WEBVTT - Atlanta Fed President Raphael Bostic Talks Tarrifs 0:00:02.360 --> 0:00:06.680 Bloomberg Audio Studios, podcasts, radio News. 0:00:06.840 --> 0:00:09.920 Thank you to Raphael Bostik for joining us. You've been 0:00:10.000 --> 0:00:14.440 on Bloomberg's Odd Lots and you run another Networks morning. 0:00:14.560 --> 0:00:17.239 So we're going to stipulate that things are uncertain in 0:00:17.280 --> 0:00:20.759 the economy and you don't exactly know where policy is 0:00:20.800 --> 0:00:23.520 going to be. And let me ask you a couple 0:00:23.600 --> 0:00:28.680 things in a different areas. Monetary policy works through the markets, 0:00:28.800 --> 0:00:31.560 and I'm not talking about the judgment of market people, 0:00:32.080 --> 0:00:35.440 but do you think that market rates are essentially where 0:00:35.479 --> 0:00:39.720 they should be given where your rates are at this point? 0:00:40.600 --> 0:00:42.720 Well, that's all. That's an first of all, good to 0:00:42.760 --> 0:00:46.080 have you here. I'm really always happy to speak on Bloomberg. 0:00:46.440 --> 0:00:49.120 What I would say is this the market is trying 0:00:49.120 --> 0:00:52.280 to process a lot at this point, and where our 0:00:52.360 --> 0:00:55.880 rates are, I think are mildly restrictive in the marketplace, 0:00:55.920 --> 0:00:58.160 trying to get inflation back to our two percent target 0:00:58.240 --> 0:01:01.160 because it's been too high for two long. I think 0:01:01.200 --> 0:01:03.520 the rest of it is really about perceptions of risk 0:01:03.600 --> 0:01:08.039 in the marketplace, and you know, uncertainty and the volatility 0:01:08.440 --> 0:01:11.520 that might be present in the market I think leads 0:01:11.520 --> 0:01:13.480 to there being an extra premium on it. And so 0:01:14.080 --> 0:01:16.480 you know, the market will decide what his price needs 0:01:16.520 --> 0:01:18.920 to be. But it doesn't surprise me very much that 0:01:19.000 --> 0:01:22.080 we see it at a higher level relative to the 0:01:22.080 --> 0:01:24.160 things that we've done with our rate in the last year. 0:01:24.800 --> 0:01:27.800 Well, we've got the downgrade now that pushed rates up 0:01:27.840 --> 0:01:31.080 early this morning and overnight, and then it started to 0:01:31.200 --> 0:01:34.000 fade back a bit, the same thing that sort of 0:01:34.000 --> 0:01:37.319 happened after Fitch and s ANDP did their downgrades. Does 0:01:37.360 --> 0:01:42.479 it were you that they are not pricing in more 0:01:42.760 --> 0:01:46.479 of credit risk to the United States, given that we're 0:01:46.520 --> 0:01:47.440 no longer triple A. 0:01:48.040 --> 0:01:50.720 Well, you'll have to talk to the raider. It's about 0:01:50.840 --> 0:01:53.400 sort of how they interpret these things. What I would 0:01:53.400 --> 0:01:56.800 say is this, so much of our economy is based 0:01:56.880 --> 0:01:59.760 on faith that we will deliver on the things that 0:01:59.800 --> 0:02:03.440 we say that we promised for the future. When you 0:02:03.480 --> 0:02:06.600 start to see the Marcus waiver a little bit, people, 0:02:06.600 --> 0:02:09.280 I think people are asking the question, do we still 0:02:09.320 --> 0:02:11.919 have that same level of faith. I think the sign 0:02:12.000 --> 0:02:15.320 that our rates have started to come back down and 0:02:15.360 --> 0:02:18.120 the markets are sort of returning back to a normal 0:02:18.160 --> 0:02:20.560 stasis to guess that they think there is that likelihood 0:02:20.600 --> 0:02:23.239 moving forward and we'll just have to see where it goes. 0:02:23.240 --> 0:02:25.359 I mean, I always want to make sure I understand 0:02:25.680 --> 0:02:30.000 what the price of credit and debt is. But you know, 0:02:30.080 --> 0:02:32.239 the markets all will make a determination that on their own. 0:02:32.520 --> 0:02:35.600 Well, if they are higher and stay higher as they 0:02:35.720 --> 0:02:38.520 are right now, does that affect your calculation of what 0:02:38.560 --> 0:02:39.120 you have to. 0:02:39.080 --> 0:02:42.400 Do, well, it depends, you know. One of the things 0:02:42.440 --> 0:02:45.880 that we'll be interesting to see is how businesses and 0:02:45.919 --> 0:02:50.080 consumers respond to the environment. What I'll say is, because 0:02:50.080 --> 0:02:52.320 of the word that you said at the very beginning, uncertainty, 0:02:52.639 --> 0:02:55.640 we know that many businesses and many families are really 0:02:55.639 --> 0:02:59.160 holding tight to see sort of how this all sorts out. 0:02:59.520 --> 0:03:01.880 And we'll just have to see how the changes in 0:03:01.960 --> 0:03:07.880 pricing inbound markets and other markets translates into different strategies 0:03:07.919 --> 0:03:10.800 moving forward. I do think the stasis that we have 0:03:10.960 --> 0:03:14.960 right now is one reason why I think it's appropriate 0:03:14.960 --> 0:03:17.160 for us to be waiting on our policy as well. 0:03:17.800 --> 0:03:20.200 And we'll just have to see how this all plays out. 0:03:20.240 --> 0:03:22.960 I'm hopeful that as we get through the summer, we 0:03:23.040 --> 0:03:26.200 start to get more clarity on exactly where things are 0:03:26.400 --> 0:03:28.639 going to set out in trade policy and other factors. 0:03:28.960 --> 0:03:30.920 Well, I know you've got your people working on this, 0:03:31.080 --> 0:03:32.959 But is it going to be hard? Do you think 0:03:33.000 --> 0:03:36.680 Do they tell you to separate out tariff effects from 0:03:36.880 --> 0:03:40.240 just secular movements in both sides of your mandate. 0:03:40.600 --> 0:03:44.040 Well, I'm not sure you can really do it so cleanly. 0:03:44.120 --> 0:03:46.640 What I would say is when we talk to businesses, 0:03:47.240 --> 0:03:51.200 what they tell us is they've got a plan based 0:03:51.240 --> 0:03:54.120 on a projection of where things would be. Tariffs have 0:03:54.200 --> 0:03:57.120 evolved over time, and it looks like some of those 0:03:57.160 --> 0:03:58.680 levels are going to be higher, and we have to 0:03:58.800 --> 0:04:03.080 just see what they decide chan needs to change in 0:04:03.080 --> 0:04:06.880 those plans. Today, they're telling us that if tariffs don't 0:04:06.920 --> 0:04:10.240 get too high that they can sustain with the level 0:04:10.320 --> 0:04:14.360 of UH employment that they have, then they don't necessarily 0:04:14.840 --> 0:04:19.800 we'll have to turn to laying people off. But they say, 0:04:19.880 --> 0:04:22.200 you know, we don't know, and so we're gonna wait 0:04:22.240 --> 0:04:24.599 and we're just gonna watch. And on the inflationary side 0:04:24.600 --> 0:04:27.760 as well, all the models say that the level of 0:04:27.800 --> 0:04:31.960 inflation that we have is gonna be upward put upward 0:04:31.960 --> 0:04:34.679 pressure on prices. So we're just gonna have to see 0:04:35.240 --> 0:04:37.480 what the negotiations turn out to be, and then at 0:04:37.480 --> 0:04:39.920 that point we'll have a better sense of how much 0:04:39.920 --> 0:04:42.120 we're gonna have to do on our side to keep 0:04:42.240 --> 0:04:45.720 both the employment mandate and the stable prices mandate close 0:04:45.760 --> 0:04:46.440 to our targets. 0:04:46.600 --> 0:04:48.360 Well, you said this morning you thought it would be 0:04:48.600 --> 0:04:52.800 three six months before you get clarity. Does that mean 0:04:52.839 --> 0:04:55.480 that any kind of FED action is gonna be off 0:04:55.520 --> 0:04:57.760 the table until at least September? 0:04:58.680 --> 0:05:01.320 Well, okay, the as if and then A then I 0:05:01.320 --> 0:05:05.960 would say, Look, if it takes negotiations a longer time 0:05:06.320 --> 0:05:09.000 to settle things out, we have another ninety days on China, 0:05:09.080 --> 0:05:12.440 for example, that starts to push much further into the summer, 0:05:12.800 --> 0:05:15.880 in which case we won't actually know what the true 0:05:15.920 --> 0:05:18.480 effects are going to be for several months after that. 0:05:19.320 --> 0:05:21.680 If that's how it plays out, then that's then sure, 0:05:21.720 --> 0:05:23.920 I think. And right now I would say in my SCP, 0:05:24.080 --> 0:05:27.240 I have one cut only for this year, because I 0:05:27.279 --> 0:05:29.120 think this is going to take longer to resolve than 0:05:29.279 --> 0:05:31.960 it might have otherwise. But things could go faster. It 0:05:32.000 --> 0:05:34.840 could be the case that these negotiations bear a lot 0:05:34.880 --> 0:05:37.440 of fruit. We know what the numbers are and they 0:05:37.720 --> 0:05:41.040 perhaps come in lower than people are expecting. In that case, 0:05:41.040 --> 0:05:42.880 we may be able to pull forward some of our 0:05:42.920 --> 0:05:45.640 actions because there may not be as much that we 0:05:45.680 --> 0:05:48.279 need to do in terms of managing the price level. 0:05:48.480 --> 0:05:51.440 Well, I know it's a surprise that the President keeps 0:05:51.480 --> 0:05:54.360 changing his mind to hunt teriffs. So what does clarity 0:05:54.400 --> 0:05:55.200 look like to you? 0:05:56.080 --> 0:06:00.240 So for me, I would say where clarity is where 0:06:00.240 --> 0:06:03.039 businesses feel like they know what the lay of the 0:06:03.080 --> 0:06:04.960 land is, what the rules of the road are likely 0:06:05.040 --> 0:06:08.520 to be, and are making plans and moving forward based 0:06:08.520 --> 0:06:10.320 on that. You know, when I talk to a lot 0:06:10.360 --> 0:06:12.719 of folks, when I go talk to chambers of commerce, 0:06:12.720 --> 0:06:14.719 and like, I always ask the question, how many people 0:06:14.720 --> 0:06:17.600 here think that the rules we have today are the 0:06:17.640 --> 0:06:20.120 rules we're gonna have a month from now, And no 0:06:20.279 --> 0:06:23.240 hands go up. That to me says we don't have clarity. 0:06:23.920 --> 0:06:26.680 What I would look for is at some point all 0:06:26.720 --> 0:06:28.599 the hands to go up, and then I know, and 0:06:28.640 --> 0:06:31.000 I'll have some confidence that when they tell me what 0:06:31.040 --> 0:06:32.840 they're gonna do with their workforce, when they tell me 0:06:32.880 --> 0:06:35.600 what they're gonna do with their pricing, that's actually what 0:06:35.640 --> 0:06:38.440 will turn out. And at that point then I'll have 0:06:38.480 --> 0:06:40.760 a much better sense. I can come back with my team, 0:06:40.800 --> 0:06:43.720 we can figure out exactly what we think an appropriate 0:06:43.839 --> 0:06:46.360 path the policy would be, and then we'll we'll move 0:06:46.360 --> 0:06:46.919 forward with that. 0:06:47.240 --> 0:06:49.680 Well, given that no hands are going up at this point, 0:06:50.440 --> 0:06:53.400 when we get an SEP from the FED, or a 0:06:53.480 --> 0:06:56.719 dot plot or your argument for one cut this year, 0:06:57.240 --> 0:06:58.839 should we take any of that seriously? 0:06:59.600 --> 0:07:03.440 Well, you take it as seriously as you want. I say, 0:07:03.720 --> 0:07:06.760 like for most times, actually whenever I do the SEP, 0:07:07.040 --> 0:07:09.880 it's a point in time. It has a narrative about 0:07:10.520 --> 0:07:12.640 where I think the economy is going to go. If 0:07:12.680 --> 0:07:14.600 the economy goes that way, and that's exactly what we'll do. 0:07:14.640 --> 0:07:17.880 If it doesn't, then I'll pivot to something else. I 0:07:17.920 --> 0:07:21.080 think that's really the way to look at it. But 0:07:21.360 --> 0:07:24.760 also recognize that in the SEP submissions there's a whole 0:07:24.800 --> 0:07:27.120 narrative in the BacT that most people don't pay attention to. 0:07:27.360 --> 0:07:29.880 It ties to describe some of the things that are 0:07:29.920 --> 0:07:33.160 embedded in the narrative, and I think those narratives will 0:07:33.200 --> 0:07:36.680 be particularly important moving forward to determine how much to 0:07:36.760 --> 0:07:39.480 take on board as to an expectation about where our 0:07:39.480 --> 0:07:40.160 policy will go. 0:07:40.560 --> 0:07:43.880 Speaking of unemployment, the Chairman put out of MEMMO on 0:07:44.000 --> 0:07:46.560 Friday saying that the system was going to cut ten 0:07:46.600 --> 0:07:49.360 percent of its workforce. How is that going to affect 0:07:49.400 --> 0:07:53.800 the Atlanta FED and what kind of divisions are affected. 0:07:54.280 --> 0:07:56.760 Well, I would say we are always looking for ways 0:07:56.800 --> 0:08:00.560 to find efficiency, and when I took this job, was 0:08:00.600 --> 0:08:02.760 committed to making sure that we use our resource in 0:08:02.800 --> 0:08:05.920 the most efficient way possible. We don't have a formal 0:08:05.960 --> 0:08:08.200 plan right now. The Chairs just announced this on Friday. 0:08:08.440 --> 0:08:12.360 I'm talking with my colleagues across the system. We've always 0:08:12.360 --> 0:08:15.200 been thinking about ways to do efficiencies, and we'll come 0:08:15.240 --> 0:08:17.680 up with a plan moving forward. But this is something 0:08:17.720 --> 0:08:21.000 that look, business has come on Bloomberg all the time 0:08:21.040 --> 0:08:23.400 and tell us and tell you that where they're going 0:08:23.440 --> 0:08:26.400 to restructure. I would look at this not as anything 0:08:26.440 --> 0:08:27.120 different than that. 0:08:27.640 --> 0:08:30.160 Is this in any way a response to the those 0:08:30.840 --> 0:08:32.520 cuts that are going through Washington. 0:08:32.640 --> 0:08:35.040 Well, this is the president, this is the chairs directive. 0:08:35.080 --> 0:08:37.559 You'll have to talk to him about that. I would say, 0:08:37.640 --> 0:08:40.960 I've been having discussions about efficiencies in our bank and 0:08:41.000 --> 0:08:44.240 in the system for pretty much the whole time I've 0:08:44.280 --> 0:08:47.240 been here, and you know, we'll just I'm looking forward 0:08:47.280 --> 0:08:49.880 to the discussions to figure out how we're going to 0:08:49.960 --> 0:08:52.920 do this. I would also say the ten percent number 0:08:53.880 --> 0:08:56.280 is going to be moved on in a number of 0:08:56.320 --> 0:08:59.440 different ways. So our annual attrition rate is about eight percent, 0:09:00.160 --> 0:09:01.880 so we're going to take our time. We want to 0:09:01.880 --> 0:09:04.520 do this in a strategic and intentional way so that 0:09:04.559 --> 0:09:08.440 we don't degrade our capabilities as we adjust our workforce level. 0:09:09.320 --> 0:09:13.600 Another subject uh the framework review. The chair said last 0:09:13.600 --> 0:09:18.800 week at the conference in Washington that the shortfall idea 0:09:19.240 --> 0:09:22.280 maybe didn't work as well as you thought. Is are 0:09:22.280 --> 0:09:24.560 you assuming that that's going to go away in the 0:09:24.600 --> 0:09:25.479 new framework? 0:09:25.720 --> 0:09:27.640 So I don't know about that. I think for me, 0:09:28.520 --> 0:09:30.760 one thing that I think would be quite positive, and 0:09:30.800 --> 0:09:33.319 the chair said this as well, is that our framework 0:09:33.360 --> 0:09:38.480 statement has to apply in a broad set of economic contexts. 0:09:39.160 --> 0:09:42.319 When we did the last one, there was a a belief, 0:09:42.360 --> 0:09:46.560 I think that was widely held that inflation was going 0:09:46.600 --> 0:09:49.520 to be lower as a baseline and that we would 0:09:49.520 --> 0:09:55.000 be close to the zero effective zero bound for as 0:09:55.040 --> 0:09:57.520 our steady state, and it turned out that wasn't the case. 0:09:58.080 --> 0:10:00.200 So I would look for adjustments that allow us to 0:10:00.640 --> 0:10:04.959 allow actually everybody in the public to see the framework 0:10:05.280 --> 0:10:07.520 and be able to apply it in a way that 0:10:08.840 --> 0:10:10.960 works for whatever circumstance arises. 0:10:11.280 --> 0:10:14.319 One last question, to steal a bit from a panel 0:10:14.360 --> 0:10:16.880 that's going to be here tomorrow. As you look at 0:10:16.880 --> 0:10:21.560 the framework, you're talking about the policy the way you 0:10:21.559 --> 0:10:25.480 look at policy, But what about an operational change like 0:10:25.600 --> 0:10:30.080 to demand driven reserve levels as opposed to ample reserve 0:10:30.160 --> 0:10:33.520 something broader for the FED, Well. 0:10:33.400 --> 0:10:35.720 That's going to be a much larger discussion, and I 0:10:35.720 --> 0:10:38.679 think the Chair has said pretty clearly he wanted to 0:10:38.960 --> 0:10:42.520 really focus on the things we're focusing on. How are 0:10:42.520 --> 0:10:49.760 we talking about are addressing both the inflation approach and 0:10:49.800 --> 0:10:51.920 the employment approach to make sure that there was clarity 0:10:51.960 --> 0:10:55.240 on that. I expect in the years to come, we'll 0:10:55.280 --> 0:10:59.400 have a lot more conversation about ample versus other types 0:10:59.400 --> 0:11:02.240 of reserve regimes to implement our policy. 0:11:02.760 --> 0:11:05.520 Thank you very much, Raphael Bastik from the Atlanta FED, 0:11:05.559 --> 0:11:06.760 thanks for joining us today.