WEBVTT - Fed's John Williams Talks Inflation, Policy, US Labor Market

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Good morning, and we'd like to welcome all of our

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<v Speaker 2>viewers and listeners on Bloomberg Television and radio worldwide. I'm

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<v Speaker 2>here at the New York FED with the president of

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<v Speaker 2>this regional bank, John Williams. Thank you very much for

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<v Speaker 2>joining us this morning.

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<v Speaker 1>Well, welcome to the New York FED.

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<v Speaker 2>We have so much news and headlines about Iran today

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<v Speaker 2>and it does affect people's economic lives a lot. I

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<v Speaker 2>know you can't make a forecast, but what's the best

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<v Speaker 2>estimate that your people have been able to come up

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<v Speaker 2>with now for what this is going to do to

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<v Speaker 2>inflation and how quickly.

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<v Speaker 1>Well, I think it will directly go into headline inflation

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<v Speaker 1>because energy prices are important component of that. So I

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<v Speaker 1>expect headline inflation to actually be elevated, you know, in

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<v Speaker 1>the middle of this year, of course, if energy prices

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<v Speaker 1>come back down or stabilize, and that won't add more

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<v Speaker 1>to inflation right now. Now, my view on inflation is

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<v Speaker 1>we're looking at inflation rate for the year as a

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<v Speaker 1>whole of something like two and three quarters percent, But

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<v Speaker 1>of course it depends what happens with energy prices.

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<v Speaker 2>What could we get to in the meantime, what's the

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<v Speaker 2>sort of thinking about where inflation on a numerical basis

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<v Speaker 2>could end up.

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<v Speaker 1>Well, again, it's hard to predict avous estimate. Clearly we

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<v Speaker 1>can get into above three percent inflation. I think markets

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<v Speaker 1>expectations right now or for CPI to be something like

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<v Speaker 1>three and a quarter percent over the next year, But

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<v Speaker 1>it really depends on what happens, both in terms of

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<v Speaker 1>how hig I do energy prices get, but also how

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<v Speaker 1>long they stay high or whether they come back down. Personally,

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<v Speaker 1>I'm also very focused on what's happening with underlying inflation,

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<v Speaker 1>core inflation, inflation expectations and other indicators as well. Besides

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<v Speaker 1>what's happening to energy prices. Underseeing the broader.

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<v Speaker 2>Picture, well, what's happening with core inflation.

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<v Speaker 1>Yeah, so there, I think the story hasn't changed very much. Clearly,

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<v Speaker 1>higher energy prices add a little bit to core inflation.

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<v Speaker 1>You think about airfares, which is part of core inflation,

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<v Speaker 1>but it is influenced by fuel prices. So I expect

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<v Speaker 1>that to add maybe a ten or two to core

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<v Speaker 1>inflation over the year, the energy price component. But we've

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<v Speaker 1>seen teriff rates come down, we've seen some other I

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<v Speaker 1>think more positive signs on underlying inflation. So overall, I'm

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<v Speaker 1>kind of where I've been for a while with core

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<v Speaker 1>inflation around two and a half percent this year.

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<v Speaker 2>Well, how long how fast would inflation have to move

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<v Speaker 2>to merit a rate response.

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<v Speaker 1>Well, I think really it does go back to kind

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<v Speaker 1>of the full kind of set of factors influencing inflation.

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<v Speaker 1>And I'm going to bring up tariffs because it is

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<v Speaker 1>a big part of the story so far about why

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<v Speaker 1>core inflation has been elevated. So I am watching you know,

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<v Speaker 1>important good prices, looking at core inflation, inflation expectations, and

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<v Speaker 1>then obviously on top of that, what's happening to food, food,

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<v Speaker 1>and energy. So to my mind, Monte policy today is

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<v Speaker 1>really well positioned, given where all of those dynamics have

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<v Speaker 1>been playing out, and well positioned to kind of wait

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<v Speaker 1>and see on some of the effects of you know,

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<v Speaker 1>what's happening today. This isn't I'm not saying we're just

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<v Speaker 1>you know, in some kind of we can't act. I

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<v Speaker 1>think this Mantrea policy is exactly where it needs to be,

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<v Speaker 1>and then we can respond if the situation changes. Right now,

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<v Speaker 1>I think that Mantre policy though, is pretty well positioned,

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<v Speaker 1>you know, given what we've been seeing.

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<v Speaker 2>So far, Monetary policy is well positioned. But what about

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<v Speaker 2>the economy. What's the state of the economy.

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<v Speaker 1>Well, you know, if you asked me this a month

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<v Speaker 1>or two ago, we would be talking about remarkable resilience

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<v Speaker 1>of the economy, growing at two percent last year, looking

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<v Speaker 1>to grow even faster this year. Clearly with the conflict

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<v Speaker 1>in the Middle East, that changes out a bit. I'm so,

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<v Speaker 1>I'm you know, consumers are families or are going to

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<v Speaker 1>be paying higher fuel cost gas price with the gas

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<v Speaker 1>price increases, So I've been bringing down my forecast for

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<v Speaker 1>growth this year, probably somewhere between two and two and

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<v Speaker 1>a half percent for growth this year. An unemployment rate

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<v Speaker 1>probably staying around where it is now four point three percent.

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<v Speaker 1>And you know economy that's you know, continuing to grow

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<v Speaker 1>but roughly roughly at trend, a gatting driven by consumer

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<v Speaker 1>spending and investments, especially in AI.

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<v Speaker 2>Well, you mentioned unemployment, new cut rates. In the last year,

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<v Speaker 2>we were told basically to prop up the labor market.

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<v Speaker 2>What is the state of the labor market. Is that accomplished?

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<v Speaker 1>Well, it's hard, it's hard to read all the tea leases,

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<v Speaker 1>because it's a pretty complicated situation with the labor market.

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<v Speaker 1>We are seeing some you know, various kind of different signals.

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<v Speaker 1>If you look at my view is if you look

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<v Speaker 1>at the unemployment rate, it's today at four point three percent,

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<v Speaker 1>It's about where it was in July. So we've seen

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<v Speaker 1>some you know, stability there in terms of the unemployment

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<v Speaker 1>rate and in job openings and some of the other indicators.

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<v Speaker 1>So I feel like we've gotten the labor market. We've

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<v Speaker 1>seen the labor market more much more stable now. Definitely

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<v Speaker 1>not a labor market that's weakening based on the economic indicators.

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<v Speaker 1>That said, if you look at the ser including the

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<v Speaker 1>survey that we do in the Conference Board survey, that's

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<v Speaker 1>not how people are, you know, kind of feeling about

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<v Speaker 1>the labor market. Definitely, we've seen a continued process of

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<v Speaker 1>people being more pessimistic about the labor market, not about

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<v Speaker 1>a recession or something, but just a view that this

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<v Speaker 1>is a pretty low, higher low fire labor market. And

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<v Speaker 1>maybe the kind of the views aren't not as strong

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<v Speaker 1>as you would think just looking at the aggregate and

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<v Speaker 1>payroll and unemployment data.

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<v Speaker 2>You're well positioned to do whatever you need to do

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<v Speaker 2>to help the economy. But can monetary policy really do

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<v Speaker 2>a lot in these situations? What's the lag Ja Powel

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<v Speaker 2>was talking about. It could be a year from now

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<v Speaker 2>before it hits the economy. Whatever you did.

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<v Speaker 1>Absolutely so, monetary policy, based on all the kind of

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<v Speaker 1>historical evidence, takes about a year to have its full

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<v Speaker 1>effect on the economy and even longer on inflation. So

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<v Speaker 1>we always have to be forward looking. We have to

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<v Speaker 1>be thinking about where's the economy going to be rather

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<v Speaker 1>than where it is today or where it's been in

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<v Speaker 1>the past. So that means trying to, you know, think

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<v Speaker 1>through where is inflation going to be, you know, later

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<v Speaker 1>this year and next year. Where's the economy going to

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<v Speaker 1>be now? I do you know, I go back to

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<v Speaker 1>kind of the analysis we've done. I do expect underlying

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<v Speaker 1>inflation eventually later this year to start coming back down

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<v Speaker 1>because the effects of the tariffs on inflation will start

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<v Speaker 1>to wane. I do expect, you know, the continuation of

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<v Speaker 1>the kind of good positive movement and underlying inflation. But

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<v Speaker 1>we'll have to watch is that does that continue? And

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<v Speaker 1>again what happens in terms of the conflict and its

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<v Speaker 1>effects on inflation.

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<v Speaker 2>We're worried about the Iran war. We're worried about tariffs,

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<v Speaker 2>people are worried about AI, and you mentioned the consumer

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<v Speaker 2>sentiment numbers, But the economy has been fairly real resilient.

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<v Speaker 1>Why well, I think I think Americas has the best productivity,

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<v Speaker 1>highest productivity in the world, has got the highest among

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<v Speaker 1>the highest productivity growth. We are remarkably resilient, evative, dynamic economy.

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<v Speaker 1>And I think technical new technology is making a big difference,

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<v Speaker 1>not just AI, but more broadly. We've seen proactivity growth

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<v Speaker 1>that's actually been above par for the past six years.

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<v Speaker 1>So I think there's there are some fundamentals that are

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<v Speaker 1>driving you know, solid gains in productivity, in real incomes

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<v Speaker 1>and you know demand for uh, you know, demand to

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<v Speaker 1>hire people. But there's you know, there's these various cross

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<v Speaker 1>currency you mentioned. So again last year, the story with

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<v Speaker 1>the surprise was the economy was so resilient despite the uncertainty,

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<v Speaker 1>despite other factors like the tariffs. This year it's you know, well,

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<v Speaker 1>it's another test of that resilience. But investment in AI

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<v Speaker 1>and data centers is I think will continue to be

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<v Speaker 1>strong this year and for you know, as long as

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<v Speaker 1>the economy continues to growth and consumer spending will continue

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<v Speaker 1>to be a very.

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<v Speaker 2>Positive Well along those lines, what's your read on average

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<v Speaker 2>hourly earnings or wages or whatever measure you want to dot,

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<v Speaker 2>whose average hourly earnings came down to three and a

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<v Speaker 2>half percent, what's a sweet spot? What's a level at

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<v Speaker 2>which it won't be a concern.

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<v Speaker 1>Yeah, I think we're at that level. If you look

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<v Speaker 1>at all the different indicators, and now we have some

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<v Speaker 1>very good real time indicators we have, you know, the

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<v Speaker 1>standard official statistics, I think pretty much all of them

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<v Speaker 1>are telling us that compensation is continue to grow. Really,

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<v Speaker 1>compensation is growing, and it's growing in a way that's

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<v Speaker 1>consistent with productivity growth we're seeing, so to my mind,

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<v Speaker 1>the labor market, and you know, whether you look at

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<v Speaker 1>the unemployment rate or and you look at wage growth,

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<v Speaker 1>these are not factors pushing up inflation at all. So

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<v Speaker 1>I feel like we're at a good place for that,

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<v Speaker 1>and I think that's consistent with what we're seeing the

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<v Speaker 1>labor market.

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<v Speaker 2>Then you've been traveling around the State of New York lately,

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<v Speaker 2>what are you hearing from CEOs? For a long time,

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<v Speaker 2>the story has been we're just sitting there because we

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<v Speaker 2>don't know what's going to happen.

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<v Speaker 1>I think that story changed a bit. You know, when

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<v Speaker 1>you think about how do you respond to uncertainty, the

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<v Speaker 1>first thing you probably do is you, you know, pause

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<v Speaker 1>any longer term plans around hiring, an investment, and try

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<v Speaker 1>to figure out, you know, what to do. I think

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<v Speaker 1>a lot of CEOs have said, well, we're past at

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<v Speaker 1>so now we just have to navigate a world with

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<v Speaker 1>higher uncertainty. Make the decisions that makes sense, make the

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<v Speaker 1>investments that make sense. And you see you hear about

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<v Speaker 1>that a lot with AI and investments in AI. So

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<v Speaker 1>I think we're kind of in the second stage you

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<v Speaker 1>will respond to uncertainty is really about well, okay, we

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<v Speaker 1>need to make decisions. Let's let's move forward. And I

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<v Speaker 1>think that's consistent with what we're seeing. You know, we're

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<v Speaker 1>seeing positive job growth, We're seeing an economy that continues

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<v Speaker 1>to grow and invest.

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<v Speaker 2>Well, are people telling it at all about cutting back?

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<v Speaker 1>Well, it's interesting on that. I mean, going to the

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<v Speaker 1>AI specific question, I think most of the conversation the

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<v Speaker 1>CEOs most of them are talking about is really about

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<v Speaker 1>making smart decisions, hiring people with AI skills, hiring in

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<v Speaker 1>areas that you know, maybe jobs we don't need because

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<v Speaker 1>we could use AI. So there's a lot of I

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<v Speaker 1>think thought going into that, but not in terms of,

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<v Speaker 1>you know, what we need to cut back our labor force.

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<v Speaker 1>You know, of course you see this with the data too.

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<v Speaker 1>We're not seeing high levels at all of initial claims

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<v Speaker 1>for unemployment or layoffs. So I think it's a low higher,

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<v Speaker 1>low fire and low unemployment economy. It's it's unusual mix,

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<v Speaker 1>but it's uh, that's I think that's what we're still

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<v Speaker 1>seeing even today.

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<v Speaker 2>The next FOMC meeting at the end of the month

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<v Speaker 2>is j Powle's last as chair. Maybe what's your understanding

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<v Speaker 2>is the vice chair of the Open Market Committee about

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<v Speaker 2>what happens if Kevin Warsh is not confirmed by then.

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<v Speaker 1>Well Chair Powell already spoke to that recently. In terms

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<v Speaker 1>of the Board of Governors, I'll speak to the FMC,

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<v Speaker 1>the Federal oper Market Committee. I mean every January we

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<v Speaker 1>have a vote about you know, selecting a chair and

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<v Speaker 1>a vice chair, and that's that vote is in place

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<v Speaker 1>for throughout the year. So there's no issue of continuity,

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<v Speaker 1>there's no issue of anything. You know, we're you know,

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<v Speaker 1>that's all in place. Typically we have this vote in

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<v Speaker 1>January for the chair of the f MC, and or

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<v Speaker 1>if a new chair is confirmed by the Senate, then

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<v Speaker 1>that person becomes the chair of the f MC. But

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<v Speaker 1>I would just highlight the most important thing here is that,

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<v Speaker 1>you know, we're just focused on doing our work. There's

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<v Speaker 1>no issue about continuity or things like that of the

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<v Speaker 1>f MC. We're just you know, doing what we always do,

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<v Speaker 1>which is digging into all the data, you know, trying

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<v Speaker 1>to do our very best rechieve maximum employment and priceability goals.

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<v Speaker 2>So basically, if Worsh is not confirmed, you don't have

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<v Speaker 2>to do anything. You just.

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<v Speaker 1>Continue on exactly at the FMC. Just continue on.

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<v Speaker 2>Now, Kevin has come out and said that there's a

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<v Speaker 2>lot of things he would like to change, and we

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<v Speaker 2>will go down the whole laundry list. But how effective

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<v Speaker 2>do you think with this FOMC, with the board can

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<v Speaker 2>he be in affecting change in the short run? Are

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<v Speaker 2>we looking at some sort of massive change in the

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<v Speaker 2>way things are done or is this going to be

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<v Speaker 2>a process that takes place over years.

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<v Speaker 1>At first, you know, Kevin Aworsh understands the Federal Reserve

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<v Speaker 1>very well. He was a governor. I knew him then

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<v Speaker 1>I think as a keen understanding of what our mission

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<v Speaker 1>is and the importance of what we do. You know,

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<v Speaker 1>I can't speak for him, and I haven't spoken to

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<v Speaker 1>him lately, but I do expect that when he when

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<v Speaker 1>he does get confirmed by the Senate, that he will

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<v Speaker 1>share his views and perspectives as he thinks about, you know,

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<v Speaker 1>what he wants to accomplish as chair And you know,

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<v Speaker 1>I've worked now with four different shares and many governors

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<v Speaker 1>and very many presidents, and the most you know, I

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<v Speaker 1>think the most common element of all this is when

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<v Speaker 1>people come into the Federal Reserve, they understand the importance

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<v Speaker 1>of the work we do, the importance of the mission

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<v Speaker 1>to the American people. And that's that's exactly what I

0:12:59.559 --> 0:13:03.640
<v Speaker 1>expect when Kevin worship rejoins, if you will, the Federal Reserve.

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<v Speaker 2>Now, one of the open questions is what happens to

0:13:08.559 --> 0:13:12.120
<v Speaker 2>Chairman Powell when he's no longer Chairman but still a governor.

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<v Speaker 2>Would you like to see him stay on?

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<v Speaker 1>Well, that's a decision for Chair Powell, and I don't

0:13:19.080 --> 0:13:21.960
<v Speaker 1>have any comment on that. I leave that to him.

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<v Speaker 2>Well, we'd like to thank you very much for talking

0:13:24.320 --> 0:13:27.120
<v Speaker 2>with us this morning. John Williams, the President of the

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<v Speaker 2>New York Fed and Vice chair of the Open Market Committee,

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<v Speaker 2>who will send it back to you.