Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: So, Tracy, we are recording this on Thursday, August twenty First,
Speaker 2: we are here at Jackson Hall. I need to note
Speaker 2: at the beginning we're recording this before the big Polo speech.
Speaker 2: I don't really think it matters too much because this,
Speaker 2: but I just want to like get that out of
Speaker 2: the way a little timing context.
Speaker 3: We're not going to talk about that speech for obvious reasons.
Speaker 3: We don't know what's going to be said. But what
Speaker 3: we can talk about is the economy right now. That's
Speaker 3: not going to change between you know, right now and
Speaker 3: tomorrow morning.
Speaker 2: Hopefully when Rivers comes out. Probably it's not going to
Speaker 2: change much. But you know, we've been very lucky. We've
Speaker 2: been talking to a lot of regional Fed presidents and
Speaker 2: it's really cool that we have access to them.
Speaker 3: Yes, and it's good to get a range of opinions
Speaker 3: as well, because as we've been discussing, the economy does
Speaker 3: look very uncertain right now, and you could make a
Speaker 3: case for everything from a rate cut to holding to
Speaker 3: possibly even maybe hiking, which you know Jeff Schmidt kind
Speaker 3: of alluded to when we interviewed him.
Speaker 2: Yeah, No, it was pretty extraordinary that, like, look, you
Speaker 2: could make a point that stock markets in your record highs,
Speaker 2: credit spreads in your record lows, employment low, and inflation
Speaker 2: still warm where we talk about RAE cuts. Anyway, we
Speaker 2: got to keep getting more takes and perspectives on this
Speaker 2: from the people who actually think about this the best.
Speaker 3: And can we get a prize if we interview every
Speaker 3: FED president?
Speaker 4: Well we should try.
Speaker 2: There's got to there should be a name for that.
Speaker 2: But we have a guest, perfect guest, someone we've talked
Speaker 2: to on the podcast before. Very excited to have live
Speaker 2: here in Jackson Hall, past Oddlot's guests, Chicago Fed President
Speaker 2: Austin Gouldsby. So, Austin, thank you so much.
Speaker 4: I'm gonna give you a prize. Now, I drove you.
Speaker 4: I just got here. It just got in an hour
Speaker 4: and a half ago. I believe that I've driven the
Speaker 4: farthest of anybody to begin here. And one of the
Speaker 4: things I did on the way was finish my fiftieth
Speaker 4: state on North Dakota. And it turns out there's a collise.
Speaker 4: A lot of people North dakost their last day and
Speaker 4: there's officially a club called the Best for Last Club,
Speaker 4: and I joined the Best for Last club. So who's
Speaker 4: going to be your twelfth Reserve bank president? They're going
Speaker 4: to get a prize.
Speaker 2: Congratulations. I saw your road trip, like on Twitter. I
Speaker 2: saw that you're posting.
Speaker 4: So there are some amazing national parks on the on
Speaker 4: the way.
Speaker 2: We're a great country, don't Yeah, we got amazing country.
Speaker 2: How's the economy look at you these days?
Speaker 4: Well, depends which direction you're facing. As you know, I
Speaker 4: thought for Q one, coming into April, it was looking
Speaker 4: pretty good. We had to stay bowl full employment. The
Speaker 4: unemployment rate a little above four inflation while having been
Speaker 4: above the target for four years, looked to me like
Speaker 4: it was heading It was coming down and down and
Speaker 4: down and was headed to two percent, and so I thought,
Speaker 4: reasonable approximation rates need to start heading down to where
Speaker 4: we think they're going to settle, which is a fair
Speaker 4: bit below where where we were, then where we are today.
Speaker 4: Then we go through some bumps. I've heard of them,
Speaker 4: through a bunch of dirt in the air. All of
Speaker 4: this stuff that it's like is the economy still where
Speaker 4: it was in January February March, or are we on
Speaker 4: some different path. I still closet the hope slash think
Speaker 4: that we're where we were before, and that tariffs important
Speaker 4: goods are only eleven percent of GDP. If they'll kind
Speaker 4: of stay in their lane, if we don't keep escalating them,
Speaker 4: if we don't willing nearly apply them to intermediate goods
Speaker 4: so that they turn into higher cost of production, it'd
Speaker 4: probably be okay. And we had a couple of months
Speaker 4: of benign inflation numbers, and then we got the last
Speaker 4: inflation number, which is a little less benign, and the
Speaker 4: rise of services inflation through me for a little bit
Speaker 4: of a cross current. So I'd say I've still got
Speaker 4: one eye on inflation. We're now four and a half
Speaker 4: years above the target. It's one thing to be four
Speaker 4: and a half years above the target, but we're still
Speaker 4: clearly trending down. If we start trending up and you
Speaker 4: start seeing inflation rising in non tariff affected categories like
Speaker 4: what we saw in services, then am I get a
Speaker 4: little more nervous on that side? And on the job side,
Speaker 4: I still feel like we're something like stable full employment.
Speaker 4: The re visions they are concerning. We also know that
Speaker 4: the labor supply and population growth when there's big immigration
Speaker 4: things happening, add a lot of noise to just monthly payroll.
Speaker 4: So I don't want to over index on that. I
Speaker 4: want to take multiple measures. The four horsemen of truth
Speaker 4: and justice, in my view, are rates. They're less susceptible
Speaker 4: to the immigration and population labor support problems. They're the
Speaker 4: unemployment rate, the hiring rate, the layoff rate, the vacancy rate.
Speaker 4: If you look at those rates, three of them still
Speaker 4: say this is basically full employment, and it's looking fine.
Speaker 4: It looks very similar to twenty eighteen, twenty nineteen, a
Speaker 4: strong job market. The hiring rate is low, and if
Speaker 4: you talk to parents of kids graduating from college, you
Speaker 4: hear it's tough to get a job. We're in a
Speaker 4: low separations, low hiring environment. But that might be full employment. Okay.
Speaker 4: So that's why I say I don't come to it
Speaker 4: averse to cutting of rates. If we get through this
Speaker 4: and we can get some stuff settled on the tariff side,
Speaker 4: we might easily still be on the golden path. It
Speaker 4: might still make perfect sense to keep going down. But
Speaker 4: we've just got a couple of flags at the same time.
Speaker 3: I think you just hit all of our talking points
Speaker 3: in that one. We will dig into all these things,
Speaker 3: but just before we do, I have one question. Maybe
Speaker 3: it's a bit like asking someone who their favorite child is,
Speaker 3: But what's occupying most of your headspace at the moment?
Speaker 4: Felt to say Chicago is your favorite bank? And I
Speaker 4: was going to say good choice, good choice.
Speaker 3: No, is it inflation or the labor market? What are
Speaker 3: you thinking most about?
Speaker 4: I'd say inflation. I'm still thinking inflation. If we had
Speaker 4: four be nine months of inflation that looked like those
Speaker 4: kind of early ones, that would have helped me be
Speaker 4: much more comfortable with the idea. It's not going to
Speaker 4: be you know, tariff state in their eleven percent lane.
Speaker 4: People aren't freaking out. It's gonna be fine. Let's just
Speaker 4: go think about the employment side. Now that we are
Speaker 4: seeing a couple of bumps and things ticking up, I
Speaker 4: fear we we gotta think about that inflation side. Just
Speaker 4: given what the history was. If we were having this
Speaker 4: discussion in twenty nineteen and we hadn't had the team
Speaker 4: transitory and the very same arguments like nah, nah, this
Speaker 4: is a one time thing, and so the inflation should
Speaker 4: just go away real quickly. If we hadn't had that,
Speaker 4: I would be much more comfortable making that argument. But
Speaker 4: now that I don't even like using that word.
Speaker 3: Plus, everyone has experienced inflation.
Speaker 4: Everyone's experience, so they're more hyped up. They're more amped up.
Speaker 4: Not hyped up there, they're amped up to see it.
Speaker 4: And look, you see this consumer confidence numbers going down,
Speaker 4: your somewhat significantly survey measures of inflation expectations, which I,
Speaker 4: in fairness always said I put less weight on than
Speaker 4: market based measures. That said, I don't put zero weight
Speaker 4: on them. And if you see people in surveys as
Speaker 4: what do you think inflation is going to be over
Speaker 4: the next one year, two years, now even longer, they're
Speaker 4: saying it's higher. So we got to think about that.
Speaker 2: You mentioned those labor market revisions, and when we got
Speaker 2: that last job supporters mediocre, but even more than mediocre,
Speaker 2: as it was the pull down of the prior two months.
Speaker 2: And there's actually it strikes me as two ways of
Speaker 2: looking at this. One is, oh, you know what, the
Speaker 2: labor market is really decelerating. Probably we have to have
Speaker 2: cut soon if we want to hold on to full employment.
Speaker 2: But there's another tig. It actually has come up in
Speaker 2: a couple of recent episodes, which is, well, yeah, that
Speaker 2: was the post April second volatility.
Speaker 4: We're through that now that.
Speaker 2: Actually we have more tariff certainty than we certainly have
Speaker 2: more terre if certainty.
Speaker 4: Than we did.
Speaker 2: That was maybe the trough. We got an S and
Speaker 2: P flash PMI today that actually showed a positive employment rading.
Speaker 2: This came up in our conversation with Jeff Schmid, who's
Speaker 2: throwing this event for the Kansas City event, that maybe
Speaker 2: that was the cyclical low for the year. Just the
Speaker 2: craziness of those.
Speaker 4: Couple of months fascinating. I thought, you're going to go
Speaker 4: totally different. Okay, So those are two schools of thought,
Speaker 4: both of which are premised on using monthly payroll as
Speaker 4: an indicator of where we are in the business cycle,
Speaker 4: and in normal times that's perfectly appropriate. My third category
Speaker 4: is at moments when there are population growth shifts and
Speaker 4: labor supply, especially from immigration, be careful using monthly payroll
Speaker 4: the business site that wasn't one of them because and
Speaker 4: I have no is it remorse not remorse? I have
Speaker 4: no I don't feel guilty talking about this topic now,
Speaker 4: because you can go back and look a year and
Speaker 4: a half ago and more, when we were getting jobs
Speaker 4: numbers that were far higher than what we thought the
Speaker 4: break even was. There was a one group that was saying,
Speaker 4: we're about to have inflation kick way back up, because
Speaker 4: one hundred and eighty thousand jobs a month is faster
Speaker 4: than break even. Break even is like eighty five thousand
Speaker 4: a month, So we're overheating. And at that time I said,
Speaker 4: not pay no attention, but pay less attention than you
Speaker 4: normally would to what the payroll and jobs numbers say,
Speaker 4: because we know there's a whole bunch of immigrant that's
Speaker 4: happening behind the scenes that is not showing up yet.
Speaker 4: Now when we look back, everybody says, oh, yeah, obviously
Speaker 4: that's why we generate as many jobs. This is just
Speaker 4: the exact same idea, but in reverse. Now it may
Speaker 4: prove not to be true. This might be an indicator
Speaker 4: of the business cycle. But we learned the last time
Speaker 4: around that those four horsemen of truth were rates, not aggregates. Okay,
Speaker 4: so if you don't know what the population growth rate is,
Speaker 4: or if it's different than what you expected, be extra
Speaker 4: suspicious about total payroll, employment, and total GDP growth. So
Speaker 4: if you started to see GDP growth overall is slowing down,
Speaker 4: but the components don't really suggest that, or if you
Speaker 4: start seeing payroll growth you characterize it as mediocre. I
Speaker 4: don't think it's like seventy five thousand that's right around
Speaker 4: the break. Even if you're seventy five thousand plus or
Speaker 4: minus one hundred thousand, which is normally what you are
Speaker 4: for monthly payroll, you're gonna get months where you have
Speaker 4: low payroll. And then if you add this immigration thing
Speaker 4: on top of it, Like I say, I'm not saying
Speaker 4: ignore it, I'm just saying, be very careful. I was
Speaker 4: a little not puzzled, but I was a little concerned
Speaker 4: that the market reaction seemed to be let's take our
Speaker 4: understanding of monthly payroll numbers circa twenty eighteen and say
Speaker 4: that must mean we're on the verge of recession. If
Speaker 4: that's where your head is that you say, well, a
Speaker 4: low monthly payroll in the past has been an indicator
Speaker 4: the beginning of recession, then you got to explain why
Speaker 4: these other ones don't show that. Why is the layoff
Speaker 4: rate as low as it is. You haven't seen it
Speaker 4: up to can layoffs. The vacancy rate is actually rising
Speaker 4: a little and is better than it was in twenty nineteen.
Speaker 4: I think. So this doesn't look like a normal business
Speaker 4: cycle yet if it starts to I'll be the first
Speaker 4: one saying this is what the beginning of a recession
Speaker 4: looks like.
Speaker 3: So the idea is that weaker payrolls can be offset
Speaker 3: or are being offset by weaker labor supply because we're
Speaker 3: getting less immigration, so the break even.
Speaker 4: Rate is at the break evenness it is less.
Speaker 3: Yeah, okay, you mentioned the market reaction. Just then, can
Speaker 3: we talk a little bit more about the market, because,
Speaker 3: as Joe mentioned, you know, stocks are still kind of
Speaker 3: nearer their record highs. I know they've been falling a
Speaker 3: bit this week. Credit spreads at like a twenty seven
Speaker 3: year low. I still hear FED officials talk about rates
Speaker 3: being restrictive even though inflation is still above target. But
Speaker 3: when I look at the market, when I look at
Speaker 3: financial conditions, it doesn't look that restrictive to me.
Speaker 4: Careful, we're just in the weird glass onion version of
Speaker 4: the same discussions we've been having for several years now
Speaker 4: that I've been in the Fed. I'm coming on three years.
Speaker 4: At that time, it was positive supply shocks, and the
Speaker 4: whole question was are we about to reoverheat? Do we
Speaker 4: need to maintain do we need to keep raising, Do
Speaker 4: we need to maintain the rates this high? Or can
Speaker 4: we start cutting. I kind of think that a large
Speaker 4: component of what's in expectations and what's in the market's
Speaker 4: reaction is the reflection problem. That if they think that
Speaker 4: the FED is going to succeed, then you could see
Speaker 4: conditions loosen, but that wouldn't be a reason that the
Speaker 4: FED should raise necessarily because they're premised on thinking that
Speaker 4: it's going to work. That's what I was saying before,
Speaker 4: and I kind of now think in the same way.
Speaker 4: It might be an indication. But if you just look
Speaker 4: at rates and you look at kind of the traditional
Speaker 4: credit channels of monetary policy, I still think that rates
Speaker 4: are relatively restrictive. And so that's why I say, if
Speaker 4: you start to see deterioration in the labor market, you
Speaker 4: start to see layoffs going up, and it starts looking
Speaker 4: more like a the turning point in the labor market,
Speaker 4: then I think we're going to have to seriously contemplate
Speaker 4: cutting of rates. If we're in an environment where we're
Speaker 4: actually in pretty stable full employment and the only thing
Speaker 4: that's happening is population is making the break even monthly
Speaker 4: jobs number forty thousand instead of one hundred thousand, and
Speaker 4: inflation is going up in a bunch of categories that
Speaker 4: are not Terear related. Now, we got to be a
Speaker 4: little more circumspective.
Speaker 2: So I want to ask a question. It's something that
Speaker 2: I'm very increasingly interested in and want to talk to
Speaker 2: a lot more people about, et cetera. But their aspects
Speaker 2: of this economy that, as you say, may kind of
Speaker 2: resemble twenty eighteen, twenty nineteen, et cetera. One thing that
Speaker 2: strikes me it's very different is the long term rate
Speaker 2: and the implied therefore what people will call the neutral
Speaker 2: rate or whatever. And maybe rate cuts are coming soon,
Speaker 2: but the market is not expecting at deep cutting cycle
Speaker 2: of that terminal rates. What's changed? What's the fundamental difference
Speaker 2: in twenty twenty five verse twenty eighteen such that for
Speaker 2: the Fed to hit it's two percent inflation target, the
Speaker 2: market is pricing in so much higher rates than what
Speaker 2: it had anticipated.
Speaker 4: To COVID, I don't I mean, I should ask you,
Speaker 4: You've talked a lot of no. I would say there's
Speaker 4: one way to look at that that if you asked historically,
Speaker 4: which of those is weird? Twenty eighteen, twenty nineteen, what's weird?
Speaker 4: You know what I mean? Like the lower rates now
Speaker 4: are look very, very similar to kind of historical patterns.
Speaker 4: There's a whole tremendous almost industry in research trying to
Speaker 4: diagnose that. And that bleeds into the question of are
Speaker 4: we going back to super low rates ultra low rates
Speaker 4: because is it global savings glut? Is there something happening
Speaker 4: with productivity? Do they think demand is going to be low?
Speaker 4: Is there a feeling that Treasury is going to have
Speaker 4: to issue so much debt? I mean, there's been a
Speaker 4: big increase intent to GDP ratios worldwide. I do find
Speaker 4: informedive this increase in loan rates is not exclusive to
Speaker 4: the US. You see it in a lot of countries.
Speaker 4: So I don't totally know. There's probably some of many
Speaker 4: of those explanations. And for whatever reason, what the market
Speaker 4: thinks the Fed is going to do in short rates
Speaker 4: does seem to have a outsized impact on thirty year rates,
Speaker 4: So that's part of it. Is probably just reflecting how
Speaker 4: steep or how shallow a path do they think the
Speaker 4: FED is going to take.
Speaker 3: So, just going back to inflation for a second, you've
Speaker 3: mentioned a couple of times now that you're worried about
Speaker 3: maybe you know, tariff induced inflation in goods starting to
Speaker 3: seep into services. Can you talk a little bit more
Speaker 3: about how you see that channel actually working. And then
Speaker 3: also you're head of the seventh District and you have
Speaker 3: some interesting states in there. You've got Michigan, which still
Speaker 3: makes cars. You've got Iowa which has farmers. Like, what
Speaker 3: are you seeing in terms of the pass through from
Speaker 3: goods to services there?
Speaker 4: Okay, these are both important topics for us to think through.
Speaker 4: Let's go backwards in order. The seventh District, headquartered in Chicago,
Speaker 4: is the most manufacturing intentsive of all the districts, and
Speaker 4: by far the most auto production of all the districts.
Speaker 4: It's one of the big agriculture heavy districts. But Kansas City, Minneapolis,
Speaker 4: there's a couple of others. I would say in the
Speaker 4: run up to April second and through April second into
Speaker 4: May almost to June, their hair was on fire. I mean,
Speaker 4: this is going to wipe us out if anything's like
Speaker 4: the rates of what they just announced the auto suppliers
Speaker 4: that we had small margines to begin with, that we're
Speaker 4: gonna die. We don't know you, we don't know what's
Speaker 4: going to happen. That's why I was getting amped up
Speaker 4: about it at the time as we kind of got
Speaker 4: some clarity on what the raids are going to be,
Speaker 4: and particularly when they begin exempting, if it's USMCA compliant,
Speaker 4: it's not going to apply for a bunch of intermediate goods.
Speaker 4: It's not going to apply common influence. I would say
Speaker 4: as I talk to people now for manufacturing and for agriculture,
Speaker 4: they're still in that space. In agriculture they were particularly
Speaker 4: heartened by as some of the negotiations got concluded. Even
Speaker 4: if they weren't going back to no tariffs, the fact
Speaker 4: that they were going to something that would not lead
Speaker 4: to retaliation was a very big thing for agriculture because
Speaker 4: a lot of their biggest markets are overseas. I was
Speaker 4: just recently in Iowa. Though they're still nervous in that
Speaker 4: space that in some ways the damage has already done
Speaker 4: and it takes a lot long time to build up
Speaker 4: these export relationships. And if you smash that, and they
Speaker 4: start buying soy beans from Brazil that even if you
Speaker 4: go back to zero tariffs, they might have already set
Speaker 4: it up. So there is like a nagging that the
Speaker 4: longer run impact will be different than the short run impact.
Speaker 4: But I would characterize short run impact scaled down from
Speaker 4: I always get the deaf cons backward. Death Con five
Speaker 4: is the worst, right, so so one was the worst.
Speaker 3: Everybody says, how often are we declaring what it is?
Speaker 4: There was a high deaf Con, dangerous, deaf Con as
Speaker 4: high as you could be, and now it's gone back
Speaker 4: not background noise, but the sentiment like, we can live
Speaker 4: with this if this is what it is. As long
Speaker 4: as this stops when we're not going to face new ones,
Speaker 4: we can deal with this. Now that said, it sort
Speaker 4: of goes to your second.
Speaker 2: To your original, Defcon one is the highest state of
Speaker 2: military writing.
Speaker 4: Now deaf Con one is the highest. So they were
Speaker 4: at def Con one and we're back to deaf Con five.
Speaker 4: I just looked at up. Okay, I added backward, which
Speaker 4: is embarrassing because I'm always like Nodo, you know, that's
Speaker 4: that's the opposite, But now I opposite it myself. Yeah,
Speaker 4: I've done that. So the question about what is the
Speaker 4: mechanism that the tariff inflation turns into services inflation? Permit
Speaker 4: me a slight dedoer, what is the mechanism that tariffs
Speaker 4: turn into inflation of goods as opposed to just a
Speaker 4: one time price increase, because there is an argument that
Speaker 4: for the platonic ideal of a theoretical one and done tariff,
Speaker 4: it's just a one time price increase. So no matter
Speaker 4: what it is, just look through.
Speaker 3: It, right, And a one time pricing increase, just to
Speaker 3: be clear, doesn't count as inflation under traditional economic frameworks.
Speaker 4: Because base, if you go measure inflation, inflation would be
Speaker 4: high for one year and then the inflation would go away.
Speaker 4: But that was the very argument of Team Transitory in
Speaker 4: twenty twenty one was, yes, here this thing hit supply,
Speaker 4: we're gonna let bygones be bygones. We'll eat the inflation
Speaker 4: for one year and then it's gonna go away. Now,
Speaker 4: remember this is for a one and done tariff, and
Speaker 4: this is not one and this is not done. So well,
Speaker 4: let's be a little more circumspect of just saying, hey,
Speaker 4: theoretically it's just gonna go away. We learned in COVID
Speaker 4: that if it's a big enough impact on the supply chain,
Speaker 4: and especially if it's going industry A to industry B,
Speaker 4: industry B makes inputs for C that process takes a
Speaker 4: lot longer than we thought it would in twenty nineteen
Speaker 4: and twenty twenty. When we got to twenty twenty one,
Speaker 4: we're like, yeah, hey, it'll fix itself. You know, probably
Speaker 4: six months. That was the argument of transitory. So I'm
Speaker 4: a little concerned about just the impact of tariffs on
Speaker 4: goods inflation itself lasting longer than we wanted to, and
Speaker 4: people getting mixed up. You'll recall the perfectly valid arguments
Speaker 4: in twenty one, in twenty two and into twenty three
Speaker 4: where people said it doesn't matter if it's supply shock
Speaker 4: induced inflation. If it's high for too long, it's going
Speaker 4: to fold into expectations and then we'll never get rid
Speaker 4: of it. That didn't prove true this last time, but
Speaker 4: if people are more attuned to price increases, it could,
Speaker 4: and we just got to be careful on that front. Now,
Speaker 4: ask the question how does it turn into services inflation?
Speaker 4: One part, what if the servi inflation isn't coming from tariffs? Okay,
Speaker 4: So that's the the danger of services inflation is you
Speaker 4: kind of can't really give a simple mechanism of why
Speaker 4: services inflation would be rising. The new month of services
Speaker 4: inflation was quite terrible, and some part of that are
Speaker 4: non market determined, so I put a little less weight
Speaker 4: on those, but it wasn't good that Probably the mechanisms
Speaker 4: that you think through how would tariffs cause that, they
Speaker 4: think you'd be hard pressed to figure out how it
Speaker 4: would cause it. But that doesn't make you feel better.
Speaker 4: That makes you feel worse because it's like, whoaa, wait
Speaker 4: a minute, maybe some inflationary dynamic was never put out,
Speaker 4: and you ever like make the campfire and it's like, ah, yeah,
Speaker 4: it's done, and then you look away, its back. It's
Speaker 4: back on fire again. We can't let that happen. We've
Speaker 4: been four and a half years above the target. We
Speaker 4: were making progress. Now we've stopped making progress. If it's
Speaker 4: spreading into services inflation this immediately, it's probably not coming
Speaker 4: from tariffs. The other mechanisms how does it move into
Speaker 4: services inflation is sort of wage price spiral, where people say, well,
Speaker 4: I think prices are going to go up, so I'm
Speaker 4: going to be that much more aggressive in my wage
Speaker 4: negotiations with the employer. The only reason I'm hesitating to
Speaker 4: go down this lane is then you're probably going to say, well,
Speaker 4: what about wages? Are wages compatible with two percent inflation?
Speaker 4: And you can't answer that and tell you know what
Speaker 4: the productivity growth rate is, which has been one of
Speaker 4: the bright spots. But that's actually my one of my
Speaker 4: bigger fears about the tariffs is there's a long literature
Speaker 4: of research in economics showing you raise tariffs, especially on
Speaker 4: components supplies, it drives down productivity growth.
Speaker 2: Yeah, Tracy and I were in Alaska recently, and I
Speaker 2: feel like we've heard multiple ways. Whether it's like the
Speaker 2: company's making tubular goods for the oil patch out there
Speaker 2: and that's gonna make it increased break evene. Whether it's
Speaker 2: like just the uncertain just.
Speaker 3: Doing the paperwork for customs sounds like a huge live.
Speaker 4: Okay, it sounds like a productivity destroy factor.
Speaker 2: I have one last question, and I'm turning this into
Speaker 2: my question that I ask every FED president that we.
Speaker 4: Can Tracy rolling around from.
Speaker 3: This is this is.
Speaker 2: My question, but I think it might be important down
Speaker 2: the line. Why are descents rare at the FM's wire.
Speaker 4: Descents rare I have. I've only been there a short time.
Speaker 4: FED years are like reversed dog years or something like,
Speaker 4: you've been there seven years. They're like, oh, he's the
Speaker 4: new guy. Okay, so I'm coming up on three years. Yeah,
Speaker 4: there been some dissents.
Speaker 2: I can I tell you what I'm trying to get at. Yeah,
Speaker 2: at some point the chair is going to be replaced.
Speaker 2: And what I'm trying to understand is when there's the
Speaker 2: new guy is in that position? To what degree does
Speaker 2: the fact that most of the time the voting members
Speaker 2: align with Powell? How much of it is the fact
Speaker 2: that you more or less think about the economy in
Speaker 2: roughly similar ways and looking at the same data, And
Speaker 2: how much is it about Powell has done a good
Speaker 2: job of.
Speaker 4: Navigating navigating the board.
Speaker 2: And so this is why I'm asking the question, because
Speaker 2: I'm thinking about what those dynamics are.
Speaker 4: I feel like it's more the latter. You know the rules.
Speaker 4: I'm not allowed to speak for anybody speak for the chair.
Speaker 4: You know. I'm a longtime fan of J. Powell. I
Speaker 4: think he's a first ballot Hall of Fame FED chair,
Speaker 4: and he has great judgment. He is all as navigated
Speaker 4: a pretty diverse set of world views on that committee.
Speaker 4: That's what makes me feel it's less the first thing,
Speaker 4: everybody just has the same world view. You can see
Speaker 4: from the minutes that that's not true. People have different
Speaker 4: world views. He's been remarkably skilled at whether it's through statements,
Speaker 4: whether it's like what's written on the page that everybody
Speaker 4: you coming from different size, but you can agree. Yes,
Speaker 4: I agree with that, and I think that's why there
Speaker 4: are fewer dissents. But in the time I've been there,
Speaker 4: there have been numerous.
Speaker 3: Can I ask, in general, what are the vibes like
Speaker 3: right now? When you guys are cutting together.
Speaker 4: It's joking Rolla's eyes. The presidents get together pretty frequently.
Speaker 4: The presidence of the reserve banks get together pretty frequent.
Speaker 4: We have a conference of presidents. There are a whole
Speaker 4: bunch of operational things that we have to do, and
Speaker 4: we're a quirky bunch, and it's usually the vibe is
Speaker 4: pretty fun. From that, the f MC meeting itself is
Speaker 4: much more formal, and it's probably secret information for me
Speaker 4: to tell you what the vibes are if it's not
Speaker 4: stated in the minute.
Speaker 2: Probably there's a normal way for that to be expressed,
Speaker 2: and it was going to be expressed. Aust you so
Speaker 2: much for amazing.
Speaker 4: You guys were ever famous. I was in there, I
Speaker 4: was friend of the show.
Speaker 2: But no, that was fantastic and definitely won't be the
Speaker 2: last time we have you on the show.
Speaker 4: Thank you, Tracy.
Speaker 2: It really is pretty striking the degree to which it
Speaker 2: feels like the rate cut question is not settled.
Speaker 3: No, not at all, not at all, And at this point,
Speaker 3: I mean, I guess we have to talk to more
Speaker 3: fed presidents. But it does seem like maybe the market
Speaker 3: has gotten a little ahead of itself in terms of expectations. Again,
Speaker 3: we're recording this on Thursday, August twenty first, and we're
Speaker 3: going to get the Pal speech tomorrow, so who knows
Speaker 3: what he's going to say. Maybe markets will recalibrate their
Speaker 3: expectations after that. But you do hear a lot of
Speaker 3: convincing arguments for why you should look through things like
Speaker 3: weaker payrolls.
Speaker 4: Right.
Speaker 2: I really really liked the four Horsemen of truth and
Speaker 2: this idea that in the time of volatile population measures,
Speaker 2: you want to look at rates. I'm going to remember
Speaker 2: that it's very clearly articulated by Austin. There so like
Speaker 2: vacancy rates, hiring rates, firing rates, these are the things
Speaker 2: that actually give us clean signal across the cycle when
Speaker 2: population levels are in fluxed.
Speaker 4: Well.
Speaker 3: Pale made a similar argument in the questions after the
Speaker 3: last meeting, Right, didn't he say, like he's looking at
Speaker 3: the unemployment rate because he thinks that's more meaningful at
Speaker 3: a time when you are having these changes.
Speaker 2: Yeah, No, I do think I have to I have
Speaker 2: to actually take that. Yes, I could be wrong to
Speaker 2: internalize this.
Speaker 3: I could be hallucinating statements from Powell because he has.
Speaker 2: Remained fairly low. And I think that's important. But I'd
Speaker 2: like Austin's point is like that he said at the
Speaker 2: end that if you can't tie sort of the services
Speaker 2: of inflation in some way, that's even the fact that
Speaker 2: we don't have a good story for it. Like, if
Speaker 2: you have a good story for it, that's one thing.
Speaker 2: But this idea that's like, well, what if this is
Speaker 2: just that ember that didn't go out, you like throw
Speaker 2: a cigarette in the trash or whatever, and there's that
Speaker 2: little spark that like that is a little bit more ominous.
Speaker 3: Yeah, And I do think like the starting level is
Speaker 3: important here. So you have to remember the FED spent
Speaker 3: the past three years fighting inflation. It's still not down
Speaker 3: to two percent, and everyone has higher prices on their minds,
Speaker 3: like we've all experienced it at this point, and so
Speaker 3: the concern is that, like the impulse to raise prices
Speaker 3: and tolerate more high prices is higher than it once was.
Speaker 3: I think that's important. It doesn't get discussed enough potentially,
Speaker 3: all right, shall we leave it there.
Speaker 4: Let's leave it there.
Speaker 3: This has been another episode of the Odd Lots podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest Austin Goulesby at Austin Goulesby. Follow our
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