WEBVTT - Fed Gov. Waller Talks Dissent, US Fiscal Policy 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.880 --> 0:00:11.880 There seems to be an excess of communication right now. 0:00:12.039 --> 0:00:16.360 Everyone is talking at the FED, within the administration. How 0:00:16.360 --> 0:00:19.160 do you interpret how everybody has to get out there 0:00:19.320 --> 0:00:21.759 and speak, speak, speak well. 0:00:22.320 --> 0:00:24.720 One of the criticisms that's been leveled at the FED 0:00:24.880 --> 0:00:28.280 for a long time is we engage in groupthink. Every 0:00:28.320 --> 0:00:32.040 policy decision is a twelve nothing vote. There's no dessens, 0:00:32.640 --> 0:00:34.920 and that if you're all going to do exactly the 0:00:34.960 --> 0:00:37.639 same thing and think the same way, we don't need 0:00:37.760 --> 0:00:41.600 nineteen of you. We need one. But what I always 0:00:41.600 --> 0:00:44.240 try to point out is it's through speeches, in public 0:00:44.280 --> 0:00:47.000 speaking that everybody presents their views and you can go 0:00:47.040 --> 0:00:50.479 out listening and they're not the same. So all the 0:00:50.520 --> 0:00:52.879 public speaking, the speeches are the way for us to 0:00:52.960 --> 0:00:55.720 show a diversity of opinions, have thought about the direction 0:00:55.760 --> 0:00:57.920 of policy. This is a good thing. It's not a 0:00:57.920 --> 0:01:01.520 bad thing. Despite people saying it's a cornucopy of noise. 0:01:02.080 --> 0:01:05.319 It's actually signaling where people stand when you come to 0:01:05.360 --> 0:01:07.880 the meeting. And I always try to stress this to people. 0:01:07.920 --> 0:01:10.120 We have to make a decision every six weeks. We 0:01:10.160 --> 0:01:12.280 do not get to kick the can down the road, 0:01:12.520 --> 0:01:16.199 and what that implies is that to get a reasonable 0:01:17.000 --> 0:01:20.480 consistent opinion, we have to kind of compromise. You have 0:01:20.520 --> 0:01:22.600 to come to decision. And that's why our votes are 0:01:22.600 --> 0:01:26.000 often twelve to nothing, eleven to one. It's because we 0:01:26.040 --> 0:01:29.200 all understand we have to compromise someone on our positions 0:01:29.560 --> 0:01:33.200 to have a clear, consistent policy setting for markets and 0:01:33.240 --> 0:01:34.000 American people. 0:01:34.200 --> 0:01:38.640 Larry Meyer, Washington University Saint Louis had a small book 0:01:38.680 --> 0:01:41.240 out of his time with green Span, a term at 0:01:41.240 --> 0:01:44.400 the FED, and he was heated about the consensus vote, 0:01:44.440 --> 0:01:47.640 the need for consensus. Should we be more like the 0:01:47.680 --> 0:01:50.320 Bank of England, which seems like a fist fight every 0:01:50.360 --> 0:01:51.040 six weeks. 0:01:51.840 --> 0:01:54.040 You'd like to avoid the fist fight every six weeks. 0:01:54.200 --> 0:01:58.360 But I mean, I personally think there's nothing wrong with dissents. 0:01:58.720 --> 0:02:02.760 It's a way to communicate differences in policy stances. You know, 0:02:02.920 --> 0:02:06.560 the whole complete consensus largely comes out of a Greenspan 0:02:06.680 --> 0:02:08.240 era where it was like, if you have a twelve 0:02:08.240 --> 0:02:11.000 to nothing both, there's no doubt about what policy should be. 0:02:11.840 --> 0:02:14.280 Everybody agreed with the chair at that time and with 0:02:14.400 --> 0:02:16.919 that kind of tradition continued. But as the Bank of 0:02:16.960 --> 0:02:19.760 England has showed there's no point of having nineteen of 0:02:19.840 --> 0:02:22.760 us if we always do the same thing. So at 0:02:22.760 --> 0:02:25.120 that point, what's wrong with having a few decent I 0:02:25.120 --> 0:02:27.560 don't actually personally, I just sent it at the July meeting. 0:02:27.840 --> 0:02:31.240 I don't personally think that shows anything about loss of 0:02:31.400 --> 0:02:34.280 faith in the chair or not the right policy. 0:02:34.320 --> 0:02:34.799 But that's the. 0:02:34.760 --> 0:02:37.520 Whole point is to say, look, I'm on this committee 0:02:37.600 --> 0:02:39.920 to have my own independent view and make these points, 0:02:40.080 --> 0:02:41.120 and that's what people are doing. 0:02:41.960 --> 0:02:45.320 We welcome all of you again, particularly worldwide, with Christopher 0:02:45.760 --> 0:02:48.400 Waller into this audience. Ed, can I call on you 0:02:48.480 --> 0:02:51.480 first for the first question? In a bit, I'll let 0:02:51.520 --> 0:02:52.880 you come up with it, but I think we need 0:02:52.919 --> 0:02:53.360 to hear from. 0:02:53.720 --> 0:02:55.160 You've giving you a little time to think of it. 0:02:55.160 --> 0:02:57.160 He's got a little time to think about it. You know, 0:02:57.440 --> 0:02:58.840 maybe I don't want to get in the way of 0:02:58.880 --> 0:03:01.440 his good first question. I'm going to ask some questions 0:03:01.480 --> 0:03:04.400 about the speech. I got to keep the assembled press 0:03:04.400 --> 0:03:06.880 happier or they won't show up again. It counts on 0:03:06.960 --> 0:03:09.160 foreign relations. But I want to come out of this 0:03:09.800 --> 0:03:13.640 with a little bit more knowledge about who is Christopher Waller. 0:03:13.680 --> 0:03:16.120 We'll get to that in a minute. Number one question. 0:03:16.240 --> 0:03:20.840 I get the unemployment rate's four point x percent. Is 0:03:20.880 --> 0:03:24.639 a four point x percent unemployment rate now the same 0:03:24.840 --> 0:03:27.120 as a four point x unemployment rate when you were 0:03:27.160 --> 0:03:28.120 at Washington State. 0:03:29.200 --> 0:03:31.639 No, I think this is where we're in this unusual 0:03:31.720 --> 0:03:35.360 situation where we have this kind of zero net immigration 0:03:35.680 --> 0:03:39.560 instead of roughly say four hundred thousand a year, actually 0:03:39.600 --> 0:03:42.440 people leaving the country, and this is kind of I've 0:03:42.480 --> 0:03:45.160 said to this point, and it's masking this decline in 0:03:45.240 --> 0:03:49.040 labor demand. So just think about if it's all immigration 0:03:49.160 --> 0:03:51.400 and you have a decline in labor supply, then the 0:03:51.440 --> 0:03:55.720 following thing should happen. Employment will go down, wages should 0:03:55.760 --> 0:03:58.720 be bid up. If you have a labor shortage, vacancy 0:03:58.800 --> 0:04:01.960 should go up, should go up. That's what you should 0:04:01.960 --> 0:04:04.760 see with a very tight labor market and declining labor supply. 0:04:05.120 --> 0:04:09.720 When did we see that twenty twenty two, twenty twenty one, 0:04:09.960 --> 0:04:11.400 That's what we saw, and that was a very tight 0:04:11.480 --> 0:04:14.400 labor market. If things are driven by a decline in 0:04:14.440 --> 0:04:16.760 labor demand, I'm just kind of thinking about labor supply 0:04:16.880 --> 0:04:20.919 is constant. You'll see jobs fall, there'll be downward pressure 0:04:20.960 --> 0:04:25.880 on wages, there'll be downward pressure on vacancies, quits rates 0:04:25.880 --> 0:04:28.480 will fall. That sounds to me more like what we're 0:04:28.480 --> 0:04:31.200 seeing in the data. So all that's happening with all 0:04:31.240 --> 0:04:33.640 the labor supply stuff is it's kind of masking the 0:04:33.680 --> 0:04:36.839 weakness of labor demand. And I've seen some estimates that 0:04:36.839 --> 0:04:39.200 if you had just kept the labor force participation rate 0:04:39.640 --> 0:04:42.800 where it was, or unemployment would be four point nine 0:04:42.760 --> 0:04:43.440 to five percent. 0:04:43.560 --> 0:04:46.480 Okay, well, that's an important touch point. I would suggest 0:04:46.480 --> 0:04:48.800 five percent is a much bigger number than four point 0:04:48.880 --> 0:04:51.880 nine percent. Do you see an immediacy at the Central 0:04:51.920 --> 0:04:55.960 Bank and among the staff that the real unemployment rate 0:04:56.160 --> 0:04:58.599 is five ish and not four point x percent? 0:04:58.839 --> 0:05:01.520 Well, where you got to take a position on what 0:05:01.560 --> 0:05:04.040 do you think the labor supply is doing. Is it 0:05:04.240 --> 0:05:07.480 fine that it's four point three because the fact that 0:05:07.480 --> 0:05:09.479 people leave or drop by the labor force, that's just 0:05:09.520 --> 0:05:12.960 a natural part of the economy and therefore four point 0:05:13.000 --> 0:05:16.039 three is exactly reflecting things? Or do you think like 0:05:16.160 --> 0:05:19.039 I do, which is like we're seeing falling labor demand 0:05:19.360 --> 0:05:21.719 and if it wasn't for this decline and labor supply, 0:05:22.160 --> 0:05:24.640 we would be hurting and there'd be no doubt about 0:05:24.720 --> 0:05:28.719 cutting rates, absolutely no discussion about it. So that's where 0:05:28.760 --> 0:05:30.960 they were in this weird thing. We've never seen falling 0:05:31.000 --> 0:05:33.440 labor demand with a big fall and labor supply at 0:05:33.440 --> 0:05:35.640 the same time, at least not in my career that 0:05:35.720 --> 0:05:36.400 I can remember. 0:05:36.839 --> 0:05:39.320 And that speaks to the technology. I'll get to that minute, 0:05:39.320 --> 0:05:42.240 and the AI AI AI. The thing you mentioned one 0:05:42.279 --> 0:05:45.000 hundred basis points, four rate cuts, five rate cuts maybe 0:05:45.080 --> 0:05:47.840 is modeled in. You have to see what happens out there. 0:05:48.360 --> 0:05:52.799 Quote despite more than three years of restrictive monetari policy, 0:05:53.240 --> 0:05:56.200 how many rate cuts do we need to get? Krystal 0:05:56.839 --> 0:05:59.360 Waller away from the dreaded our word restrictive. 0:06:00.320 --> 0:06:02.000 Well, that's what I said. You have to kind of 0:06:02.040 --> 0:06:04.360 pick a what you think is the neutral rate, which 0:06:04.360 --> 0:06:07.880 means you're neither stimulating or contracting the economy. That's the 0:06:07.920 --> 0:06:11.880 simplest way I describe what the neutral rate is I have. 0:06:12.680 --> 0:06:14.800 I just typically look at the SEP, the Survey of 0:06:14.800 --> 0:06:18.560 Economic Projections, and the median is around three percent. So 0:06:18.640 --> 0:06:21.240 for the committee as a whole, if it's three percent, 0:06:22.440 --> 0:06:23.960 you know, and you've still got one hundred and twenty 0:06:23.960 --> 0:06:25.880 five basis points to go to get to neutral. If 0:06:25.920 --> 0:06:29.920 everything starts coming back closer to target, and that's where 0:06:29.920 --> 0:06:30.880 I think things are going to be. 0:06:30.920 --> 0:06:33.440 But the challenge is you allude to in your speech, 0:06:33.480 --> 0:06:35.520 and I'm going to be aggressive here. I think of 0:06:35.600 --> 0:06:39.240 John Edwards and two America is basically there's two hours 0:06:39.279 --> 0:06:41.719 starts out there right now. There's an UR start for 0:06:41.760 --> 0:06:45.560 the haves including everyone on Park Avenue assembled, and there's 0:06:45.600 --> 0:06:47.960 an OUR start for the have nots who are flat 0:06:48.000 --> 0:06:51.159 on their back, including farmers in your Dakotas. Yeah, there's 0:06:51.160 --> 0:06:55.080 two our starts. How do you manage that forward in 0:06:55.160 --> 0:06:56.680 a divided America? 0:06:56.800 --> 0:06:59.200 Yeah, So that's actually an interesting way of thinking about 0:06:59.279 --> 0:07:02.000 I never have but typically when people talk about our star, 0:07:02.880 --> 0:07:05.640 I mean, how many interest rates are there? It's not 0:07:05.680 --> 0:07:08.919 like there's one that this is the unique our star. 0:07:09.720 --> 0:07:12.679 So I gave a speech at last May twenty twenty 0:07:12.680 --> 0:07:15.520 four on our star in Iceland, and I always have 0:07:15.560 --> 0:07:17.720 to look at it this way. For me, our star 0:07:17.840 --> 0:07:21.280 is a policy rate. I control reserves in the banking system. 0:07:21.560 --> 0:07:25.800 What's the closest substitute short term liquid government debt? So 0:07:25.920 --> 0:07:28.280 for me, that's the real our star that I should 0:07:28.280 --> 0:07:30.880 be attention not to return on capital, not the return 0:07:30.920 --> 0:07:34.200 on AI, not the return on corporate debt, the return 0:07:34.240 --> 0:07:37.000 on safe liquid government debt. That's the R star I 0:07:37.000 --> 0:07:41.240 look at, and that's driven by global demand for treasuries 0:07:41.320 --> 0:07:45.480 versus the global supply of treasuries. That's how I view 0:07:45.480 --> 0:07:48.120 our star. I mean, your point is actually a very 0:07:48.160 --> 0:07:50.760 good one, that what's restricted. If you think about our 0:07:50.760 --> 0:07:53.840 star as being restrictive, it's more restrictive for some groups 0:07:53.880 --> 0:07:56.240 than it is for others. That's probably always true, it's 0:07:56.280 --> 0:07:58.960 not just now, but it seems to be very stark 0:07:59.040 --> 0:08:03.640 this time that upper income groups everything's fine. Wealth is booming, 0:08:03.640 --> 0:08:07.160 the stock market's booming. They've got no problem financing stuff. 0:08:07.200 --> 0:08:10.200 I hear this from retailers. We pass tariffs through to 0:08:10.280 --> 0:08:13.040 high income customers. They don't bat an eye about it 0:08:13.440 --> 0:08:16.760 because they can afford it. Low income households they can't 0:08:16.760 --> 0:08:19.320 pass them through. The don't walk out the door. So 0:08:19.680 --> 0:08:22.080 that's the tension again, one of these tensions that we have, 0:08:22.200 --> 0:08:24.920 kind of this dichotomy and the economy between the upper 0:08:24.920 --> 0:08:26.280 income groups the lower income. 0:08:26.560 --> 0:08:31.680 Off the script, off the speech. Three esteemed market economists 0:08:31.680 --> 0:08:35.800 that I spoke to also the same thing away from 0:08:35.840 --> 0:08:40.480 a typical monetary policy speech. They're looking at qt QE, 0:08:40.880 --> 0:08:45.040 the state of our monetary policy forward, and the Fed's 0:08:45.200 --> 0:08:48.400 unique balance sheet. Give us an update on where you 0:08:48.600 --> 0:08:52.480 stand with the Fed's balance sheet and quantitative to the 0:08:52.600 --> 0:08:53.800 end of quantitative tightening. 0:08:53.880 --> 0:08:55.760 Yeah, I mean I think we're at the point where 0:08:55.880 --> 0:08:58.240 we run an ample reserves. I gave a speech in 0:08:58.320 --> 0:09:00.680 July on our balance sheet. We run an ample reserves 0:09:00.679 --> 0:09:04.360 to ensure that there's sufficient liquidity in the banking system, 0:09:04.440 --> 0:09:07.320 in the financial markets that people don't have to at 0:09:07.320 --> 0:09:09.360 the end of the day go scrambling around looking for 0:09:09.440 --> 0:09:12.880 nickels and dimes in the couch to cover their reserve positions. 0:09:12.920 --> 0:09:16.560 That to me is idiocy. So you have ample reserves, 0:09:16.640 --> 0:09:18.840 the reserves are there, nobody has to spend the whole 0:09:18.840 --> 0:09:23.040 evening looking for money under the cushions. We're about at 0:09:23.040 --> 0:09:27.320 that point. We had an excessively large balance sheet due 0:09:27.320 --> 0:09:30.400 to the quantitative easing. We ended that. We've been on 0:09:30.440 --> 0:09:35.280 a quantitative tightening policy since May of twenty two, and 0:09:35.360 --> 0:09:37.480 we're basically back to where we think we should be. 0:09:37.600 --> 0:09:40.400 Just for ample all the QES stuff is taken out 0:09:40.520 --> 0:09:43.320 in terms of how much liquidity it still has affected 0:09:43.320 --> 0:09:45.360 the composition of our balance sheet. Which was part of 0:09:45.400 --> 0:09:48.760 my speech I gave in July. QUEA really distorted the 0:09:48.800 --> 0:09:52.080 maturity structure of our balance sheet and our next choice. 0:09:52.080 --> 0:09:54.720 Even though we get the level right, our next job 0:09:54.800 --> 0:09:56.920 is trying to get the composition right, and that'll take 0:09:56.920 --> 0:09:57.280 some time. 0:09:57.360 --> 0:09:59.960 I sure the stage of Jason Furman up at Harvard 0:10:00.120 --> 0:10:03.600 boring because an act ten in basic economics, and you 0:10:03.640 --> 0:10:05.680 had a brilliant tweet the other day here he said, 0:10:05.720 --> 0:10:09.000 we need to fold in the wealth effect into our consumption. 0:10:09.120 --> 0:10:12.200 You have brilliant consumption numbers in here of the haves 0:10:12.200 --> 0:10:16.199 the Upperdessa. They're trading one block over on Madison Avenue. 0:10:16.520 --> 0:10:21.679 Explain the wealth effect and how it boosts monthly consumption. 0:10:21.840 --> 0:10:25.440 You mentioned luxury travel and others. How wealth effect is 0:10:25.480 --> 0:10:26.520 America right now? 0:10:27.200 --> 0:10:29.280 Yeah? So, I mean, if you go back to some 0:10:29.559 --> 0:10:32.120 kind of some basic economic theory, one kind of rule 0:10:32.160 --> 0:10:36.120 of thumb is for every one dollar of wealth you 0:10:36.240 --> 0:10:39.760 get the real interest rate a three percent, two percent, 0:10:40.200 --> 0:10:42.440 your consumptions should go up by two to three percent 0:10:42.800 --> 0:10:44.520 for every dollar in wealth you get so like two 0:10:44.640 --> 0:10:47.679 or three cents for every dollar of wealth. That's what 0:10:47.760 --> 0:10:50.079 mean by the wealth tech. Now, those numbers also mean 0:10:50.080 --> 0:10:53.640 that wealth increases permanent, it's not a one time. If 0:10:53.679 --> 0:10:55.079 it's just a one off, you're not going to change 0:10:55.080 --> 0:10:58.240 your entire consumption path. So this is always kind of 0:10:58.280 --> 0:11:01.600 the challenge with the wealth effect because it's not that 0:11:01.679 --> 0:11:03.880 big of a number in terms of a dollar increase. 0:11:03.880 --> 0:11:07.000 It's only like three cents of consumption. But that also 0:11:07.000 --> 0:11:08.960 has to be permanent. It's not like a one off 0:11:09.000 --> 0:11:12.800 and then comes back down. So wealth ficks often sometimes 0:11:12.800 --> 0:11:15.920 are smaller than that. But the run we've had for 0:11:15.960 --> 0:11:20.240 the last few years, that's looking pretty permanent and pretty big. 0:11:20.320 --> 0:11:21.800 It's not just a one dollar increase. 0:11:22.040 --> 0:11:24.320 I'ming a couple more questions, you know. This one's from 0:11:24.360 --> 0:11:26.440 the first. David Gurrah gave me this question over at 0:11:26.440 --> 0:11:30.160 Bloomberg News because he's vicious in his questions. Should we 0:11:30.200 --> 0:11:31.160 get rid of the dots? 0:11:33.679 --> 0:11:39.240 That's a good question. I mean, I personally have doubts 0:11:39.280 --> 0:11:42.640 about whether we should have the SEP at all, But 0:11:42.840 --> 0:11:45.360 I've been told that what are you trying to hide? Then? 0:11:45.640 --> 0:11:48.080 Why would you take him away? Why would you not 0:11:48.280 --> 0:11:49.360 be as transparent? 0:11:49.760 --> 0:11:51.400 What would happen if the dots went away? 0:11:52.000 --> 0:11:54.800 Well, you'd kind of be back to twenty eleven and 0:11:54.840 --> 0:11:57.040 then you know, we would say that, now you could 0:11:57.080 --> 0:11:59.880 change the dots. I personal believe you should get rid 0:11:59.880 --> 0:12:03.280 of the calendar dating, get rid of the long run numbers, 0:12:03.480 --> 0:12:06.480 and just say, look, what's the next optimal policy over 0:12:06.520 --> 0:12:10.120 the next six, twelve, eighteen months. That's as good as 0:12:10.120 --> 0:12:13.640 we can do. So then it's a rolling number and 0:12:13.679 --> 0:12:16.640 you get away from this crazy thing. It's like, wow, 0:12:16.720 --> 0:12:18.480 there's three meetings left in the year. How many more 0:12:18.559 --> 0:12:22.280 rcuts this year? Who cares the media? 0:12:22.440 --> 0:12:23.360 We wouldn't have a job. 0:12:24.480 --> 0:12:26.800 So if I said, okay at the September he said, 0:12:26.800 --> 0:12:29.400 here's how many over the next six months, that's what 0:12:29.440 --> 0:12:31.760 the focus would be, not the end of the calendar year. 0:12:32.559 --> 0:12:34.240 So I would do that and then get away from 0:12:34.240 --> 0:12:36.440 the long run stuff. Just the best we can do 0:12:36.559 --> 0:12:39.440 is six twelve, maybe eighteen months out any kind of forecast, 0:12:39.440 --> 0:12:42.640 We're no, we don't have any genius insights over everybody 0:12:42.640 --> 0:12:45.040 else on Wall Street who does this, So that would 0:12:45.040 --> 0:12:46.680 be one of the critical things I would do is 0:12:46.760 --> 0:12:49.200 change the calendar dating and shorten the horizon that we 0:12:49.240 --> 0:12:50.319 actually do it. 0:12:50.360 --> 0:12:53.199 One of my hallmarks is who are these guys literally 0:12:53.240 --> 0:12:55.480 like Butch Cassidy, And so we're going to find out 0:12:55.480 --> 0:12:59.040 who Christopher Waller is. I mentioned you were accounting major 0:12:59.080 --> 0:13:01.240 and you got bored because a professor was putting, so 0:13:01.280 --> 0:13:05.520 you switch to economics. The Waller of nineteen ninety one 0:13:05.880 --> 0:13:09.040 is a spectacular thirteen page paper. I think it is 0:13:09.760 --> 0:13:13.320 on prodigious game theory. And what he didn't know in 0:13:13.400 --> 0:13:16.800 nineteen ninety one is he would be describing the game 0:13:16.880 --> 0:13:19.719 theory of twenty twenty five. I'm not going to get 0:13:19.720 --> 0:13:23.480 you in trouble with the Secretary of Treasury right now, 0:13:23.520 --> 0:13:25.960 but I'm going to review this you set up in 0:13:26.040 --> 0:13:30.200 nineteen ninety one off of James Baker's word Bashing of 0:13:30.240 --> 0:13:35.320 where administrations bash the Central Bank and there's corrosion involved. 0:13:35.360 --> 0:13:38.760 The title of the paper, Bashing and Corrosion, you sub 0:13:38.760 --> 0:13:43.360 out strong administrations and weak administrations. No, I'm going to 0:13:43.520 --> 0:13:46.520 not ask you what this administration is, but I want 0:13:46.559 --> 0:13:50.040 to take it forward to the present day. If we 0:13:50.240 --> 0:13:55.880 have bashing and corrosion, and we have to be ex 0:13:55.960 --> 0:13:58.520 antew're trying to get out front of the debate, the fence, 0:13:58.559 --> 0:14:01.400 trying to glean what's going on, or we go true 0:14:01.520 --> 0:14:05.400 ex post literally in a Georgia school, where we wait 0:14:05.559 --> 0:14:08.640 for the data to come in. How does the bashing 0:14:08.760 --> 0:14:14.640 and coercion affect the monetary challenge of ex ante versus 0:14:14.760 --> 0:14:18.240 ex post? Do we become more do we become more 0:14:18.880 --> 0:14:23.120 x post with an administration going after a central bank? 0:14:23.400 --> 0:14:25.600 Well, like I said, I wrote this paper back because 0:14:25.640 --> 0:14:27.320 at the time there was a lot of discussion about 0:14:27.360 --> 0:14:31.040 central bank independence and institutional design, and the kind of 0:14:31.040 --> 0:14:34.400 presumption was once you picked a central banker, that's the policy, 0:14:34.920 --> 0:14:37.560 and every other external influence just kind of went away. 0:14:38.320 --> 0:14:40.120 And I was kind of looking around, going that's not 0:14:40.160 --> 0:14:42.720 what I'm hearing. That's not what I'm seeing. Back in 0:14:42.720 --> 0:14:46.000 the eighties, right, there was a lot of criticism, and 0:14:46.040 --> 0:14:49.280 so this idea of Baker's was, look, the administration can 0:14:49.480 --> 0:14:52.480 push the FED one way or the other by publicly 0:14:52.720 --> 0:14:55.400 criticizing the feed. Now, when I wrote this paper in 0:14:55.840 --> 0:14:58.000 nineteen eighty nine, nineteen nine, I didn't think I'd be 0:14:58.040 --> 0:15:00.600 the one receiving it twenty five years, thirty years later. 0:15:01.280 --> 0:15:03.920 So it was when I reread the intro the other day, 0:15:03.960 --> 0:15:07.640 I was like, wow, what was I thinking? So, but 0:15:07.800 --> 0:15:10.120 I mean, that is kind of this situation and it's 0:15:10.120 --> 0:15:12.320 not just the curt administration. This has been done forever. 0:15:12.400 --> 0:15:17.640 I mean George Bush, bash Greenspan in him costing in 0:15:17.680 --> 0:15:20.800 the election. Criticism had come out, and this was a 0:15:20.880 --> 0:15:23.560 norm until basically Bob Rubin came along and then it 0:15:23.600 --> 0:15:26.000 was like, don't talk about the FED and that kind 0:15:26.000 --> 0:15:30.680 of became the rule through serious sequence of administrations until 0:15:31.720 --> 0:15:35.560 President Trump came in in twenty eighteen started criticizing the 0:15:35.600 --> 0:15:38.160 FED more publicly than had been done in along. 0:15:38.280 --> 0:15:42.000 Does it change the behavior of a given central bank? 0:15:43.520 --> 0:15:47.440 If we have bashing, you're trying to get out front 0:15:47.840 --> 0:15:51.840 the public. The media want you to be out front, omniscient, 0:15:51.920 --> 0:15:54.680 have a crystal ball, or do you have to slam 0:15:54.720 --> 0:15:59.600 back to a massively expost data dependency because you're getting crushed. 0:16:00.200 --> 0:16:02.760 Whatever the executive branch is, whatever the nation is. 0:16:03.640 --> 0:16:05.240 I mean, at the end of the day, this is 0:16:05.240 --> 0:16:07.480 what I tell everybody. I just go to work and 0:16:07.520 --> 0:16:09.320 I try to do my job the best I can. 0:16:09.880 --> 0:16:12.360 That's all I can do. A lot of this is 0:16:12.400 --> 0:16:18.560 just out of my control, you know, whether the administration's 0:16:18.640 --> 0:16:22.120 views drive people to push one way or the other. 0:16:22.280 --> 0:16:24.200 And you know, I can't speak for anybody else, but 0:16:24.720 --> 0:16:26.400 I just try to do the best job I can. 0:16:27.200 --> 0:16:29.720 Using the theory that I know, the models of the 0:16:29.720 --> 0:16:31.880 economy that I use and the data that I use. 0:16:33.240 --> 0:16:36.240 So you know the call I made in June, which 0:16:36.360 --> 0:16:38.960 was I was saying the labor market is not as 0:16:39.000 --> 0:16:41.920 good as it looks, and I was accused of being 0:16:41.960 --> 0:16:47.560 political August first, that suddenly didn't look so political. The 0:16:47.680 --> 0:16:49.720 data came in exactly the way i'd said it was 0:16:49.840 --> 0:16:53.760 going to. So what sometimes looks like people say, ah, 0:16:53.840 --> 0:16:57.000 they were interpreting this as purely a political position. Suddenly 0:16:57.080 --> 0:16:59.120 the data said, maybe it's not political. Maybe it was 0:16:59.160 --> 0:17:01.880 actually the right call. And so that's how I kind 0:17:01.880 --> 0:17:03.640 of think of this. You can always look at something 0:17:03.640 --> 0:17:06.960 and interpret it as political when it's not. That's kind 0:17:06.960 --> 0:17:08.800 of the problem and what we decided what we do. 0:17:09.320 --> 0:17:11.840 One more question. I'm going to go to the floor 0:17:11.920 --> 0:17:14.399 and also out on Zoom worldwide with the Council on 0:17:14.720 --> 0:17:17.280 Foreign Relations. I want to get this one question, and 0:17:17.359 --> 0:17:20.520 I have to ask, with your heritage of the Dakotas 0:17:20.560 --> 0:17:23.280 in the old Northwest, how bad is it for the 0:17:23.359 --> 0:17:27.640 farmers right now? Soybeans is a news, but French Hill 0:17:27.840 --> 0:17:30.919 down in Arkansas is telling me guess what. They're flat 0:17:30.960 --> 0:17:34.320 on their back reporting that police well. Back in the 0:17:34.560 --> 0:17:40.159 first Trump administration, there was a you know, tariffs on 0:17:40.240 --> 0:17:44.000 China and tariffs. China immediately responded by not buying US soybeans. 0:17:44.400 --> 0:17:46.639 And I was at the Saint Louis fad some of 0:17:46.640 --> 0:17:49.600 the biggest soybean producers were in our district. I heard this. 0:17:50.320 --> 0:17:54.040 We had barges of soybeans lined up on the Mississippi 0:17:54.160 --> 0:17:56.920 River that were never going anywhere, and they only have 0:17:57.000 --> 0:17:59.600 a certain shelf life before they rot and they're gone. 0:18:00.240 --> 0:18:03.880 So we saw this. China was I think, don't quote 0:18:03.920 --> 0:18:05.840 me exactly, but this is in the ballpark, but China 0:18:05.880 --> 0:18:08.600 has sort of bought like seventy five percent of US soybeans. 0:18:09.560 --> 0:18:14.000 Even later when some of this came off, soyvings never recovered, 0:18:15.359 --> 0:18:17.720 China was only buying like thirty five Again don't quote 0:18:17.720 --> 0:18:20.440 me on the exact but like thirty five percent, and 0:18:20.520 --> 0:18:24.000 now it's back down to basically zero. So they've just 0:18:24.040 --> 0:18:28.840 shifted their entire supply chain to Brazil and South America 0:18:29.280 --> 0:18:32.000 and they never came back. And so that's the one 0:18:32.000 --> 0:18:33.800 thing you want to be a little careful of, is 0:18:33.920 --> 0:18:36.600 just because the supply scene gets disrupted and then you 0:18:36.680 --> 0:18:39.400 reverse something, it doesn't necessarily mean it comes back. Once 0:18:39.440 --> 0:18:44.119 it's changed, it's changed. So yeah, solving farmers are typically 0:18:44.160 --> 0:18:47.000 getting hammered and China buying. 0:18:47.359 --> 0:18:50.120 I've seen the new Foreign Affairs magazine. It is brilliant. 0:18:50.240 --> 0:18:54.680 Shannon O'Neill with a great article on supply lines, which 0:18:54.720 --> 0:18:57.320 to me is the discussion of Q one next year. 0:18:57.520 --> 0:19:00.200 Edward Cox, please, sir with our first question. 0:19:01.520 --> 0:19:05.080 Ed Cox can be for economic development of the conference board. 0:19:05.960 --> 0:19:09.560 Governor Waller, your excellent presentation. I appreciate it very much 0:19:09.680 --> 0:19:13.240 about the data, but there's several mega things out there 0:19:13.240 --> 0:19:16.159 for which the FED is not responsible that I'm sure 0:19:16.359 --> 0:19:19.640 are in the background or part of your consideration, and 0:19:19.720 --> 0:19:23.320 that's the extraordinary deficits, fiscal deficits going forward, and the 0:19:23.440 --> 0:19:26.400 value of the dollar. Would you explain how those might 0:19:26.560 --> 0:19:31.280 enter into your considerations as to the what monetary policy 0:19:31.320 --> 0:19:31.719 should be. 0:19:32.520 --> 0:19:34.280 Yeah. When you know, we have a kind of a 0:19:34.320 --> 0:19:38.679 long standing view that we don't, you know, praise or 0:19:38.720 --> 0:19:41.800 criticize fiscal policy. We take it as a given for 0:19:41.920 --> 0:19:45.399 doing our own job. But when you're running six percent 0:19:45.480 --> 0:19:49.240 deficits three percent primary deficits, we know that that's just 0:19:49.280 --> 0:19:52.199 not sustainable in the long run. How long is the 0:19:52.240 --> 0:19:54.760 long run. I don't know the old joke, I'll be 0:19:54.800 --> 0:19:58.119 dead before we find out, but we just know what 0:19:58.200 --> 0:20:01.080 economicy you can do it persistently just not going to happen. 0:20:01.800 --> 0:20:05.919 So that has general concerns. The our Star speech I 0:20:05.960 --> 0:20:10.480 gave back in Iceland was if you think about our 0:20:10.520 --> 0:20:12.720 Star and government debt, which is the closest thing to 0:20:12.720 --> 0:20:15.639 should matter for me, and reserves, it's a race between 0:20:15.680 --> 0:20:19.159 the growing demand for US Treasury debt and the growing supply. 0:20:19.920 --> 0:20:23.040 For the last forty years, demand has outstripped supply. And 0:20:23.080 --> 0:20:25.720 what does that mean. Prices go up, yields go down. 0:20:26.760 --> 0:20:29.920 At some point. If that reverses and the supply starts 0:20:29.920 --> 0:20:31.800 succeeding demand, the only way you're going to get the 0:20:31.800 --> 0:20:33.840 markets in the world to hold this stuff is you 0:20:33.880 --> 0:20:37.080 lower the price, which means the yield's going to go up. 0:20:37.560 --> 0:20:42.080 So for me, having good stable fiscal policy is the 0:20:42.119 --> 0:20:44.439 best way to ensure that you don't have that happen. 0:20:45.240 --> 0:20:48.080