Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Good morning, and we'd like to welcome all of our
Speaker 2: viewers and listeners on Bloomberg Television and radio worldwide. I'm
Speaker 2: here at the New York FED with the president of
Speaker 2: this regional bank, John Williams. Thank you very much for
Speaker 2: joining us this morning.
Speaker 1: Well, welcome to the New York FED.
Speaker 2: We have so much news and headlines about Iran today
Speaker 2: and it does affect people's economic lives a lot. I
Speaker 2: know you can't make a forecast, but what's the best
Speaker 2: estimate that your people have been able to come up
Speaker 2: with now for what this is going to do to
Speaker 2: inflation and how quickly.
Speaker 1: Well, I think it will directly go into headline inflation
Speaker 1: because energy prices are important component of that. So I
Speaker 1: expect headline inflation to actually be elevated, you know, in
Speaker 1: the middle of this year, of course, if energy prices
Speaker 1: come back down or stabilize, and that won't add more
Speaker 1: to inflation right now. Now, my view on inflation is
Speaker 1: we're looking at inflation rate for the year as a
Speaker 1: whole of something like two and three quarters percent, But
Speaker 1: of course it depends what happens with energy prices.
Speaker 2: What could we get to in the meantime, what's the
Speaker 2: sort of thinking about where inflation on a numerical basis
Speaker 2: could end up.
Speaker 1: Well, again, it's hard to predict avous estimate. Clearly we
Speaker 1: can get into above three percent inflation. I think markets
Speaker 1: expectations right now or for CPI to be something like
Speaker 1: three and a quarter percent over the next year, But
Speaker 1: it really depends on what happens, both in terms of
Speaker 1: how hig I do energy prices get, but also how
Speaker 1: long they stay high or whether they come back down. Personally,
Speaker 1: I'm also very focused on what's happening with underlying inflation,
Speaker 1: core inflation, inflation expectations and other indicators as well. Besides
Speaker 1: what's happening to energy prices. Underseeing the broader.
Speaker 2: Picture, well, what's happening with core inflation.
Speaker 1: Yeah, so there, I think the story hasn't changed very much. Clearly,
Speaker 1: higher energy prices add a little bit to core inflation.
Speaker 1: You think about airfares, which is part of core inflation,
Speaker 1: but it is influenced by fuel prices. So I expect
Speaker 1: that to add maybe a ten or two to core
Speaker 1: inflation over the year, the energy price component. But we've
Speaker 1: seen teriff rates come down, we've seen some other I
Speaker 1: think more positive signs on underlying inflation. So overall, I'm
Speaker 1: kind of where I've been for a while with core
Speaker 1: inflation around two and a half percent this year.
Speaker 2: Well, how long how fast would inflation have to move
Speaker 2: to merit a rate response.
Speaker 1: Well, I think really it does go back to kind
Speaker 1: of the full kind of set of factors influencing inflation.
Speaker 1: And I'm going to bring up tariffs because it is
Speaker 1: a big part of the story so far about why
Speaker 1: core inflation has been elevated. So I am watching you know,
Speaker 1: important good prices, looking at core inflation, inflation expectations, and
Speaker 1: then obviously on top of that, what's happening to food, food,
Speaker 1: and energy. So to my mind, Monte policy today is
Speaker 1: really well positioned, given where all of those dynamics have
Speaker 1: been playing out, and well positioned to kind of wait
Speaker 1: and see on some of the effects of you know,
Speaker 1: what's happening today. This isn't I'm not saying we're just
Speaker 1: you know, in some kind of we can't act. I
Speaker 1: think this Mantrea policy is exactly where it needs to be,
Speaker 1: and then we can respond if the situation changes. Right now,
Speaker 1: I think that Mantre policy though, is pretty well positioned,
Speaker 1: you know, given what we've been seeing.
Speaker 2: So far, Monetary policy is well positioned. But what about
Speaker 2: the economy. What's the state of the economy.
Speaker 1: Well, you know, if you asked me this a month
Speaker 1: or two ago, we would be talking about remarkable resilience
Speaker 1: of the economy, growing at two percent last year, looking
Speaker 1: to grow even faster this year. Clearly with the conflict
Speaker 1: in the Middle East, that changes out a bit. I'm so,
Speaker 1: I'm you know, consumers are families or are going to
Speaker 1: be paying higher fuel cost gas price with the gas
Speaker 1: price increases, So I've been bringing down my forecast for
Speaker 1: growth this year, probably somewhere between two and two and
Speaker 1: a half percent for growth this year. An unemployment rate
Speaker 1: probably staying around where it is now four point three percent.
Speaker 1: And you know economy that's you know, continuing to grow
Speaker 1: but roughly roughly at trend, a gatting driven by consumer
Speaker 1: spending and investments, especially in AI.
Speaker 2: Well, you mentioned unemployment, new cut rates. In the last year,
Speaker 2: we were told basically to prop up the labor market.
Speaker 2: What is the state of the labor market. Is that accomplished?
Speaker 1: Well, it's hard, it's hard to read all the tea leases,
Speaker 1: because it's a pretty complicated situation with the labor market.
Speaker 1: We are seeing some you know, various kind of different signals.
Speaker 1: If you look at my view is if you look
Speaker 1: at the unemployment rate, it's today at four point three percent,
Speaker 1: It's about where it was in July. So we've seen
Speaker 1: some you know, stability there in terms of the unemployment
Speaker 1: rate and in job openings and some of the other indicators.
Speaker 1: So I feel like we've gotten the labor market. We've
Speaker 1: seen the labor market more much more stable now. Definitely
Speaker 1: not a labor market that's weakening based on the economic indicators.
Speaker 1: That said, if you look at the ser including the
Speaker 1: survey that we do in the Conference Board survey, that's
Speaker 1: not how people are, you know, kind of feeling about
Speaker 1: the labor market. Definitely, we've seen a continued process of
Speaker 1: people being more pessimistic about the labor market, not about
Speaker 1: a recession or something, but just a view that this
Speaker 1: is a pretty low, higher low fire labor market. And
Speaker 1: maybe the kind of the views aren't not as strong
Speaker 1: as you would think just looking at the aggregate and
Speaker 1: payroll and unemployment data.
Speaker 2: You're well positioned to do whatever you need to do
Speaker 2: to help the economy. But can monetary policy really do
Speaker 2: a lot in these situations? What's the lag Ja Powel
Speaker 2: was talking about. It could be a year from now
Speaker 2: before it hits the economy. Whatever you did.
Speaker 1: Absolutely so, monetary policy, based on all the kind of
Speaker 1: historical evidence, takes about a year to have its full
Speaker 1: effect on the economy and even longer on inflation. So
Speaker 1: we always have to be forward looking. We have to
Speaker 1: be thinking about where's the economy going to be rather
Speaker 1: than where it is today or where it's been in
Speaker 1: the past. So that means trying to, you know, think
Speaker 1: through where is inflation going to be, you know, later
Speaker 1: this year and next year. Where's the economy going to
Speaker 1: be now? I do you know, I go back to
Speaker 1: kind of the analysis we've done. I do expect underlying
Speaker 1: inflation eventually later this year to start coming back down
Speaker 1: because the effects of the tariffs on inflation will start
Speaker 1: to wane. I do expect, you know, the continuation of
Speaker 1: the kind of good positive movement and underlying inflation. But
Speaker 1: we'll have to watch is that does that continue? And
Speaker 1: again what happens in terms of the conflict and its
Speaker 1: effects on inflation.
Speaker 2: We're worried about the Iran war. We're worried about tariffs,
Speaker 2: people are worried about AI, and you mentioned the consumer
Speaker 2: sentiment numbers, But the economy has been fairly real resilient.
Speaker 1: Why well, I think I think Americas has the best productivity,
Speaker 1: highest productivity in the world, has got the highest among
Speaker 1: the highest productivity growth. We are remarkably resilient, evative, dynamic economy.
Speaker 1: And I think technical new technology is making a big difference,
Speaker 1: not just AI, but more broadly. We've seen proactivity growth
Speaker 1: that's actually been above par for the past six years.
Speaker 1: So I think there's there are some fundamentals that are
Speaker 1: driving you know, solid gains in productivity, in real incomes
Speaker 1: and you know demand for uh, you know, demand to
Speaker 1: hire people. But there's you know, there's these various cross
Speaker 1: currency you mentioned. So again last year, the story with
Speaker 1: the surprise was the economy was so resilient despite the uncertainty,
Speaker 1: despite other factors like the tariffs. This year it's you know, well,
Speaker 1: it's another test of that resilience. But investment in AI
Speaker 1: and data centers is I think will continue to be
Speaker 1: strong this year and for you know, as long as
Speaker 1: the economy continues to growth and consumer spending will continue
Speaker 1: to be a very.
Speaker 2: Positive Well along those lines, what's your read on average
Speaker 2: hourly earnings or wages or whatever measure you want to dot,
Speaker 2: whose average hourly earnings came down to three and a
Speaker 2: half percent, what's a sweet spot? What's a level at
Speaker 2: which it won't be a concern.
Speaker 1: Yeah, I think we're at that level. If you look
Speaker 1: at all the different indicators, and now we have some
Speaker 1: very good real time indicators we have, you know, the
Speaker 1: standard official statistics, I think pretty much all of them
Speaker 1: are telling us that compensation is continue to grow. Really,
Speaker 1: compensation is growing, and it's growing in a way that's
Speaker 1: consistent with productivity growth we're seeing, so to my mind,
Speaker 1: the labor market, and you know, whether you look at
Speaker 1: the unemployment rate or and you look at wage growth,
Speaker 1: these are not factors pushing up inflation at all. So
Speaker 1: I feel like we're at a good place for that,
Speaker 1: and I think that's consistent with what we're seeing the
Speaker 1: labor market.
Speaker 2: Then you've been traveling around the State of New York lately,
Speaker 2: what are you hearing from CEOs? For a long time,
Speaker 2: the story has been we're just sitting there because we
Speaker 2: don't know what's going to happen.
Speaker 1: I think that story changed a bit. You know, when
Speaker 1: you think about how do you respond to uncertainty, the
Speaker 1: first thing you probably do is you, you know, pause
Speaker 1: any longer term plans around hiring, an investment, and try
Speaker 1: to figure out, you know, what to do. I think
Speaker 1: a lot of CEOs have said, well, we're past at
Speaker 1: so now we just have to navigate a world with
Speaker 1: higher uncertainty. Make the decisions that makes sense, make the
Speaker 1: investments that make sense. And you see you hear about
Speaker 1: that a lot with AI and investments in AI. So
Speaker 1: I think we're kind of in the second stage you
Speaker 1: will respond to uncertainty is really about well, okay, we
Speaker 1: need to make decisions. Let's let's move forward. And I
Speaker 1: think that's consistent with what we're seeing. You know, we're
Speaker 1: seeing positive job growth, We're seeing an economy that continues
Speaker 1: to grow and invest.
Speaker 2: Well, are people telling it at all about cutting back?
Speaker 1: Well, it's interesting on that. I mean, going to the
Speaker 1: AI specific question, I think most of the conversation the
Speaker 1: CEOs most of them are talking about is really about
Speaker 1: making smart decisions, hiring people with AI skills, hiring in
Speaker 1: areas that you know, maybe jobs we don't need because
Speaker 1: we could use AI. So there's a lot of I
Speaker 1: think thought going into that, but not in terms of,
Speaker 1: you know, what we need to cut back our labor force.
Speaker 1: You know, of course you see this with the data too.
Speaker 1: We're not seeing high levels at all of initial claims
Speaker 1: for unemployment or layoffs. So I think it's a low higher,
Speaker 1: low fire and low unemployment economy. It's it's unusual mix,
Speaker 1: but it's uh, that's I think that's what we're still
Speaker 1: seeing even today.
Speaker 2: The next FOMC meeting at the end of the month
Speaker 2: is j Powle's last as chair. Maybe what's your understanding
Speaker 2: is the vice chair of the Open Market Committee about
Speaker 2: what happens if Kevin Warsh is not confirmed by then.
Speaker 1: Well Chair Powell already spoke to that recently. In terms
Speaker 1: of the Board of Governors, I'll speak to the FMC,
Speaker 1: the Federal oper Market Committee. I mean every January we
Speaker 1: have a vote about you know, selecting a chair and
Speaker 1: a vice chair, and that's that vote is in place
Speaker 1: for throughout the year. So there's no issue of continuity,
Speaker 1: there's no issue of anything. You know, we're you know,
Speaker 1: that's all in place. Typically we have this vote in
Speaker 1: January for the chair of the f MC, and or
Speaker 1: if a new chair is confirmed by the Senate, then
Speaker 1: that person becomes the chair of the f MC. But
Speaker 1: I would just highlight the most important thing here is that,
Speaker 1: you know, we're just focused on doing our work. There's
Speaker 1: no issue about continuity or things like that of the
Speaker 1: f MC. We're just you know, doing what we always do,
Speaker 1: which is digging into all the data, you know, trying
Speaker 1: to do our very best rechieve maximum employment and priceability goals.
Speaker 2: So basically, if Worsh is not confirmed, you don't have
Speaker 2: to do anything. You just.
Speaker 1: Continue on exactly at the FMC. Just continue on.
Speaker 2: Now, Kevin has come out and said that there's a
Speaker 2: lot of things he would like to change, and we
Speaker 2: will go down the whole laundry list. But how effective
Speaker 2: do you think with this FOMC, with the board can
Speaker 2: he be in affecting change in the short run? Are
Speaker 2: we looking at some sort of massive change in the
Speaker 2: way things are done or is this going to be
Speaker 2: a process that takes place over years.
Speaker 1: At first, you know, Kevin Aworsh understands the Federal Reserve
Speaker 1: very well. He was a governor. I knew him then
Speaker 1: I think as a keen understanding of what our mission
Speaker 1: is and the importance of what we do. You know,
Speaker 1: I can't speak for him, and I haven't spoken to
Speaker 1: him lately, but I do expect that when he when
Speaker 1: he does get confirmed by the Senate, that he will
Speaker 1: share his views and perspectives as he thinks about, you know,
Speaker 1: what he wants to accomplish as chair And you know,
Speaker 1: I've worked now with four different shares and many governors
Speaker 1: and very many presidents, and the most you know, I
Speaker 1: think the most common element of all this is when
Speaker 1: people come into the Federal Reserve, they understand the importance
Speaker 1: of the work we do, the importance of the mission
Speaker 1: to the American people. And that's that's exactly what I
Speaker 1: expect when Kevin worship rejoins, if you will, the Federal Reserve.
Speaker 2: Now, one of the open questions is what happens to
Speaker 2: Chairman Powell when he's no longer Chairman but still a governor.
Speaker 2: Would you like to see him stay on?
Speaker 1: Well, that's a decision for Chair Powell, and I don't
Speaker 1: have any comment on that. I leave that to him.
Speaker 2: Well, we'd like to thank you very much for talking
Speaker 2: with us this morning. John Williams, the President of the
Speaker 2: New York Fed and Vice chair of the Open Market Committee,
Speaker 2: who will send it back to you.