Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: How many Jackson Holes have you actually been to?
Speaker 3: Now?
Speaker 4: It's a little hard to say, but my first one
Speaker 4: was nineteen ninety seven.
Speaker 1: Wow.
Speaker 4: I've missed a few here and there as breaking news
Speaker 4: has happened and I've had to be somewhere else. But
Speaker 4: so somewhere around twenty five to thirty.
Speaker 2: So, Joe, if we keep doing this for another forty years,
Speaker 2: we'll notch up as many Jackson Holes as Mike has
Speaker 2: been to.
Speaker 1: Maybe not if he does another forty earlier. Yeah, we
Speaker 1: can never ketch.
Speaker 2: Up if Mike stops now and we keep doing it
Speaker 2: until we're eighty.
Speaker 1: Maybe work job. I did a deadlist.
Speaker 2: I'm both the most popular trader and most successful trader
Speaker 2: at Citadel.
Speaker 1: That is gone viral barges. This is an after school special,
Speaker 1: except I've.
Speaker 2: Decided I'm going to base my entire personality going forward
Speaker 2: on campaigning for a strategic pork reserve in the US.
Speaker 4: Black goals.
Speaker 3: These are the important question.
Speaker 2: Is that robots taking over the world.
Speaker 1: No. I think that in a couple of years, the
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Speaker 1: Odd lotch podcast. One day that person will have the
Speaker 1: mandate of heaven?
Speaker 2: How do I get more popular and successful?
Speaker 1: We do have the welcome to lots More where we
Speaker 1: catch up with friends about what's going.
Speaker 3: On right now, because even when odd Loots is over,
Speaker 3: there's always lots more And.
Speaker 1: We really do have the perfect guest. We are, of
Speaker 1: course talking to the one and only Mike McKee of
Speaker 1: Bloomberg TV. A little surprising speech today.
Speaker 4: Huh Yeah, I was wrong, as we're the majority of
Speaker 4: analysts who thought that Jay Pow would want to leave
Speaker 4: his options open for September, because, as we've been repeating
Speaker 4: over and over again, there's another jobs report, there's another
Speaker 4: CPI report before the next meeting, and so what happens
Speaker 4: if we see a reversion to the mean we had
Speaker 4: a weak jobs report. What if the next one comes
Speaker 4: in strong, we had inflation go through CPI at a
Speaker 4: low level. Does that pick up a lot in which
Speaker 4: case you don't want to cut rates. So it was
Speaker 4: a bit of a surprise that he said basically opened
Speaker 4: the door to a rate cut, because now it's really
Speaker 4: hard to close that door.
Speaker 1: Tracey, have you read Analong's take yet?
Speaker 2: I have not.
Speaker 1: So she has a new piece out on the terminal
Speaker 1: which you U should read. But she argues that's not
Speaker 1: so devision if you use the twenty twenty four speech
Speaker 1: as the benchmark, which is true. For sure, that was
Speaker 1: a more dubbish speech. But what I think the vibe
Speaker 1: is that maybe the three of us have it's certainly
Speaker 1: division the context of a lot of people suddenly like,
Speaker 1: let's look at the inflation side again.
Speaker 2: Well, this is exactly it. So, Mike, I think you
Speaker 2: had the same experience as us, which is a lot
Speaker 2: of the people from the FED that you've been talking
Speaker 2: to over the past couple of days, they sounded more
Speaker 2: hawkish than they did, you know, perhaps like just three
Speaker 2: or four weeks ago.
Speaker 4: Yeah, and I have to think that or I have
Speaker 4: to caution myself to look at this as perhaps as
Speaker 4: a statistician would say, selection error, because we happened to
Speaker 4: hit people who were more hawkish. Obviously, the chairman basically
Speaker 4: validated Chris Swaller's forecast that they've decided that inflation is
Speaker 4: going to go up, but it's going to go up slowly.
Speaker 4: It'll take a while to get into the economy and
Speaker 4: sector bisector. It'll be a one time price rise and
Speaker 4: not a continuing price increase.
Speaker 1: Setting aside the actual technical economic details of the speech itself.
Speaker 1: Were you surprised that there wasn't something more? I don't know.
Speaker 1: I valedictory is the word, but you know, it's the
Speaker 1: last speech as the chairman. It comes at a time
Speaker 1: when we were all talking about the sort of threats
Speaker 1: to federal reserve independence. Were you surprised it was such
Speaker 1: a policy speech and not any sort of knowledge to
Speaker 1: some of these bigger things.
Speaker 4: I was not surprised by that. Paul is very selfle facing.
Speaker 4: He's not somebody who likes to toot his own horn,
Speaker 4: and we kind of knew going in that he didn't
Speaker 4: want to make a big deal of this being his
Speaker 4: last Jackson Hole as chair The fed independence thing was
Speaker 4: a bit of a surprise because it has been such
Speaker 4: a big issue. But I think given the message he
Speaker 4: wanted to send to the markets about the policy going forward,
Speaker 4: plus he had the whole section on the new framework
Speaker 4: he had to discuss. Yeah, I think they felt it
Speaker 4: was just going to be too long, too much, and
Speaker 4: that would come up in many other fora to talk about.
Speaker 2: It is funny no one's talking about the framework the
Speaker 2: results of like five years of work on the framework
Speaker 2: are published today and they're just lost in all that.
Speaker 4: I have asked FED officials about this. I said, why
Speaker 4: do you do this? Because they came up with this
Speaker 4: new framework in twenty twenty that didn't work, and a
Speaker 4: year into it, Jay Powell said, well, we've junked the
Speaker 4: framework because we've got inflation. And so if you're going
Speaker 4: to go to all this work to create a framework
Speaker 4: and then as soon as the economy turns you junk it,
Speaker 4: kind of what's the point. Their argument is that it
Speaker 4: gives them sort of a reference point of how they
Speaker 4: want to think about things, and today really they went
Speaker 4: back to twenty twelve, which was we'll do whatever the
Speaker 4: economy needs when it needs it.
Speaker 1: It's important to remember it's interesting thinking about that twenty
Speaker 1: twenty framework because we're so the existence of that framework
Speaker 1: is so twenty tens, right, It's so like thinking about, well,
Speaker 1: the main problem of monetary policy is long periods of undershoot.
Speaker 2: The zero bound, the zero.
Speaker 1: Bound constantly under two percent, How are we going to
Speaker 1: credibly get it above and then five minutes later we
Speaker 1: have the worst inflation. Yeah, in forty years. That was
Speaker 1: a real that framework from twenty twenty was like, is
Speaker 1: an artifact of a time?
Speaker 4: Yeah, absolutely, And the feds new framework sort of takes
Speaker 4: into account the fact that that could happen again, Yeah,
Speaker 4: because they're not using shortfall anymore in employment and they've
Speaker 4: also dropped references to the zero lower bound. But they
Speaker 4: basically they're saying, we admit that we can't steer the
Speaker 4: economy in quite as precise a way as we thought
Speaker 4: we could because the underlying conditions that we're working off
Speaker 4: of can change faster than we anticipated.
Speaker 2: I will just note I know that Powell didn't speak
Speaker 2: about central bank independence directly, but there is at least
Speaker 2: one paper being presented at the conference that does deal
Speaker 2: with this issue, by Emmy Nakamora from Berkeley, and we
Speaker 2: have a really good episode coming up with her. So
Speaker 2: there is some thematic discussion. It's just we're not all
Speaker 2: hearing it because it's closed doors. Although, Mike, you get
Speaker 2: to go inside the conficce I get to go inside,
Speaker 2: all right, So what's the vibe like in the room.
Speaker 4: Well, I hate to disappoint everybody, but it's rather quite
Speaker 4: boring unless you're an academic economist. Because these papers are
Speaker 4: written by academic economists, and they're designed to look at
Speaker 4: longer term issues and try to put them into context
Speaker 4: so that the central bankers can think about them. Okay,
Speaker 4: here's a problem that's come up. What's the research said
Speaker 4: about it in the past. That sort of thing. It's
Speaker 4: not a meeting where people come in and go, Okay,
Speaker 4: here's unemployment and here's prices and what do we do
Speaker 4: with the next That doesn't get discussed at all. Even
Speaker 4: the Open Market Committee officials who are here, they're not
Speaker 4: going to be really talking about that because they talk
Speaker 4: about that all the time. They're here to fish and
Speaker 4: hike and enjoy the scenery along with these academic papers.
Speaker 4: So inside it's an academic conference. They present the papers,
Speaker 4: they have a discussion, who talks about the papers, and
Speaker 4: then people can ask questions. And if you notice, you know,
Speaker 4: if you're watching your Bloomberg terminal, it's almost never a
Speaker 4: headline inside because nobody says anything that would move markets
Speaker 4: or interest people. Really.
Speaker 1: You know, other regional offeds have their conferences, so you know,
Speaker 1: there's a Boston FED one in November. There's an Atlanta
Speaker 1: FED line. I think it's somewhere in Florida. At some
Speaker 1: point in the year. The only thing that's really special
Speaker 1: here is that, and Powell alluded to it. It's Jackson
Speaker 1: Hole in August, and anyone would be a fool to
Speaker 1: say no to coming there. And that's how they got
Speaker 1: Vulgar to come because they like fly fishing, Like this
Speaker 1: is what ary like. They could all show up at
Speaker 1: the other ones, but was going to say, and as
Speaker 1: you mentioned, people are here to fly fish. I think
Speaker 1: that's actually an important element, even though it's just a
Speaker 1: fun element, which is that late summer, it's kind of
Speaker 1: like halfway between vacation and work out here for almost everyone.
Speaker 4: Another reason that it has become important, though, is starting
Speaker 4: with Ben Bernanke during the Great Financial Crisis. He came
Speaker 4: and the chairman usually gave a speech to open the
Speaker 4: conference on the conference topic, and it was like, Okay,
Speaker 4: we're talking about long term labor issues. That's a really
Speaker 4: good thing to talk about, and we're glad you're all
Speaker 4: here kind of thing. Then he announced basically that they
Speaker 4: were going to do q E for the first time
Speaker 4: at this meeting, and then the next year he also
Speaker 4: had an announcement about q e QT and what they
Speaker 4: were going to do and then all of a sudden,
Speaker 4: the focus became what's the chairman going to say? Because
Speaker 4: if there's rarely a FED meeting in August, just the
Speaker 4: way the calendar falls, maybe at the very beginning, and
Speaker 4: then there'sn't one until September, so you have this long
Speaker 4: month where there's no reference point for the markets, and
Speaker 4: that this became the reference point. So everybody pays attention
Speaker 4: to it, and as you know, it's a big build
Speaker 4: up to it. Oh, we've got Jackson Hole next week.
Speaker 4: What's the chairman going to say? And so that's really
Speaker 4: focused a lot of attention on it, which then feeds
Speaker 4: on itself because it becomes important, so people want to
Speaker 4: be there because it is important.
Speaker 2: This reminds me there was an old study. It was
Speaker 2: done a few years ago, so I would love to
Speaker 2: see a new study. But it basically looked at all
Speaker 2: the FOMC statements and speeches over time, and starting from
Speaker 2: two thousand and nine, they exploded in both length and complexity.
Speaker 2: So I think it used to be you could have, like,
Speaker 2: you know, a high school reading level and be fine
Speaker 2: reading some of the FOMC statements. They were very short,
Speaker 2: like four hundred words and then they became like two
Speaker 2: thousand words and you needed a college degree at a
Speaker 2: minimum to fully understand them. Talk to us about just
Speaker 2: like the format of the speech, because this is something
Speaker 2: else that people like to do, is dissect like the
Speaker 2: number of words and things like that. And it is true,
Speaker 2: this is a longer speech this year versus the relatively
Speaker 2: short speech from last year where Pale very definitively opened
Speaker 2: the door to a cut.
Speaker 4: Yeah. Well, I think what made this speech long was
Speaker 4: talking about the framework. It's, as we said, maybe somewhat irrelevant,
Speaker 4: but he had to go through it. They've been doing
Speaker 4: this exercise and it was anticipated he would announce it here,
Speaker 4: so basically he went through it. We've now done the exercise,
Speaker 4: and now we've explained it to you, and so you'll
Speaker 4: understand going forward if we refer to this. So that
Speaker 4: made it longer. The part that was really kind of
Speaker 4: to the point was the stuff about the economy. He
Speaker 4: outlined what they were thinking about the labor market and
Speaker 4: what they were thinking about inflation, and then how those
Speaker 4: two knit together. If this had been an ordinary speech
Speaker 4: without the framework, it wouldn't have been as long. Maybe
Speaker 4: it would have come across as even more punchy because
Speaker 4: it was just on that subject. You were talking about
Speaker 4: the FED statements getting very long the post Great Financial
Speaker 4: Crisis heres, and the FED realized that at one point, yeah,
Speaker 4: two or three years ago, they've cut them back significantly.
Speaker 4: We used to have very long statements where they tried
Speaker 4: to explain every little thing, and people found that too much.
Speaker 4: So now they're just kind of saying, here's we got
Speaker 4: one paragraph on where the economy is at, a paragraph
Speaker 4: that says, here's what we're doing about it.
Speaker 1: You know, another nice thing about Jackson Hole in late
Speaker 1: August is you don't just get, you know, just lure
Speaker 1: the FED share there. You lure central bankers all around
Speaker 1: the world. But I feel like in this moment, the
Speaker 1: FED itself, the FED is always first among equals. Most
Speaker 1: people would agree with that, but the Fed because of
Speaker 1: all the dramas like this black hole sucking up all
Speaker 1: the energy. Is your perception, you know, we saw the
Speaker 1: walk where Powell was with Leguard and Bailey and Ueda.
Speaker 1: Is your perception that all the developed market central banks
Speaker 1: are roughly wrestling with still the same things. Because there's
Speaker 1: just been there's been this global factor of the inflation
Speaker 1: and so forth. They all sort of basically feeling the
Speaker 1: same stresses they are.
Speaker 4: We're still living in a post pandemic world, so data
Speaker 4: are somewhat difficult to read, and you see the ups
Speaker 4: and downs of the economies that you may or may
Speaker 4: not be able to track. But the biggest thing at
Speaker 4: the moment is that they're all wrestling with Trump fiscal policy.
Speaker 4: But they fiscal policy has different impacts on different countries.
Speaker 4: For the United States, it's inflationary. For many of the
Speaker 4: countries out there, it's deflationary because their currency is going down,
Speaker 4: the dollars getting stronger, and so they have different problems
Speaker 4: they have to deal with. They all have a problem
Speaker 4: with the consequences of the Trump policy, but the consequences
Speaker 4: are different for each one.
Speaker 2: Well, you were talking about this on TV earlier, because
Speaker 2: when it comes to tariffs, there is still a huge
Speaker 2: debate over how inflationary they might actually be, because in
Speaker 2: traditional economics you would view them as a tax which
Speaker 2: tends to destroy demand and can lead to deflation. On
Speaker 2: the other hand, we have seen producer prices start to
Speaker 2: pick up. What have you learned about just how policy
Speaker 2: makers are actually viewing the impact of tariffs at this conference.
Speaker 4: Well, there has been division. We have the Chriskwaller version
Speaker 4: who went to the textbook and said tariffs are a
Speaker 4: one time increase in the price level. And then since
Speaker 4: he first said that in July, what we've seen is
Speaker 4: the President delaying these tariffs, so they come on one
Speaker 4: by one and that drags the process out. Now, what
Speaker 4: the chairman seem to decide was that it's still going
Speaker 4: to be a one time increase sector by sector, So
Speaker 4: it might drag out, but it's not going to be
Speaker 4: an ongoing process of each sector prices rise, so the
Speaker 4: impacts they have a hard time judging because it's not
Speaker 4: like you pass smooth Holly and on a certain day
Speaker 4: it takes effect and you see the immediate price impact
Speaker 4: and then you can measure what's happening and it's going
Speaker 4: to do. Here, they have to take into account each sector,
Speaker 4: whether the exporter absorbs any of it, whether the importer
Speaker 4: absorbs any of it. What companies do into of pricing.
Speaker 4: Do they take some out of their margins because they
Speaker 4: don't want to lose market share, or do they just
Speaker 4: pass it along to people. These are all complex questions
Speaker 4: and as one of the fat economists said to me,
Speaker 4: each one affects another. So because so much of this
Speaker 4: stuff is intermediate goods that are used to price something else,
Speaker 4: so it gets very complicated. So it is hard for
Speaker 4: them to know exactly how this is going to play out.
Speaker 2: Say I have a take, Oh oh, do you a surprise?
Speaker 2: All right, go ahead.
Speaker 1: I was thinking about this when we're on errors. Maybe
Speaker 1: the answer is that tariffs are one off in terms
Speaker 1: of the inflationary impulse, but that the underlying political impulse
Speaker 1: to impose tariffs, this desire for everyone to have all
Speaker 1: their stuff and protect their home countries, industries, and so forth,
Speaker 1: is going to be this new permanent feature that is
Speaker 1: not a one off.
Speaker 2: Would that feature be inflationary?
Speaker 1: And if that is sustained then maybe it is.
Speaker 2: Yeah. I mean there is an irony here, which is
Speaker 2: the Trump administration has long criticized work and government bureaucracy
Speaker 2: and things like that, and I cannot even imagine how
Speaker 2: much time companies are spending trying to figure out tariffs
Speaker 2: right now and doing customs documentation and stuff like that. Okay, Mike,
Speaker 2: next year, we're going to have a new fed chair,
Speaker 2: new vibes at Jackson Hole potentially, who are you watching
Speaker 2: out for right now?
Speaker 4: I'm still watching out for the original Trump list that
Speaker 4: Kevin's has it in worsh and for Chris Waller. You
Speaker 4: could argue that the speech today improved Waller's chances if
Speaker 4: you were looking at it from a Las Vegas point
Speaker 4: of view in terms of odds, because he was right
Speaker 4: right at least at least a fed is saying he
Speaker 4: was right. But this is Donald Trump, so we have
Speaker 4: no idea. I think most of the people who've been
Speaker 4: sort of added on in the talking about stage in
Speaker 4: terms of the list are more red herrings. Some of
Speaker 4: them are obviously not going to be the chair. But
Speaker 4: what he's been able to do is get more people
Speaker 4: on TV getting interviewed about are you going to the chair?
Speaker 4: And they're all saying, well, we need to cut rates.
Speaker 4: You're not on the list if you're not going to
Speaker 4: cut rates. So are they really serious candidates? And Scott
Speaker 4: Besson says, okay, I got eleven people I'm going to
Speaker 4: bring in. The president keeps saying I got three people
Speaker 4: I'm going to choose from, So I think you go
Speaker 4: back to the original list. He's comfortable with those people.
Speaker 4: They all look like they could be fed chairs. And
Speaker 4: we know the impression that the person makes is important,
Speaker 4: so they're the most likely ones to choose from. I'm
Speaker 4: not saying he couldn't surprise. He surprises in almost everything
Speaker 4: he does.
Speaker 2: Have you interacted with Waller before, I've never met him, so, oh.
Speaker 4: I know Chris quite well. The one thing about Chris
Speaker 4: is we've extrapolated the Lisa Cook thing to if the
Speaker 4: president got four people on the board, then they can
Speaker 4: fire all the bank presidents, etc. Etc. And he have
Speaker 4: all this control. I don't think Waller would go along
Speaker 4: with that. He's in favor of lower interest rates. He
Speaker 4: has his own ideas about the economy. But he's a
Speaker 4: very smart economist, and you could defend what he says
Speaker 4: even if you don't necessarily agree with it. But he's
Speaker 4: an institutionalist. He's somebody who follows what the FED has
Speaker 4: done in the past, and I don't think he would
Speaker 4: give into the President's desire to do something that would
Speaker 4: hurt the FED, hurt its credibility, hurt its ability to
Speaker 4: do its jobs.
Speaker 1: Twenty twenty five. I think David Zervis looks like a fetcher.
Speaker 2: Okay, I'm going to go fly fishing. I'm going to
Speaker 2: do what I'm supposed to do at Jackson Hall and
Speaker 2: go fish.
Speaker 1: Let's Got.
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