1 00:00:02,360 --> 00:00:06,680 Speaker 1: Bloomberg Audio Studios, podcasts, radio News. 2 00:00:06,840 --> 00:00:09,920 Speaker 2: Thank you to Raphael Bostik for joining us. You've been 3 00:00:10,000 --> 00:00:14,440 Speaker 2: on Bloomberg's Odd Lots and you run another Networks morning. 4 00:00:14,560 --> 00:00:17,239 Speaker 2: So we're going to stipulate that things are uncertain in 5 00:00:17,280 --> 00:00:20,759 Speaker 2: the economy and you don't exactly know where policy is 6 00:00:20,800 --> 00:00:23,520 Speaker 2: going to be. And let me ask you a couple 7 00:00:23,600 --> 00:00:28,680 Speaker 2: things in a different areas. Monetary policy works through the markets, 8 00:00:28,800 --> 00:00:31,560 Speaker 2: and I'm not talking about the judgment of market people, 9 00:00:32,080 --> 00:00:35,440 Speaker 2: but do you think that market rates are essentially where 10 00:00:35,479 --> 00:00:39,720 Speaker 2: they should be given where your rates are at this point? 11 00:00:40,600 --> 00:00:42,720 Speaker 1: Well, that's all. That's an first of all, good to 12 00:00:42,760 --> 00:00:46,080 Speaker 1: have you here. I'm really always happy to speak on Bloomberg. 13 00:00:46,440 --> 00:00:49,120 Speaker 1: What I would say is this the market is trying 14 00:00:49,120 --> 00:00:52,280 Speaker 1: to process a lot at this point, and where our 15 00:00:52,360 --> 00:00:55,880 Speaker 1: rates are, I think are mildly restrictive in the marketplace, 16 00:00:55,920 --> 00:00:58,160 Speaker 1: trying to get inflation back to our two percent target 17 00:00:58,240 --> 00:01:01,160 Speaker 1: because it's been too high for two long. I think 18 00:01:01,200 --> 00:01:03,520 Speaker 1: the rest of it is really about perceptions of risk 19 00:01:03,600 --> 00:01:08,039 Speaker 1: in the marketplace, and you know, uncertainty and the volatility 20 00:01:08,440 --> 00:01:11,520 Speaker 1: that might be present in the market I think leads 21 00:01:11,520 --> 00:01:13,480 Speaker 1: to there being an extra premium on it. And so 22 00:01:14,080 --> 00:01:16,480 Speaker 1: you know, the market will decide what his price needs 23 00:01:16,520 --> 00:01:18,920 Speaker 1: to be. But it doesn't surprise me very much that 24 00:01:19,000 --> 00:01:22,080 Speaker 1: we see it at a higher level relative to the 25 00:01:22,080 --> 00:01:24,160 Speaker 1: things that we've done with our rate in the last year. 26 00:01:24,800 --> 00:01:27,800 Speaker 2: Well, we've got the downgrade now that pushed rates up 27 00:01:27,840 --> 00:01:31,080 Speaker 2: early this morning and overnight, and then it started to 28 00:01:31,200 --> 00:01:34,000 Speaker 2: fade back a bit, the same thing that sort of 29 00:01:34,000 --> 00:01:37,319 Speaker 2: happened after Fitch and s ANDP did their downgrades. Does 30 00:01:37,360 --> 00:01:42,479 Speaker 2: it were you that they are not pricing in more 31 00:01:42,760 --> 00:01:46,479 Speaker 2: of credit risk to the United States, given that we're 32 00:01:46,520 --> 00:01:47,440 Speaker 2: no longer triple A. 33 00:01:48,040 --> 00:01:50,720 Speaker 1: Well, you'll have to talk to the raider. It's about 34 00:01:50,840 --> 00:01:53,400 Speaker 1: sort of how they interpret these things. What I would 35 00:01:53,400 --> 00:01:56,800 Speaker 1: say is this, so much of our economy is based 36 00:01:56,880 --> 00:01:59,760 Speaker 1: on faith that we will deliver on the things that 37 00:01:59,800 --> 00:02:03,440 Speaker 1: we say that we promised for the future. When you 38 00:02:03,480 --> 00:02:06,600 Speaker 1: start to see the Marcus waiver a little bit, people, 39 00:02:06,600 --> 00:02:09,280 Speaker 1: I think people are asking the question, do we still 40 00:02:09,320 --> 00:02:11,919 Speaker 1: have that same level of faith. I think the sign 41 00:02:12,000 --> 00:02:15,320 Speaker 1: that our rates have started to come back down and 42 00:02:15,360 --> 00:02:18,120 Speaker 1: the markets are sort of returning back to a normal 43 00:02:18,160 --> 00:02:20,560 Speaker 1: stasis to guess that they think there is that likelihood 44 00:02:20,600 --> 00:02:23,239 Speaker 1: moving forward and we'll just have to see where it goes. 45 00:02:23,240 --> 00:02:25,359 Speaker 1: I mean, I always want to make sure I understand 46 00:02:25,680 --> 00:02:30,000 Speaker 1: what the price of credit and debt is. But you know, 47 00:02:30,080 --> 00:02:32,239 Speaker 1: the markets all will make a determination that on their own. 48 00:02:32,520 --> 00:02:35,600 Speaker 2: Well, if they are higher and stay higher as they 49 00:02:35,720 --> 00:02:38,520 Speaker 2: are right now, does that affect your calculation of what 50 00:02:38,560 --> 00:02:39,120 Speaker 2: you have to. 51 00:02:39,080 --> 00:02:42,400 Speaker 1: Do, well, it depends, you know. One of the things 52 00:02:42,440 --> 00:02:45,880 Speaker 1: that we'll be interesting to see is how businesses and 53 00:02:45,919 --> 00:02:50,080 Speaker 1: consumers respond to the environment. What I'll say is, because 54 00:02:50,080 --> 00:02:52,320 Speaker 1: of the word that you said at the very beginning, uncertainty, 55 00:02:52,639 --> 00:02:55,640 Speaker 1: we know that many businesses and many families are really 56 00:02:55,639 --> 00:02:59,160 Speaker 1: holding tight to see sort of how this all sorts out. 57 00:02:59,520 --> 00:03:01,880 Speaker 1: And we'll just have to see how the changes in 58 00:03:01,960 --> 00:03:07,880 Speaker 1: pricing inbound markets and other markets translates into different strategies 59 00:03:07,919 --> 00:03:10,800 Speaker 1: moving forward. I do think the stasis that we have 60 00:03:10,960 --> 00:03:14,960 Speaker 1: right now is one reason why I think it's appropriate 61 00:03:14,960 --> 00:03:17,160 Speaker 1: for us to be waiting on our policy as well. 62 00:03:17,800 --> 00:03:20,200 Speaker 1: And we'll just have to see how this all plays out. 63 00:03:20,240 --> 00:03:22,960 Speaker 1: I'm hopeful that as we get through the summer, we 64 00:03:23,040 --> 00:03:26,200 Speaker 1: start to get more clarity on exactly where things are 65 00:03:26,400 --> 00:03:28,639 Speaker 1: going to set out in trade policy and other factors. 66 00:03:28,960 --> 00:03:30,920 Speaker 2: Well, I know you've got your people working on this, 67 00:03:31,080 --> 00:03:32,959 Speaker 2: But is it going to be hard? Do you think 68 00:03:33,000 --> 00:03:36,680 Speaker 2: Do they tell you to separate out tariff effects from 69 00:03:36,880 --> 00:03:40,240 Speaker 2: just secular movements in both sides of your mandate. 70 00:03:40,600 --> 00:03:44,040 Speaker 1: Well, I'm not sure you can really do it so cleanly. 71 00:03:44,120 --> 00:03:46,640 Speaker 1: What I would say is when we talk to businesses, 72 00:03:47,240 --> 00:03:51,200 Speaker 1: what they tell us is they've got a plan based 73 00:03:51,240 --> 00:03:54,120 Speaker 1: on a projection of where things would be. Tariffs have 74 00:03:54,200 --> 00:03:57,120 Speaker 1: evolved over time, and it looks like some of those 75 00:03:57,160 --> 00:03:58,680 Speaker 1: levels are going to be higher, and we have to 76 00:03:58,800 --> 00:04:03,080 Speaker 1: just see what they decide chan needs to change in 77 00:04:03,080 --> 00:04:06,880 Speaker 1: those plans. Today, they're telling us that if tariffs don't 78 00:04:06,920 --> 00:04:10,240 Speaker 1: get too high that they can sustain with the level 79 00:04:10,320 --> 00:04:14,360 Speaker 1: of UH employment that they have, then they don't necessarily 80 00:04:14,840 --> 00:04:19,800 Speaker 1: we'll have to turn to laying people off. But they say, 81 00:04:19,880 --> 00:04:22,200 Speaker 1: you know, we don't know, and so we're gonna wait 82 00:04:22,240 --> 00:04:24,599 Speaker 1: and we're just gonna watch. And on the inflationary side 83 00:04:24,600 --> 00:04:27,760 Speaker 1: as well, all the models say that the level of 84 00:04:27,800 --> 00:04:31,960 Speaker 1: inflation that we have is gonna be upward put upward 85 00:04:31,960 --> 00:04:34,679 Speaker 1: pressure on prices. So we're just gonna have to see 86 00:04:35,240 --> 00:04:37,480 Speaker 1: what the negotiations turn out to be, and then at 87 00:04:37,480 --> 00:04:39,920 Speaker 1: that point we'll have a better sense of how much 88 00:04:39,920 --> 00:04:42,120 Speaker 1: we're gonna have to do on our side to keep 89 00:04:42,240 --> 00:04:45,720 Speaker 1: both the employment mandate and the stable prices mandate close 90 00:04:45,760 --> 00:04:46,440 Speaker 1: to our targets. 91 00:04:46,600 --> 00:04:48,360 Speaker 2: Well, you said this morning you thought it would be 92 00:04:48,600 --> 00:04:52,800 Speaker 2: three six months before you get clarity. Does that mean 93 00:04:52,839 --> 00:04:55,480 Speaker 2: that any kind of FED action is gonna be off 94 00:04:55,520 --> 00:04:57,760 Speaker 2: the table until at least September? 95 00:04:58,680 --> 00:05:01,320 Speaker 1: Well, okay, the as if and then A then I 96 00:05:01,320 --> 00:05:05,960 Speaker 1: would say, Look, if it takes negotiations a longer time 97 00:05:06,320 --> 00:05:09,000 Speaker 1: to settle things out, we have another ninety days on China, 98 00:05:09,080 --> 00:05:12,440 Speaker 1: for example, that starts to push much further into the summer, 99 00:05:12,800 --> 00:05:15,880 Speaker 1: in which case we won't actually know what the true 100 00:05:15,920 --> 00:05:18,480 Speaker 1: effects are going to be for several months after that. 101 00:05:19,320 --> 00:05:21,680 Speaker 1: If that's how it plays out, then that's then sure, 102 00:05:21,720 --> 00:05:23,920 Speaker 1: I think. And right now I would say in my SCP, 103 00:05:24,080 --> 00:05:27,240 Speaker 1: I have one cut only for this year, because I 104 00:05:27,279 --> 00:05:29,120 Speaker 1: think this is going to take longer to resolve than 105 00:05:29,279 --> 00:05:31,960 Speaker 1: it might have otherwise. But things could go faster. It 106 00:05:32,000 --> 00:05:34,840 Speaker 1: could be the case that these negotiations bear a lot 107 00:05:34,880 --> 00:05:37,440 Speaker 1: of fruit. We know what the numbers are and they 108 00:05:37,720 --> 00:05:41,040 Speaker 1: perhaps come in lower than people are expecting. In that case, 109 00:05:41,040 --> 00:05:42,880 Speaker 1: we may be able to pull forward some of our 110 00:05:42,920 --> 00:05:45,640 Speaker 1: actions because there may not be as much that we 111 00:05:45,680 --> 00:05:48,279 Speaker 1: need to do in terms of managing the price level. 112 00:05:48,480 --> 00:05:51,440 Speaker 2: Well, I know it's a surprise that the President keeps 113 00:05:51,480 --> 00:05:54,360 Speaker 2: changing his mind to hunt teriffs. So what does clarity 114 00:05:54,400 --> 00:05:55,200 Speaker 2: look like to you? 115 00:05:56,080 --> 00:06:00,240 Speaker 1: So for me, I would say where clarity is where 116 00:06:00,240 --> 00:06:03,039 Speaker 1: businesses feel like they know what the lay of the 117 00:06:03,080 --> 00:06:04,960 Speaker 1: land is, what the rules of the road are likely 118 00:06:05,040 --> 00:06:08,520 Speaker 1: to be, and are making plans and moving forward based 119 00:06:08,520 --> 00:06:10,320 Speaker 1: on that. You know, when I talk to a lot 120 00:06:10,360 --> 00:06:12,719 Speaker 1: of folks, when I go talk to chambers of commerce, 121 00:06:12,720 --> 00:06:14,719 Speaker 1: and like, I always ask the question, how many people 122 00:06:14,720 --> 00:06:17,600 Speaker 1: here think that the rules we have today are the 123 00:06:17,640 --> 00:06:20,120 Speaker 1: rules we're gonna have a month from now, And no 124 00:06:20,279 --> 00:06:23,240 Speaker 1: hands go up. That to me says we don't have clarity. 125 00:06:23,920 --> 00:06:26,680 Speaker 1: What I would look for is at some point all 126 00:06:26,720 --> 00:06:28,599 Speaker 1: the hands to go up, and then I know, and 127 00:06:28,640 --> 00:06:31,000 Speaker 1: I'll have some confidence that when they tell me what 128 00:06:31,040 --> 00:06:32,840 Speaker 1: they're gonna do with their workforce, when they tell me 129 00:06:32,880 --> 00:06:35,600 Speaker 1: what they're gonna do with their pricing, that's actually what 130 00:06:35,640 --> 00:06:38,440 Speaker 1: will turn out. And at that point then I'll have 131 00:06:38,480 --> 00:06:40,760 Speaker 1: a much better sense. I can come back with my team, 132 00:06:40,800 --> 00:06:43,720 Speaker 1: we can figure out exactly what we think an appropriate 133 00:06:43,839 --> 00:06:46,360 Speaker 1: path the policy would be, and then we'll we'll move 134 00:06:46,360 --> 00:06:46,919 Speaker 1: forward with that. 135 00:06:47,240 --> 00:06:49,680 Speaker 2: Well, given that no hands are going up at this point, 136 00:06:50,440 --> 00:06:53,400 Speaker 2: when we get an SEP from the FED, or a 137 00:06:53,480 --> 00:06:56,719 Speaker 2: dot plot or your argument for one cut this year, 138 00:06:57,240 --> 00:06:58,839 Speaker 2: should we take any of that seriously? 139 00:06:59,600 --> 00:07:03,440 Speaker 1: Well, you take it as seriously as you want. I say, 140 00:07:03,720 --> 00:07:06,760 Speaker 1: like for most times, actually whenever I do the SEP, 141 00:07:07,040 --> 00:07:09,880 Speaker 1: it's a point in time. It has a narrative about 142 00:07:10,520 --> 00:07:12,640 Speaker 1: where I think the economy is going to go. If 143 00:07:12,680 --> 00:07:14,600 Speaker 1: the economy goes that way, and that's exactly what we'll do. 144 00:07:14,640 --> 00:07:17,880 Speaker 1: If it doesn't, then I'll pivot to something else. I 145 00:07:17,920 --> 00:07:21,080 Speaker 1: think that's really the way to look at it. But 146 00:07:21,360 --> 00:07:24,760 Speaker 1: also recognize that in the SEP submissions there's a whole 147 00:07:24,800 --> 00:07:27,120 Speaker 1: narrative in the BacT that most people don't pay attention to. 148 00:07:27,360 --> 00:07:29,880 Speaker 1: It ties to describe some of the things that are 149 00:07:29,920 --> 00:07:33,160 Speaker 1: embedded in the narrative, and I think those narratives will 150 00:07:33,200 --> 00:07:36,680 Speaker 1: be particularly important moving forward to determine how much to 151 00:07:36,760 --> 00:07:39,480 Speaker 1: take on board as to an expectation about where our 152 00:07:39,480 --> 00:07:40,160 Speaker 1: policy will go. 153 00:07:40,560 --> 00:07:43,880 Speaker 2: Speaking of unemployment, the Chairman put out of MEMMO on 154 00:07:44,000 --> 00:07:46,560 Speaker 2: Friday saying that the system was going to cut ten 155 00:07:46,600 --> 00:07:49,360 Speaker 2: percent of its workforce. How is that going to affect 156 00:07:49,400 --> 00:07:53,800 Speaker 2: the Atlanta FED and what kind of divisions are affected. 157 00:07:54,280 --> 00:07:56,760 Speaker 1: Well, I would say we are always looking for ways 158 00:07:56,800 --> 00:08:00,560 Speaker 1: to find efficiency, and when I took this job, was 159 00:08:00,600 --> 00:08:02,760 Speaker 1: committed to making sure that we use our resource in 160 00:08:02,800 --> 00:08:05,920 Speaker 1: the most efficient way possible. We don't have a formal 161 00:08:05,960 --> 00:08:08,200 Speaker 1: plan right now. The Chairs just announced this on Friday. 162 00:08:08,440 --> 00:08:12,360 Speaker 1: I'm talking with my colleagues across the system. We've always 163 00:08:12,360 --> 00:08:15,200 Speaker 1: been thinking about ways to do efficiencies, and we'll come 164 00:08:15,240 --> 00:08:17,680 Speaker 1: up with a plan moving forward. But this is something 165 00:08:17,720 --> 00:08:21,000 Speaker 1: that look, business has come on Bloomberg all the time 166 00:08:21,040 --> 00:08:23,400 Speaker 1: and tell us and tell you that where they're going 167 00:08:23,440 --> 00:08:26,400 Speaker 1: to restructure. I would look at this not as anything 168 00:08:26,440 --> 00:08:27,120 Speaker 1: different than that. 169 00:08:27,640 --> 00:08:30,160 Speaker 2: Is this in any way a response to the those 170 00:08:30,840 --> 00:08:32,520 Speaker 2: cuts that are going through Washington. 171 00:08:32,640 --> 00:08:35,040 Speaker 1: Well, this is the president, this is the chairs directive. 172 00:08:35,080 --> 00:08:37,559 Speaker 1: You'll have to talk to him about that. I would say, 173 00:08:37,640 --> 00:08:40,960 Speaker 1: I've been having discussions about efficiencies in our bank and 174 00:08:41,000 --> 00:08:44,240 Speaker 1: in the system for pretty much the whole time I've 175 00:08:44,280 --> 00:08:47,240 Speaker 1: been here, and you know, we'll just I'm looking forward 176 00:08:47,280 --> 00:08:49,880 Speaker 1: to the discussions to figure out how we're going to 177 00:08:49,960 --> 00:08:52,920 Speaker 1: do this. I would also say the ten percent number 178 00:08:53,880 --> 00:08:56,280 Speaker 1: is going to be moved on in a number of 179 00:08:56,320 --> 00:08:59,440 Speaker 1: different ways. So our annual attrition rate is about eight percent, 180 00:09:00,160 --> 00:09:01,880 Speaker 1: so we're going to take our time. We want to 181 00:09:01,880 --> 00:09:04,520 Speaker 1: do this in a strategic and intentional way so that 182 00:09:04,559 --> 00:09:08,440 Speaker 1: we don't degrade our capabilities as we adjust our workforce level. 183 00:09:09,320 --> 00:09:13,600 Speaker 2: Another subject uh the framework review. The chair said last 184 00:09:13,600 --> 00:09:18,800 Speaker 2: week at the conference in Washington that the shortfall idea 185 00:09:19,240 --> 00:09:22,280 Speaker 2: maybe didn't work as well as you thought. Is are 186 00:09:22,280 --> 00:09:24,560 Speaker 2: you assuming that that's going to go away in the 187 00:09:24,600 --> 00:09:25,479 Speaker 2: new framework? 188 00:09:25,720 --> 00:09:27,640 Speaker 1: So I don't know about that. I think for me, 189 00:09:28,520 --> 00:09:30,760 Speaker 1: one thing that I think would be quite positive, and 190 00:09:30,800 --> 00:09:33,319 Speaker 1: the chair said this as well, is that our framework 191 00:09:33,360 --> 00:09:38,480 Speaker 1: statement has to apply in a broad set of economic contexts. 192 00:09:39,160 --> 00:09:42,319 Speaker 1: When we did the last one, there was a a belief, 193 00:09:42,360 --> 00:09:46,560 Speaker 1: I think that was widely held that inflation was going 194 00:09:46,600 --> 00:09:49,520 Speaker 1: to be lower as a baseline and that we would 195 00:09:49,520 --> 00:09:55,000 Speaker 1: be close to the zero effective zero bound for as 196 00:09:55,040 --> 00:09:57,520 Speaker 1: our steady state, and it turned out that wasn't the case. 197 00:09:58,080 --> 00:10:00,200 Speaker 1: So I would look for adjustments that allow us to 198 00:10:00,640 --> 00:10:04,959 Speaker 1: allow actually everybody in the public to see the framework 199 00:10:05,280 --> 00:10:07,520 Speaker 1: and be able to apply it in a way that 200 00:10:08,840 --> 00:10:10,960 Speaker 1: works for whatever circumstance arises. 201 00:10:11,280 --> 00:10:14,319 Speaker 2: One last question, to steal a bit from a panel 202 00:10:14,360 --> 00:10:16,880 Speaker 2: that's going to be here tomorrow. As you look at 203 00:10:16,880 --> 00:10:21,560 Speaker 2: the framework, you're talking about the policy the way you 204 00:10:21,559 --> 00:10:25,480 Speaker 2: look at policy, But what about an operational change like 205 00:10:25,600 --> 00:10:30,080 Speaker 2: to demand driven reserve levels as opposed to ample reserve 206 00:10:30,160 --> 00:10:33,520 Speaker 2: something broader for the FED, Well. 207 00:10:33,400 --> 00:10:35,720 Speaker 1: That's going to be a much larger discussion, and I 208 00:10:35,720 --> 00:10:38,679 Speaker 1: think the Chair has said pretty clearly he wanted to 209 00:10:38,960 --> 00:10:42,520 Speaker 1: really focus on the things we're focusing on. How are 210 00:10:42,520 --> 00:10:49,760 Speaker 1: we talking about are addressing both the inflation approach and 211 00:10:49,800 --> 00:10:51,920 Speaker 1: the employment approach to make sure that there was clarity 212 00:10:51,960 --> 00:10:55,240 Speaker 1: on that. I expect in the years to come, we'll 213 00:10:55,280 --> 00:10:59,400 Speaker 1: have a lot more conversation about ample versus other types 214 00:10:59,400 --> 00:11:02,240 Speaker 1: of reserve regimes to implement our policy. 215 00:11:02,760 --> 00:11:05,520 Speaker 2: Thank you very much, Raphael Bastik from the Atlanta FED, 216 00:11:05,559 --> 00:11:06,760 Speaker 2: thanks for joining us today.