is weird? Twenty eighteen, twenty nineteen, what's weird? 283 00:17:16,240 --> 00:17:18,320 Speaker 4: You know what I mean? Like the lower rates now 284 00:17:18,400 --> 00:17:23,040 Speaker 4: are look very, very similar to kind of historical patterns. 285 00:17:23,600 --> 00:17:29,000 Speaker 4: There's a whole tremendous almost industry in research trying to 286 00:17:29,080 --> 00:17:33,800 Speaker 4: diagnose that. And that bleeds into the question of are 287 00:17:33,840 --> 00:17:38,760 Speaker 4: we going back to super low rates ultra low rates 288 00:17:39,320 --> 00:17:44,360 Speaker 4: because is it global savings glut? Is there something happening 289 00:17:44,400 --> 00:17:48,480 Speaker 4: with productivity? Do they think demand is going to be low? 290 00:17:49,640 --> 00:17:53,080 Speaker 4: Is there a feeling that Treasury is going to have 291 00:17:53,119 --> 00:17:55,520 Speaker 4: to issue so much debt? I mean, there's been a 292 00:17:55,520 --> 00:17:59,600 Speaker 4: big increase intent to GDP ratios worldwide. I do find 293 00:17:59,640 --> 00:18:04,919 Speaker 4: informedive this increase in loan rates is not exclusive to 294 00:18:04,960 --> 00:18:07,800 Speaker 4: the US. You see it in a lot of countries. 295 00:18:08,400 --> 00:18:13,080 Speaker 4: So I don't totally know. There's probably some of many 296 00:18:13,119 --> 00:18:19,480 Speaker 4: of those explanations. And for whatever reason, what the market 297 00:18:19,560 --> 00:18:21,680 Speaker 4: thinks the Fed is going to do in short rates 298 00:18:21,760 --> 00:18:26,560 Speaker 4: does seem to have a outsized impact on thirty year rates, 299 00:18:26,960 --> 00:18:30,840 Speaker 4: So that's part of it. Is probably just reflecting how 300 00:18:31,480 --> 00:18:34,080 Speaker 4: steep or how shallow a path do they think the 301 00:18:34,119 --> 00:18:34,960 Speaker 4: FED is going to take. 302 00:18:35,480 --> 00:18:37,840 Speaker 3: So, just going back to inflation for a second, you've 303 00:18:37,880 --> 00:18:40,280 Speaker 3: mentioned a couple of times now that you're worried about 304 00:18:40,359 --> 00:18:44,679 Speaker 3: maybe you know, tariff induced inflation in goods starting to 305 00:18:44,840 --> 00:18:47,920 Speaker 3: seep into services. Can you talk a little bit more 306 00:18:47,960 --> 00:18:52,320 Speaker 3: about how you see that channel actually working. And then 307 00:18:52,400 --> 00:18:55,600 Speaker 3: also you're head of the seventh District and you have 308 00:18:55,680 --> 00:18:58,520 Speaker 3: some interesting states in there. You've got Michigan, which still 309 00:18:58,560 --> 00:19:01,879 Speaker 3: makes cars. You've got Iowa which has farmers. Like, what 310 00:19:01,960 --> 00:19:04,000 Speaker 3: are you seeing in terms of the pass through from 311 00:19:04,119 --> 00:19:05,600 Speaker 3: goods to services there? 312 00:19:06,440 --> 00:19:10,880 Speaker 4: Okay, these are both important topics for us to think through. 313 00:19:11,880 --> 00:19:17,680 Speaker 4: Let's go backwards in order. The seventh District, headquartered in Chicago, 314 00:19:18,359 --> 00:19:21,800 Speaker 4: is the most manufacturing intentsive of all the districts, and 315 00:19:21,840 --> 00:19:24,760 Speaker 4: by far the most auto production of all the districts. 316 00:19:25,840 --> 00:19:32,280 Speaker 4: It's one of the big agriculture heavy districts. But Kansas City, Minneapolis, 317 00:19:32,320 --> 00:19:34,480 Speaker 4: there's a couple of others. I would say in the 318 00:19:34,600 --> 00:19:38,439 Speaker 4: run up to April second and through April second into 319 00:19:38,920 --> 00:19:44,160 Speaker 4: May almost to June, their hair was on fire. I mean, 320 00:19:44,720 --> 00:19:47,520 Speaker 4: this is going to wipe us out if anything's like 321 00:19:47,560 --> 00:19:51,160 Speaker 4: the rates of what they just announced the auto suppliers 322 00:19:51,240 --> 00:19:54,440 Speaker 4: that we had small margines to begin with, that we're 323 00:19:54,440 --> 00:19:57,760 Speaker 4: gonna die. We don't know you, we don't know what's 324 00:19:57,800 --> 00:20:00,639 Speaker 4: going to happen. That's why I was getting amped up 325 00:20:00,680 --> 00:20:05,040 Speaker 4: about it at the time as we kind of got 326 00:20:05,080 --> 00:20:07,840 Speaker 4: some clarity on what the raids are going to be, 327 00:20:08,119 --> 00:20:13,320 Speaker 4: and particularly when they begin exempting, if it's USMCA compliant, 328 00:20:13,359 --> 00:20:16,960 Speaker 4: it's not going to apply for a bunch of intermediate goods. 329 00:20:17,000 --> 00:20:22,960 Speaker 4: It's not going to apply common influence. I would say 330 00:20:23,119 --> 00:20:27,520 Speaker 4: as I talk to people now for manufacturing and for agriculture, 331 00:20:27,560 --> 00:20:31,080 Speaker 4: they're still in that space. In agriculture they were particularly 332 00:20:31,080 --> 00:20:37,160 Speaker 4: heartened by as some of the negotiations got concluded. Even 333 00:20:37,240 --> 00:20:41,480 Speaker 4: if they weren't going back to no tariffs, the fact 334 00:20:41,480 --> 00:20:43,920 Speaker 4: that they were going to something that would not lead 335 00:20:43,960 --> 00:20:47,600 Speaker 4: to retaliation was a very big thing for agriculture because 336 00:20:47,640 --> 00:20:51,560 Speaker 4: a lot of their biggest markets are overseas. I was 337 00:20:51,640 --> 00:20:55,119 Speaker 4: just recently in Iowa. Though they're still nervous in that 338 00:20:55,280 --> 00:20:58,879 Speaker 4: space that in some ways the damage has already done 339 00:20:59,160 --> 00:21:01,840 Speaker 4: and it takes a lot long time to build up 340 00:21:02,240 --> 00:21:06,920 Speaker 4: these export relationships. And if you smash that, and they 341 00:21:06,960 --> 00:21:10,840 Speaker 4: start buying soy beans from Brazil that even if you 342 00:21:11,000 --> 00:21:13,800 Speaker 4: go back to zero tariffs, they might have already set 343 00:21:13,840 --> 00:21:16,720 Speaker 4: it up. So there is like a nagging that the 344 00:21:16,800 --> 00:21:19,560 Speaker 4: longer run impact will be different than the short run impact. 345 00:21:19,920 --> 00:21:23,600 Speaker 4: But I would characterize short run impact scaled down from 346 00:21:24,160 --> 00:21:27,200 Speaker 4: I always get the deaf cons backward. Death Con five 347 00:21:27,359 --> 00:21:31,199 Speaker 4: is the worst, right, so so one was the worst. 348 00:21:31,359 --> 00:21:35,000 Speaker 3: Everybody says, how often are we declaring what it is? 349 00:21:36,080 --> 00:21:41,040 Speaker 4: There was a high deaf Con, dangerous, deaf Con as 350 00:21:41,119 --> 00:21:44,560 Speaker 4: high as you could be, and now it's gone back 351 00:21:45,280 --> 00:21:49,880 Speaker 4: not background noise, but the sentiment like, we can live 352 00:21:49,920 --> 00:21:52,080 Speaker 4: with this if this is what it is. As long 353 00:21:52,119 --> 00:21:55,720 Speaker 4: as this stops when we're not going to face new ones, 354 00:21:56,440 --> 00:21:59,520 Speaker 4: we can deal with this. Now that said, it sort 355 00:21:59,520 --> 00:22:01,359 Speaker 4: of goes to your second. 356 00:22:01,200 --> 00:22:03,520 Speaker 2: To your original, Defcon one is the highest state of 357 00:22:03,520 --> 00:22:04,240 Speaker 2: military writing. 358 00:22:04,320 --> 00:22:06,160 Speaker 4: Now deaf Con one is the highest. So they were 359 00:22:06,200 --> 00:22:08,920 Speaker 4: at def Con one and we're back to deaf Con five. 360 00:22:09,200 --> 00:22:12,840 Speaker 4: I just looked at up. Okay, I added backward, which 361 00:22:12,880 --> 00:22:15,080 Speaker 4: is embarrassing because I'm always like Nodo, you know, that's 362 00:22:15,480 --> 00:22:18,800 Speaker 4: that's the opposite, But now I opposite it myself. Yeah, 363 00:22:18,840 --> 00:22:24,440 Speaker 4: I've done that. So the question about what is the 364 00:22:24,520 --> 00:22:30,320 Speaker 4: mechanism that the tariff inflation turns into services inflation? Permit 365 00:22:30,400 --> 00:22:34,720 Speaker 4: me a slight dedoer, what is the mechanism that tariffs 366 00:22:35,119 --> 00:22:39,560 Speaker 4: turn into inflation of goods as opposed to just a 367 00:22:39,640 --> 00:22:43,240 Speaker 4: one time price increase, because there is an argument that 368 00:22:43,280 --> 00:22:47,360 Speaker 4: for the platonic ideal of a theoretical one and done tariff, 369 00:22:48,000 --> 00:22:50,040 Speaker 4: it's just a one time price increase. So no matter 370 00:22:50,080 --> 00:22:52,760 Speaker 4: what it is, just look through. 371 00:22:52,520 --> 00:22:54,760 Speaker 3: It, right, And a one time pricing increase, just to 372 00:22:54,800 --> 00:22:59,280 Speaker 3: be clear, doesn't count as inflation under traditional economic frameworks. 373 00:22:58,840 --> 00:23:02,720 Speaker 4: Because base, if you go measure inflation, inflation would be 374 00:23:02,800 --> 00:23:05,639 Speaker 4: high for one year and then the inflation would go away. 375 00:23:05,920 --> 00:23:10,800 Speaker 4: But that was the very argument of Team Transitory in 376 00:23:10,840 --> 00:23:15,399 Speaker 4: twenty twenty one was, yes, here this thing hit supply, 377 00:23:15,440 --> 00:23:19,400 Speaker 4: we're gonna let bygones be bygones. We'll eat the inflation 378 00:23:19,640 --> 00:23:23,600 Speaker 4: for one year and then it's gonna go away. Now, 379 00:23:24,119 --> 00:23:27,760 Speaker 4: remember this is for a one and done tariff, and 380 00:23:27,800 --> 00:23:31,280 Speaker 4: this is not one and this is not done. So well, 381 00:23:31,320 --> 00:23:35,520 Speaker 4: let's be a little more circumspect of just saying, hey, 382 00:23:35,600 --> 00:23:40,720 Speaker 4: theoretically it's just gonna go away. We learned in COVID 383 00:23:41,160 --> 00:23:43,840 Speaker 4: that if it's a big enough impact on the supply chain, 384 00:23:43,920 --> 00:23:49,280 Speaker 4: and especially if it's going industry A to industry B, 385 00:23:49,600 --> 00:23:54,760 Speaker 4: industry B makes inputs for C that process takes a 386 00:23:54,800 --> 00:23:59,080 Speaker 4: lot longer than we thought it would in twenty nineteen 387 00:23:59,119 --> 00:24:02,240 Speaker 4: and twenty twenty. When we got to twenty twenty one, 388 00:24:02,880 --> 00:24:06,119 Speaker 4: we're like, yeah, hey, it'll fix itself. You know, probably 389 00:24:06,160 --> 00:24:11,200 Speaker 4: six months. That was the argument of transitory. So I'm 390 00:24:11,240 --> 00:24:17,080 Speaker 4: a little concerned about just the impact of tariffs on 391 00:24:17,240 --> 00:24:22,560 Speaker 4: goods inflation itself lasting longer than we wanted to, and 392 00:24:23,280 --> 00:24:28,080 Speaker 4: people getting mixed up. You'll recall the perfectly valid arguments 393 00:24:28,080 --> 00:24:30,760 Speaker 4: in twenty one, in twenty two and into twenty three 394 00:24:31,280 --> 00:24:35,960 Speaker 4: where people said it doesn't matter if it's supply shock 395 00:24:36,040 --> 00:24:39,840 Speaker 4: induced inflation. If it's high for too long, it's going 396 00:24:39,920 --> 00:24:42,320 Speaker 4: to fold into expectations and then we'll never get rid 397 00:24:42,359 --> 00:24:46,520 Speaker 4: of it. That didn't prove true this last time, but 398 00:24:46,760 --> 00:24:51,080 Speaker 4: if people are more attuned to price increases, it could, 399 00:24:51,200 --> 00:24:54,400 Speaker 4: and we just got to be careful on that front. Now, 400 00:24:54,600 --> 00:24:57,600 Speaker 4: ask the question how does it turn into services inflation? 401 00:24:58,359 --> 00:25:03,840 Speaker 4: One part, what if the servi inflation isn't coming from tariffs? Okay, 402 00:25:03,880 --> 00:25:09,439 Speaker 4: So that's the the danger of services inflation is you 403 00:25:09,640 --> 00:25:14,919 Speaker 4: kind of can't really give a simple mechanism of why 404 00:25:15,240 --> 00:25:20,600 Speaker 4: services inflation would be rising. The new month of services 405 00:25:20,600 --> 00:25:24,520 Speaker 4: inflation was quite terrible, and some part of that are 406 00:25:24,600 --> 00:25:27,160 Speaker 4: non market determined, so I put a little less weight 407 00:25:27,240 --> 00:25:31,920 Speaker 4: on those, but it wasn't good that Probably the mechanisms 408 00:25:31,920 --> 00:25:35,600 Speaker 4: that you think through how would tariffs cause that, they 409 00:25:35,680 --> 00:25:37,600 Speaker 4: think you'd be hard pressed to figure out how it 410 00:25:37,640 --> 00:25:40,440 Speaker 4: would cause it. But that doesn't make you feel better. 411 00:25:40,520 --> 00:25:43,040 Speaker 4: That makes you feel worse because it's like, whoaa, wait 412 00:25:43,080 --> 00:25:47,879 Speaker 4: a minute, maybe some inflationary dynamic was never put out, 413 00:25:47,920 --> 00:25:51,800 Speaker 4: and you ever like make the campfire and it's like, ah, yeah, 414 00:25:51,840 --> 00:25:54,520 Speaker 4: it's done, and then you look away, its back. It's 415 00:25:54,520 --> 00:25:57,720 Speaker 4: back on fire again. We can't let that happen. We've 416 00:25:57,760 --> 00:26:00,280 Speaker 4: been four and a half years above the target. We 417 00:26:00,280 --> 00:26:05,600 Speaker 4: were making progress. Now we've stopped making progress. If it's 418 00:26:05,600 --> 00:26:11,359 Speaker 4: spreading into services inflation this immediately, it's probably not coming 419 00:26:11,359 --> 00:26:15,840 Speaker 4: from tariffs. The other mechanisms how does it move into 420 00:26:15,840 --> 00:26:22,520 Speaker 4: services inflation is sort of wage price spiral, where people say, well, 421 00:26:22,560 --> 00:26:24,760 Speaker 4: I think prices are going to go up, so I'm 422 00:26:24,880 --> 00:26:27,320 Speaker 4: going to be that much more aggressive in my wage 423 00:26:27,400 --> 00:26:31,720 Speaker 4: negotiations with the employer. The only reason I'm hesitating to 424 00:26:31,720 --> 00:26:36,280 Speaker 4: go down this lane is then you're probably going to say, well, 425 00:26:36,280 --> 00:26:40,440 Speaker 4: what about wages? Are wages compatible with two percent inflation? 426 00:26:41,119 --> 00:26:44,160 Speaker 4: And you can't answer that and tell you know what 427 00:26:44,200 --> 00:26:47,600 Speaker 4: the productivity growth rate is, which has been one of 428 00:26:47,600 --> 00:26:52,159 Speaker 4: the bright spots. But that's actually my one of my 429 00:26:52,240 --> 00:26:56,840 Speaker 4: bigger fears about the tariffs is there's a long literature 430 00:26:57,040 --> 00:27:03,520 Speaker 4: of research in economics showing you raise tariffs, especially on 431 00:27:04,080 --> 00:27:07,520 Speaker 4: components supplies, it drives down productivity growth. 432 00:27:07,920 --> 00:27:10,359 Speaker 2: Yeah, Tracy and I were in Alaska recently, and I 433 00:27:10,359 --> 00:27:13,760 Speaker 2: feel like we've heard multiple ways. Whether it's like the 434 00:27:13,800 --> 00:27:17,080 Speaker 2: company's making tubular goods for the oil patch out there 435 00:27:17,160 --> 00:27:19,600 Speaker 2: and that's gonna make it increased break evene. Whether it's 436 00:27:19,600 --> 00:27:21,159 Speaker 2: like just the uncertain just. 437 00:27:21,040 --> 00:27:24,439 Speaker 3: Doing the paperwork for customs sounds like a huge live. 438 00:27:24,440 --> 00:27:29,480 Speaker 4: Okay, it sounds like a productivity destroy factor. 439 00:27:29,600 --> 00:27:33,080 Speaker 2: I have one last question, and I'm turning this into 440 00:27:33,080 --> 00:27:35,920 Speaker 2: my question that I ask every FED president that we. 441 00:27:35,880 --> 00:27:38,280 Speaker 4: Can Tracy rolling around from. 442 00:27:41,160 --> 00:27:42,040 Speaker 3: This is this is. 443 00:27:42,000 --> 00:27:45,200 Speaker 2: My question, but I think it might be important down 444 00:27:45,320 --> 00:27:49,119 Speaker 2: the line. Why are descents rare at the FM's wire. 445 00:27:48,960 --> 00:27:53,320 Speaker 4: Descents rare I have. I've only been there a short time. 446 00:27:54,040 --> 00:27:56,840 Speaker 4: FED years are like reversed dog years or something like, 447 00:27:56,880 --> 00:27:58,600 Speaker 4: you've been there seven years. They're like, oh, he's the 448 00:27:58,640 --> 00:28:02,520 Speaker 4: new guy. Okay, so I'm coming up on three years. Yeah, 449 00:28:03,320 --> 00:28:04,960 Speaker 4: there been some dissents. 450 00:28:05,280 --> 00:28:07,960 Speaker 2: I can I tell you what I'm trying to get at. Yeah, 451 00:28:08,080 --> 00:28:10,320 Speaker 2: at some point the chair is going to be replaced. 452 00:28:10,640 --> 00:28:13,560 Speaker 2: And what I'm trying to understand is when there's the 453 00:28:13,640 --> 00:28:18,120 Speaker 2: new guy is in that position? To what degree does 454 00:28:18,119 --> 00:28:21,840 Speaker 2: the fact that most of the time the voting members 455 00:28:22,080 --> 00:28:25,000 Speaker 2: align with Powell? How much of it is the fact 456 00:28:25,040 --> 00:28:27,720 Speaker 2: that you more or less think about the economy in 457 00:28:28,040 --> 00:28:31,160 Speaker 2: roughly similar ways and looking at the same data, And 458 00:28:31,240 --> 00:28:34,120 Speaker 2: how much is it about Powell has done a good 459 00:28:34,280 --> 00:28:35,440 Speaker 2: job of. 460 00:28:36,000 --> 00:28:37,840 Speaker 4: Navigating navigating the board. 461 00:28:38,120 --> 00:28:40,240 Speaker 2: And so this is why I'm asking the question, because 462 00:28:40,240 --> 00:28:42,880 Speaker 2: I'm thinking about what those dynamics are. 463 00:28:43,760 --> 00:28:45,959 Speaker 4: I feel like it's more the latter. You know the rules. 464 00:28:46,000 --> 00:28:49,840 Speaker 4: I'm not allowed to speak for anybody speak for the chair. 465 00:28:50,400 --> 00:28:54,120 Speaker 4: You know. I'm a longtime fan of J. Powell. I 466 00:28:54,120 --> 00:28:56,480 Speaker 4: think he's a first ballot Hall of Fame FED chair, 467 00:28:57,080 --> 00:29:02,440 Speaker 4: and he has great judgment. He is all as navigated 468 00:29:03,480 --> 00:29:07,880 Speaker 4: a pretty diverse set of world views on that committee. 469 00:29:08,440 --> 00:29:11,760 Speaker 4: That's what makes me feel it's less the first thing, 470 00:29:12,080 --> 00:29:14,880 Speaker 4: everybody just has the same world view. You can see 471 00:29:14,960 --> 00:29:18,440 Speaker 4: from the minutes that that's not true. People have different 472 00:29:18,480 --> 00:29:25,080 Speaker 4: world views. He's been remarkably skilled at whether it's through statements, 473 00:29:25,160 --> 00:29:29,960 Speaker 4: whether it's like what's written on the page that everybody 474 00:29:30,080 --> 00:29:33,720 Speaker 4: you coming from different size, but you can agree. Yes, 475 00:29:33,840 --> 00:29:37,800 Speaker 4: I agree with that, and I think that's why there 476 00:29:37,800 --> 00:29:41,400 Speaker 4: are fewer dissents. But in the time I've been there, 477 00:29:41,520 --> 00:29:44,680 Speaker 4: there have been numerous. 478 00:29:45,040 --> 00:29:47,960 Speaker 3: Can I ask, in general, what are the vibes like 479 00:29:48,040 --> 00:29:50,000 Speaker 3: right now? When you guys are cutting together. 480 00:29:49,840 --> 00:29:57,240 Speaker 4: It's joking Rolla's eyes. The presidents get together pretty frequently. 481 00:29:57,520 --> 00:30:00,000 Speaker 4: The presidence of the reserve banks get together pretty frequent. 482 00:30:00,240 --> 00:30:01,960 Speaker 4: We have a conference of presidents. There are a whole 483 00:30:02,000 --> 00:30:06,000 Speaker 4: bunch of operational things that we have to do, and 484 00:30:06,440 --> 00:30:09,080 Speaker 4: we're a quirky bunch, and it's usually the vibe is 485 00:30:09,120 --> 00:30:14,000 Speaker 4: pretty fun. From that, the f MC meeting itself is 486 00:30:14,120 --> 00:30:19,120 Speaker 4: much more formal, and it's probably secret information for me 487 00:30:19,160 --> 00:30:20,760 Speaker 4: to tell you what the vibes are if it's not 488 00:30:20,840 --> 00:30:23,040 Speaker 4: stated in the minute. 489 00:30:23,440 --> 00:30:26,600 Speaker 2: Probably there's a normal way for that to be expressed, 490 00:30:26,600 --> 00:30:29,360 Speaker 2: and it was going to be expressed. Aust you so 491 00:30:29,440 --> 00:30:32,240 Speaker 2: much for amazing. 492 00:30:31,240 --> 00:30:33,400 Speaker 4: You guys were ever famous. I was in there, I 493 00:30:33,480 --> 00:30:34,400 Speaker 4: was friend of the show. 494 00:30:34,440 --> 00:30:37,160 Speaker 2: But no, that was fantastic and definitely won't be the 495 00:30:37,200 --> 00:30:38,320 Speaker 2: last time we have you on the show. 496 00:30:39,320 --> 00:30:53,479 Speaker 4: Thank you, Tracy. 497 00:30:53,520 --> 00:30:57,080 Speaker 2: It really is pretty striking the degree to which it 498 00:30:57,200 --> 00:31:00,400 Speaker 2: feels like the rate cut question is not settled. 499 00:31:00,640 --> 00:31:03,080 Speaker 3: No, not at all, not at all, And at this point, 500 00:31:03,560 --> 00:31:04,880 Speaker 3: I mean, I guess we have to talk to more 501 00:31:04,960 --> 00:31:07,680 Speaker 3: fed presidents. But it does seem like maybe the market 502 00:31:07,720 --> 00:31:10,960 Speaker 3: has gotten a little ahead of itself in terms of expectations. Again, 503 00:31:11,520 --> 00:31:15,320 Speaker 3: we're recording this on Thursday, August twenty first, and we're 504 00:31:15,360 --> 00:31:17,720 Speaker 3: going to get the Pal speech tomorrow, so who knows 505 00:31:17,760 --> 00:31:20,880 Speaker 3: what he's going to say. Maybe markets will recalibrate their 506 00:31:20,920 --> 00:31:24,360 Speaker 3: expectations after that. But you do hear a lot of 507 00:31:24,360 --> 00:31:27,120 Speaker 3: convincing arguments for why you should look through things like 508 00:31:27,320 --> 00:31:28,240 Speaker 3: weaker payrolls. 509 00:31:28,360 --> 00:31:28,520 Speaker 4: Right. 510 00:31:28,880 --> 00:31:32,840 Speaker 2: I really really liked the four Horsemen of truth and 511 00:31:32,880 --> 00:31:37,080 Speaker 2: this idea that in the time of volatile population measures, 512 00:31:37,080 --> 00:31:39,600 Speaker 2: you want to look at rates. I'm going to remember 513 00:31:39,680 --> 00:31:44,680 Speaker 2: that it's very clearly articulated by Austin. There so like 514 00:31:44,960 --> 00:31:48,800 Speaker 2: vacancy rates, hiring rates, firing rates, these are the things 515 00:31:48,800 --> 00:31:52,400 Speaker 2: that actually give us clean signal across the cycle when 516 00:31:52,480 --> 00:31:54,000 Speaker 2: population levels are in fluxed. 517 00:31:54,040 --> 00:31:54,240 Speaker 4: Well. 518 00:31:54,280 --> 00:31:57,760 Speaker 3: Pale made a similar argument in the questions after the 519 00:31:57,840 --> 00:32:00,880 Speaker 3: last meeting, Right, didn't he say, like he's looking at 520 00:32:00,880 --> 00:32:04,080 Speaker 3: the unemployment rate because he thinks that's more meaningful at 521 00:32:04,120 --> 00:32:05,800 Speaker 3: a time when you are having these changes. 522 00:32:05,920 --> 00:32:09,240 Speaker 2: Yeah, No, I do think I have to I have 523 00:32:09,320 --> 00:32:11,880 Speaker 2: to actually take that. Yes, I could be wrong to 524 00:32:11,880 --> 00:32:12,560 Speaker 2: internalize this. 525 00:32:12,760 --> 00:32:18,080 Speaker 3: I could be hallucinating statements from Powell because he has. 526 00:32:17,960 --> 00:32:21,360 Speaker 2: Remained fairly low. And I think that's important. But I'd 527 00:32:21,440 --> 00:32:24,440 Speaker 2: like Austin's point is like that he said at the 528 00:32:24,560 --> 00:32:28,720 Speaker 2: end that if you can't tie sort of the services 529 00:32:28,720 --> 00:32:32,440 Speaker 2: of inflation in some way, that's even the fact that 530 00:32:32,480 --> 00:32:34,479 Speaker 2: we don't have a good story for it. Like, if 531 00:32:34,520 --> 00:32:36,040 Speaker 2: you have a good story for it, that's one thing. 532 00:32:36,400 --> 00:32:38,200 Speaker 2: But this idea that's like, well, what if this is 533 00:32:38,320 --> 00:32:40,000 Speaker 2: just that ember that didn't go out, you like throw 534 00:32:40,000 --> 00:32:42,320 Speaker 2: a cigarette in the trash or whatever, and there's that 535 00:32:42,400 --> 00:32:45,720 Speaker 2: little spark that like that is a little bit more ominous. 536 00:32:45,840 --> 00:32:48,640 Speaker 3: Yeah, And I do think like the starting level is 537 00:32:48,680 --> 00:32:51,040 Speaker 3: important here. So you have to remember the FED spent 538 00:32:51,160 --> 00:32:54,680 Speaker 3: the past three years fighting inflation. It's still not down 539 00:32:54,840 --> 00:32:58,440 Speaker 3: to two percent, and everyone has higher prices on their minds, 540 00:32:58,480 --> 00:33:01,120 Speaker 3: like we've all experienced it at this point, and so 541 00:33:01,320 --> 00:33:04,400 Speaker 3: the concern is that, like the impulse to raise prices 542 00:33:04,440 --> 00:33:08,800 Speaker 3: and tolerate more high prices is higher than it once was. 543 00:33:09,120 --> 00:33:12,400 Speaker 3: I think that's important. It doesn't get discussed enough potentially, 544 00:33:12,560 --> 00:33:13,560 Speaker 3: all right, shall we leave it there. 545 00:33:13,640 --> 00:33:14,320 Speaker 4: Let's leave it there. 546 00:33:14,560 --> 00:33:16,840 Speaker 3: This has been another episode of the Odd Lots podcast. 547 00:33:16,920 --> 00:33:19,800 Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway. 548 00:33:20,040 --> 00:33:22,680 Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart. 549 00:33:22,760 --> 00:33:26,080 Speaker 2: Follow our guest Austin Goulesby at Austin Goulesby. Follow our 550 00:33:26,120 --> 00:33:29,320 Speaker 2: producers Kerman Rodriguez at Kerman armand dash Ol Bennett at 551 00:33:29,360 --> 00:33:32,800 Speaker 2: Dashbot and Kale Brooks at Kalebrooks. For more Odd Lots content, 552 00:33:32,840 --> 00:33:35,000 Speaker 2: go to Bloomberg dot com slash odd Lots. 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