WEBVTT - Betsy Duke Talks Inflation, Federal Reserve

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Center, the Datories. We can't get down to CPI. The

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<v Speaker 2>former FED governor Bessie Jukes writing this, even if the

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<v Speaker 2>tariff effect proofs, transitory inflation is likely to be at

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<v Speaker 2>three percent or higher for more than five years. Betsy

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<v Speaker 2>joins us. Now for more, Betsy, welcome to the program.

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<v Speaker 2>Before we even talk about today's number, what does that

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<v Speaker 2>say about the credibility the feder reserve, that we're going

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<v Speaker 2>to be so above target for so long.

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<v Speaker 1>I think it says a lot about the credibility, which

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<v Speaker 1>is why I think it's a mistake to ignore where

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<v Speaker 1>inflation is right now. If you look at where it's

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<v Speaker 1>been and the Fed, it has been stationary or stuck

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<v Speaker 1>for over a year now at three percent or higher,

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<v Speaker 1>and so it's hard to argue that monetary policy is

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<v Speaker 1>too tight.

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<v Speaker 3>At this point, though, Betsy, couldn't you argue that it's

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<v Speaker 3>okay that actually it's fostering The three percent inflation rate

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<v Speaker 3>has been in some ways beneficial for certain aspects of

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<v Speaker 3>the market.

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<v Speaker 1>It may be for the market, but the thing is,

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<v Speaker 1>the credibility of the Fed is based on anchoring inflation

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<v Speaker 1>expectations and most people can't really accurately tell you a

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<v Speaker 1>percentage of what they expect inflation to be, but they

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<v Speaker 1>begin to build in sort of what recently was is

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<v Speaker 1>what they expect, and if you have five years of

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<v Speaker 1>over three percent, the expectations just instinctively are going to

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<v Speaker 1>be for higher inflation.

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<v Speaker 3>Right now, there seems to be this feeling that artificial

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<v Speaker 3>intelligence is going to solve everything and that come next

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<v Speaker 3>year you're going to start to see productivity increases that

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<v Speaker 3>really triumph over any inflationary forces. How much do you

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<v Speaker 3>think that that's factoring right now into the FEDS calculus.

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<v Speaker 1>I don't think you've seen that yet, and I don't

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<v Speaker 1>think the FED is counting on that at this point

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<v Speaker 1>to bring inflation down well.

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<v Speaker 4>When it comes to AI, though, at some point, how

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<v Speaker 4>do they address this when maybe it's not even inflation

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<v Speaker 4>issue it becomes a labor market issue.

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<v Speaker 1>I think the labor market is going to get really

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<v Speaker 1>difficult to judge because of mismatch in workers and jobs.

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<v Speaker 1>So it seems that AI is impacting job market for

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<v Speaker 1>particularly new college graduates. But those college graduates are not

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<v Speaker 1>likely to take the jobs that are currently unfilled because

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<v Speaker 1>of deportations and reductions and immigration.

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<v Speaker 4>Let's see how difficult is this moment for the FED,

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<v Speaker 4>And maybe not next week, but in the month's coming.

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<v Speaker 4>If we remain in a government shutdown, we're day twenty four.

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<v Speaker 4>No one's blinking, and we might continue to get CPI

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<v Speaker 4>reports because we have to in terms of what it

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<v Speaker 4>means for Social Security checks, but we might not have

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<v Speaker 4>labor data.

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<v Speaker 1>I think this is actually the reading that matters for

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<v Speaker 1>Social Security checks, so you may not even get inflation

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<v Speaker 1>data going forward. Will just have to deal with the

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<v Speaker 1>data that it can get, and there is a fair

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<v Speaker 1>amount of private sector data that's available. It won't be

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<v Speaker 1>as good, but I think it will give them enough

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<v Speaker 1>to be able to judge sort of generally where we are. Frankly,

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<v Speaker 1>I don't think monetary policy is what's driving the economy

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<v Speaker 1>right now. It is much more driven by fiscal policy.

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<v Speaker 1>The great big beautiful bill currently, the government shut down, tariffs, immigration, deportations,

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<v Speaker 1>all of these things, as well as just the uncertainty

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<v Speaker 1>and unpredictability of policy right now.

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<v Speaker 2>I see. I think that final point is a really

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<v Speaker 2>really powerful one. And if something leasas us quite a

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<v Speaker 2>few times, the federal Reserve is cutting interest rates responding

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<v Speaker 2>to this massive downshift in payrolls. I think the question

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<v Speaker 2>worth asking is what difference are those right cut signs

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<v Speaker 2>you're going to make.

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<v Speaker 1>I agree, and I think the FED would be well

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<v Speaker 1>served to be very cautious in this environment.

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<v Speaker 2>But I see if you think they will be cautious

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<v Speaker 2>in this environment, they've basically managed to cover up differences

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<v Speaker 2>on the committee at the moment by calling these risk

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<v Speaker 2>management cuts. Now that risk management cuts that come with

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<v Speaker 2>their own risks and Bessie, do you think that's going

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<v Speaker 2>to come to the surface, not of this meeting, but

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<v Speaker 2>maybe at the December one.

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<v Speaker 1>I think it might come to the surface at this meeting.

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<v Speaker 1>I think you might see descents on both sides at

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<v Speaker 1>this meeting. The reason I say that is because this

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<v Speaker 1>meeting sets a pattern. So if your pattern is quarter

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<v Speaker 1>point every meeting, that's hardly a cautious cautious pattern in my.

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<v Speaker 3>Mind going forward. Do you think that right now there

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<v Speaker 3>is any reason to think that this feature reserve could

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<v Speaker 3>actually become more hawkish in the near term, or do

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<v Speaker 3>you think that ultimately it's going to come down to

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<v Speaker 3>the long end of the yield curve and how much

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<v Speaker 3>it's going to respond to exogenous factors and be the discipliner,

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<v Speaker 3>if you will, on the market.

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<v Speaker 1>I don't know how much the market is going to

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<v Speaker 1>pressure the FED because if you start setting up an

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<v Speaker 1>expectation for more and more C, but at some point

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<v Speaker 1>the majority of the FED voters are going to feel

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<v Speaker 1>uncomfortable with that pace, and then there's going to be

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<v Speaker 1>it's going to appear to be a hockey stern, although

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<v Speaker 1>it might not actually be if you'd been in the

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<v Speaker 1>room for the entire discussion.

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<v Speaker 2>Bessie, this was thoughtful. We appreciate it. Thanks for being

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<v Speaker 2>with us. The form of FED Governor of Bessie joke

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<v Speaker 2>just ahead of that CPI data