Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Thank you to Raphael Bostik for joining us. You've been
Speaker 2: on Bloomberg's Odd Lots and you run another Networks morning.
Speaker 2: So we're going to stipulate that things are uncertain in
Speaker 2: the economy and you don't exactly know where policy is
Speaker 2: going to be. And let me ask you a couple
Speaker 2: things in a different areas. Monetary policy works through the markets,
Speaker 2: and I'm not talking about the judgment of market people,
Speaker 2: but do you think that market rates are essentially where
Speaker 2: they should be given where your rates are at this point?
Speaker 1: Well, that's all. That's an first of all, good to
Speaker 1: have you here. I'm really always happy to speak on Bloomberg.
Speaker 1: What I would say is this the market is trying
Speaker 1: to process a lot at this point, and where our
Speaker 1: rates are, I think are mildly restrictive in the marketplace,
Speaker 1: trying to get inflation back to our two percent target
Speaker 1: because it's been too high for two long. I think
Speaker 1: the rest of it is really about perceptions of risk
Speaker 1: in the marketplace, and you know, uncertainty and the volatility
Speaker 1: that might be present in the market I think leads
Speaker 1: to there being an extra premium on it. And so
Speaker 1: you know, the market will decide what his price needs
Speaker 1: to be. But it doesn't surprise me very much that
Speaker 1: we see it at a higher level relative to the
Speaker 1: things that we've done with our rate in the last year.
Speaker 2: Well, we've got the downgrade now that pushed rates up
Speaker 2: early this morning and overnight, and then it started to
Speaker 2: fade back a bit, the same thing that sort of
Speaker 2: happened after Fitch and s ANDP did their downgrades. Does
Speaker 2: it were you that they are not pricing in more
Speaker 2: of credit risk to the United States, given that we're
Speaker 2: no longer triple A.
Speaker 1: Well, you'll have to talk to the raider. It's about
Speaker 1: sort of how they interpret these things. What I would
Speaker 1: say is this, so much of our economy is based
Speaker 1: on faith that we will deliver on the things that
Speaker 1: we say that we promised for the future. When you
Speaker 1: start to see the Marcus waiver a little bit, people,
Speaker 1: I think people are asking the question, do we still
Speaker 1: have that same level of faith. I think the sign
Speaker 1: that our rates have started to come back down and
Speaker 1: the markets are sort of returning back to a normal
Speaker 1: stasis to guess that they think there is that likelihood
Speaker 1: moving forward and we'll just have to see where it goes.
Speaker 1: I mean, I always want to make sure I understand
Speaker 1: what the price of credit and debt is. But you know,
Speaker 1: the markets all will make a determination that on their own.
Speaker 2: Well, if they are higher and stay higher as they
Speaker 2: are right now, does that affect your calculation of what
Speaker 2: you have to.
Speaker 1: Do, well, it depends, you know. One of the things
Speaker 1: that we'll be interesting to see is how businesses and
Speaker 1: consumers respond to the environment. What I'll say is, because
Speaker 1: of the word that you said at the very beginning, uncertainty,
Speaker 1: we know that many businesses and many families are really
Speaker 1: holding tight to see sort of how this all sorts out.
Speaker 1: And we'll just have to see how the changes in
Speaker 1: pricing inbound markets and other markets translates into different strategies
Speaker 1: moving forward. I do think the stasis that we have
Speaker 1: right now is one reason why I think it's appropriate
Speaker 1: for us to be waiting on our policy as well.
Speaker 1: And we'll just have to see how this all plays out.
Speaker 1: I'm hopeful that as we get through the summer, we
Speaker 1: start to get more clarity on exactly where things are
Speaker 1: going to set out in trade policy and other factors.
Speaker 2: Well, I know you've got your people working on this,
Speaker 2: But is it going to be hard? Do you think
Speaker 2: Do they tell you to separate out tariff effects from
Speaker 2: just secular movements in both sides of your mandate.
Speaker 1: Well, I'm not sure you can really do it so cleanly.
Speaker 1: What I would say is when we talk to businesses,
Speaker 1: what they tell us is they've got a plan based
Speaker 1: on a projection of where things would be. Tariffs have
Speaker 1: evolved over time, and it looks like some of those
Speaker 1: levels are going to be higher, and we have to
Speaker 1: just see what they decide chan needs to change in
Speaker 1: those plans. Today, they're telling us that if tariffs don't
Speaker 1: get too high that they can sustain with the level
Speaker 1: of UH employment that they have, then they don't necessarily
Speaker 1: we'll have to turn to laying people off. But they say,
Speaker 1: you know, we don't know, and so we're gonna wait
Speaker 1: and we're just gonna watch. And on the inflationary side
Speaker 1: as well, all the models say that the level of
Speaker 1: inflation that we have is gonna be upward put upward
Speaker 1: pressure on prices. So we're just gonna have to see
Speaker 1: what the negotiations turn out to be, and then at
Speaker 1: that point we'll have a better sense of how much
Speaker 1: we're gonna have to do on our side to keep
Speaker 1: both the employment mandate and the stable prices mandate close
Speaker 1: to our targets.
Speaker 2: Well, you said this morning you thought it would be
Speaker 2: three six months before you get clarity. Does that mean
Speaker 2: that any kind of FED action is gonna be off
Speaker 2: the table until at least September?
Speaker 1: Well, okay, the as if and then A then I
Speaker 1: would say, Look, if it takes negotiations a longer time
Speaker 1: to settle things out, we have another ninety days on China,
Speaker 1: for example, that starts to push much further into the summer,
Speaker 1: in which case we won't actually know what the true
Speaker 1: effects are going to be for several months after that.
Speaker 1: If that's how it plays out, then that's then sure,
Speaker 1: I think. And right now I would say in my SCP,
Speaker 1: I have one cut only for this year, because I
Speaker 1: think this is going to take longer to resolve than
Speaker 1: it might have otherwise. But things could go faster. It
Speaker 1: could be the case that these negotiations bear a lot
Speaker 1: of fruit. We know what the numbers are and they
Speaker 1: perhaps come in lower than people are expecting. In that case,
Speaker 1: we may be able to pull forward some of our
Speaker 1: actions because there may not be as much that we
Speaker 1: need to do in terms of managing the price level.
Speaker 2: Well, I know it's a surprise that the President keeps
Speaker 2: changing his mind to hunt teriffs. So what does clarity
Speaker 2: look like to you?
Speaker 1: So for me, I would say where clarity is where
Speaker 1: businesses feel like they know what the lay of the
Speaker 1: land is, what the rules of the road are likely
Speaker 1: to be, and are making plans and moving forward based
Speaker 1: on that. You know, when I talk to a lot
Speaker 1: of folks, when I go talk to chambers of commerce,
Speaker 1: and like, I always ask the question, how many people
Speaker 1: here think that the rules we have today are the
Speaker 1: rules we're gonna have a month from now, And no
Speaker 1: hands go up. That to me says we don't have clarity.
Speaker 1: What I would look for is at some point all
Speaker 1: the hands to go up, and then I know, and
Speaker 1: I'll have some confidence that when they tell me what
Speaker 1: they're gonna do with their workforce, when they tell me
Speaker 1: what they're gonna do with their pricing, that's actually what
Speaker 1: will turn out. And at that point then I'll have
Speaker 1: a much better sense. I can come back with my team,
Speaker 1: we can figure out exactly what we think an appropriate
Speaker 1: path the policy would be, and then we'll we'll move
Speaker 1: forward with that.
Speaker 2: Well, given that no hands are going up at this point,
Speaker 2: when we get an SEP from the FED, or a
Speaker 2: dot plot or your argument for one cut this year,
Speaker 2: should we take any of that seriously?
Speaker 1: Well, you take it as seriously as you want. I say,
Speaker 1: like for most times, actually whenever I do the SEP,
Speaker 1: it's a point in time. It has a narrative about
Speaker 1: where I think the economy is going to go. If
Speaker 1: the economy goes that way, and that's exactly what we'll do.
Speaker 1: If it doesn't, then I'll pivot to something else. I
Speaker 1: think that's really the way to look at it. But
Speaker 1: also recognize that in the SEP submissions there's a whole
Speaker 1: narrative in the BacT that most people don't pay attention to.
Speaker 1: It ties to describe some of the things that are
Speaker 1: embedded in the narrative, and I think those narratives will
Speaker 1: be particularly important moving forward to determine how much to
Speaker 1: take on board as to an expectation about where our
Speaker 1: policy will go.
Speaker 2: Speaking of unemployment, the Chairman put out of MEMMO on
Speaker 2: Friday saying that the system was going to cut ten
Speaker 2: percent of its workforce. How is that going to affect
Speaker 2: the Atlanta FED and what kind of divisions are affected.
Speaker 1: Well, I would say we are always looking for ways
Speaker 1: to find efficiency, and when I took this job, was
Speaker 1: committed to making sure that we use our resource in
Speaker 1: the most efficient way possible. We don't have a formal
Speaker 1: plan right now. The Chairs just announced this on Friday.
Speaker 1: I'm talking with my colleagues across the system. We've always
Speaker 1: been thinking about ways to do efficiencies, and we'll come
Speaker 1: up with a plan moving forward. But this is something
Speaker 1: that look, business has come on Bloomberg all the time
Speaker 1: and tell us and tell you that where they're going
Speaker 1: to restructure. I would look at this not as anything
Speaker 1: different than that.
Speaker 2: Is this in any way a response to the those
Speaker 2: cuts that are going through Washington.
Speaker 1: Well, this is the president, this is the chairs directive.
Speaker 1: You'll have to talk to him about that. I would say,
Speaker 1: I've been having discussions about efficiencies in our bank and
Speaker 1: in the system for pretty much the whole time I've
Speaker 1: been here, and you know, we'll just I'm looking forward
Speaker 1: to the discussions to figure out how we're going to
Speaker 1: do this. I would also say the ten percent number
Speaker 1: is going to be moved on in a number of
Speaker 1: different ways. So our annual attrition rate is about eight percent,
Speaker 1: so we're going to take our time. We want to
Speaker 1: do this in a strategic and intentional way so that
Speaker 1: we don't degrade our capabilities as we adjust our workforce level.
Speaker 2: Another subject uh the framework review. The chair said last
Speaker 2: week at the conference in Washington that the shortfall idea
Speaker 2: maybe didn't work as well as you thought. Is are
Speaker 2: you assuming that that's going to go away in the
Speaker 2: new framework?
Speaker 1: So I don't know about that. I think for me,
Speaker 1: one thing that I think would be quite positive, and
Speaker 1: the chair said this as well, is that our framework
Speaker 1: statement has to apply in a broad set of economic contexts.
Speaker 1: When we did the last one, there was a a belief,
Speaker 1: I think that was widely held that inflation was going
Speaker 1: to be lower as a baseline and that we would
Speaker 1: be close to the zero effective zero bound for as
Speaker 1: our steady state, and it turned out that wasn't the case.
Speaker 1: So I would look for adjustments that allow us to
Speaker 1: allow actually everybody in the public to see the framework
Speaker 1: and be able to apply it in a way that
Speaker 1: works for whatever circumstance arises.
Speaker 2: One last question, to steal a bit from a panel
Speaker 2: that's going to be here tomorrow. As you look at
Speaker 2: the framework, you're talking about the policy the way you
Speaker 2: look at policy, But what about an operational change like
Speaker 2: to demand driven reserve levels as opposed to ample reserve
Speaker 2: something broader for the FED, Well.
Speaker 1: That's going to be a much larger discussion, and I
Speaker 1: think the Chair has said pretty clearly he wanted to
Speaker 1: really focus on the things we're focusing on. How are
Speaker 1: we talking about are addressing both the inflation approach and
Speaker 1: the employment approach to make sure that there was clarity
Speaker 1: on that. I expect in the years to come, we'll
Speaker 1: have a lot more conversation about ample versus other types
Speaker 1: of reserve regimes to implement our policy.
Speaker 2: Thank you very much, Raphael Bastik from the Atlanta FED,
Speaker 2: thanks for joining us today.