Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: There seems to be an excess of communication right now.
Speaker 2: Everyone is talking at the FED, within the administration. How
Speaker 2: do you interpret how everybody has to get out there
Speaker 2: and speak, speak, speak well.
Speaker 3: One of the criticisms that's been leveled at the FED
Speaker 3: for a long time is we engage in groupthink. Every
Speaker 3: policy decision is a twelve nothing vote. There's no dessens,
Speaker 3: and that if you're all going to do exactly the
Speaker 3: same thing and think the same way, we don't need
Speaker 3: nineteen of you. We need one. But what I always
Speaker 3: try to point out is it's through speeches, in public
Speaker 3: speaking that everybody presents their views and you can go
Speaker 3: out listening and they're not the same. So all the
Speaker 3: public speaking, the speeches are the way for us to
Speaker 3: show a diversity of opinions, have thought about the direction
Speaker 3: of policy. This is a good thing. It's not a
Speaker 3: bad thing. Despite people saying it's a cornucopy of noise.
Speaker 3: It's actually signaling where people stand when you come to
Speaker 3: the meeting. And I always try to stress this to people.
Speaker 3: We have to make a decision every six weeks. We
Speaker 3: do not get to kick the can down the road,
Speaker 3: and what that implies is that to get a reasonable
Speaker 3: consistent opinion, we have to kind of compromise. You have
Speaker 3: to come to decision. And that's why our votes are
Speaker 3: often twelve to nothing, eleven to one. It's because we
Speaker 3: all understand we have to compromise someone on our positions
Speaker 3: to have a clear, consistent policy setting for markets and
Speaker 3: American people.
Speaker 2: Larry Meyer, Washington University Saint Louis had a small book
Speaker 2: out of his time with green Span, a term at
Speaker 2: the FED, and he was heated about the consensus vote,
Speaker 2: the need for consensus. Should we be more like the
Speaker 2: Bank of England, which seems like a fist fight every
Speaker 2: six weeks.
Speaker 3: You'd like to avoid the fist fight every six weeks.
Speaker 3: But I mean, I personally think there's nothing wrong with dissents.
Speaker 3: It's a way to communicate differences in policy stances. You know,
Speaker 3: the whole complete consensus largely comes out of a Greenspan
Speaker 3: era where it was like, if you have a twelve
Speaker 3: to nothing both, there's no doubt about what policy should be.
Speaker 3: Everybody agreed with the chair at that time and with
Speaker 3: that kind of tradition continued. But as the Bank of
Speaker 3: England has showed there's no point of having nineteen of
Speaker 3: us if we always do the same thing. So at
Speaker 3: that point, what's wrong with having a few decent I
Speaker 3: don't actually personally, I just sent it at the July meeting.
Speaker 3: I don't personally think that shows anything about loss of
Speaker 3: faith in the chair or not the right policy.
Speaker 2: But that's the.
Speaker 3: Whole point is to say, look, I'm on this committee
Speaker 3: to have my own independent view and make these points,
Speaker 3: and that's what people are doing.
Speaker 2: We welcome all of you again, particularly worldwide, with Christopher
Speaker 2: Waller into this audience. Ed, can I call on you
Speaker 2: first for the first question? In a bit, I'll let
Speaker 2: you come up with it, but I think we need
Speaker 2: to hear from.
Speaker 3: You've giving you a little time to think of it.
Speaker 2: He's got a little time to think about it. You know,
Speaker 2: maybe I don't want to get in the way of
Speaker 2: his good first question. I'm going to ask some questions
Speaker 2: about the speech. I got to keep the assembled press
Speaker 2: happier or they won't show up again. It counts on
Speaker 2: foreign relations. But I want to come out of this
Speaker 2: with a little bit more knowledge about who is Christopher Waller.
Speaker 2: We'll get to that in a minute. Number one question.
Speaker 2: I get the unemployment rate's four point x percent. Is
Speaker 2: a four point x percent unemployment rate now the same
Speaker 2: as a four point x unemployment rate when you were
Speaker 2: at Washington State.
Speaker 3: No, I think this is where we're in this unusual
Speaker 3: situation where we have this kind of zero net immigration
Speaker 3: instead of roughly say four hundred thousand a year, actually
Speaker 3: people leaving the country, and this is kind of I've
Speaker 3: said to this point, and it's masking this decline in
Speaker 3: labor demand. So just think about if it's all immigration
Speaker 3: and you have a decline in labor supply, then the
Speaker 3: following thing should happen. Employment will go down, wages should
Speaker 3: be bid up. If you have a labor shortage, vacancy
Speaker 3: should go up, should go up. That's what you should
Speaker 3: see with a very tight labor market and declining labor supply.
Speaker 3: When did we see that twenty twenty two, twenty twenty one,
Speaker 3: That's what we saw, and that was a very tight
Speaker 3: labor market. If things are driven by a decline in
Speaker 3: labor demand, I'm just kind of thinking about labor supply
Speaker 3: is constant. You'll see jobs fall, there'll be downward pressure
Speaker 3: on wages, there'll be downward pressure on vacancies, quits rates
Speaker 3: will fall. That sounds to me more like what we're
Speaker 3: seeing in the data. So all that's happening with all
Speaker 3: the labor supply stuff is it's kind of masking the
Speaker 3: weakness of labor demand. And I've seen some estimates that
Speaker 3: if you had just kept the labor force participation rate
Speaker 3: where it was, or unemployment would be four point nine
Speaker 3: to five percent.
Speaker 2: Okay, well, that's an important touch point. I would suggest
Speaker 2: five percent is a much bigger number than four point
Speaker 2: nine percent. Do you see an immediacy at the Central
Speaker 2: Bank and among the staff that the real unemployment rate
Speaker 2: is five ish and not four point x percent?
Speaker 3: Well, where you got to take a position on what
Speaker 3: do you think the labor supply is doing. Is it
Speaker 3: fine that it's four point three because the fact that
Speaker 3: people leave or drop by the labor force, that's just
Speaker 3: a natural part of the economy and therefore four point
Speaker 3: three is exactly reflecting things? Or do you think like
Speaker 3: I do, which is like we're seeing falling labor demand
Speaker 3: and if it wasn't for this decline and labor supply,
Speaker 3: we would be hurting and there'd be no doubt about
Speaker 3: cutting rates, absolutely no discussion about it. So that's where
Speaker 3: they were in this weird thing. We've never seen falling
Speaker 3: labor demand with a big fall and labor supply at
Speaker 3: the same time, at least not in my career that
Speaker 3: I can remember.
Speaker 2: And that speaks to the technology. I'll get to that minute,
Speaker 2: and the AI AI AI. The thing you mentioned one
Speaker 2: hundred basis points, four rate cuts, five rate cuts maybe
Speaker 2: is modeled in. You have to see what happens out there.
Speaker 2: Quote despite more than three years of restrictive monetari policy,
Speaker 2: how many rate cuts do we need to get? Krystal
Speaker 2: Waller away from the dreaded our word restrictive.
Speaker 3: Well, that's what I said. You have to kind of
Speaker 3: pick a what you think is the neutral rate, which
Speaker 3: means you're neither stimulating or contracting the economy. That's the
Speaker 3: simplest way I describe what the neutral rate is I have.
Speaker 3: I just typically look at the SEP, the Survey of
Speaker 3: Economic Projections, and the median is around three percent. So
Speaker 3: for the committee as a whole, if it's three percent,
Speaker 3: you know, and you've still got one hundred and twenty
Speaker 3: five basis points to go to get to neutral. If
Speaker 3: everything starts coming back closer to target, and that's where
Speaker 3: I think things are going to be.
Speaker 2: But the challenge is you allude to in your speech,
Speaker 2: and I'm going to be aggressive here. I think of
Speaker 2: John Edwards and two America is basically there's two hours
Speaker 2: starts out there right now. There's an UR start for
Speaker 2: the haves including everyone on Park Avenue assembled, and there's
Speaker 2: an OUR start for the have nots who are flat
Speaker 2: on their back, including farmers in your Dakotas. Yeah, there's
Speaker 2: two our starts. How do you manage that forward in
Speaker 2: a divided America?
Speaker 3: Yeah, So that's actually an interesting way of thinking about
Speaker 3: I never have but typically when people talk about our star,
Speaker 3: I mean, how many interest rates are there? It's not
Speaker 3: like there's one that this is the unique our star.
Speaker 3: So I gave a speech at last May twenty twenty
Speaker 3: four on our star in Iceland, and I always have
Speaker 3: to look at it this way. For me, our star
Speaker 3: is a policy rate. I control reserves in the banking system.
Speaker 3: What's the closest substitute short term liquid government debt? So
Speaker 3: for me, that's the real our star that I should
Speaker 3: be attention not to return on capital, not the return
Speaker 3: on AI, not the return on corporate debt, the return
Speaker 3: on safe liquid government debt. That's the R star I
Speaker 3: look at, and that's driven by global demand for treasuries
Speaker 3: versus the global supply of treasuries. That's how I view
Speaker 3: our star. I mean, your point is actually a very
Speaker 3: good one, that what's restricted. If you think about our
Speaker 3: star as being restrictive, it's more restrictive for some groups
Speaker 3: than it is for others. That's probably always true, it's
Speaker 3: not just now, but it seems to be very stark
Speaker 3: this time that upper income groups everything's fine. Wealth is booming,
Speaker 3: the stock market's booming. They've got no problem financing stuff.
Speaker 3: I hear this from retailers. We pass tariffs through to
Speaker 3: high income customers. They don't bat an eye about it
Speaker 3: because they can afford it. Low income households they can't
Speaker 3: pass them through. The don't walk out the door. So
Speaker 3: that's the tension again, one of these tensions that we have,
Speaker 3: kind of this dichotomy and the economy between the upper
Speaker 3: income groups the lower income.
Speaker 2: Off the script, off the speech. Three esteemed market economists
Speaker 2: that I spoke to also the same thing away from
Speaker 2: a typical monetary policy speech. They're looking at qt QE,
Speaker 2: the state of our monetary policy forward, and the Fed's
Speaker 2: unique balance sheet. Give us an update on where you
Speaker 2: stand with the Fed's balance sheet and quantitative to the
Speaker 2: end of quantitative tightening.
Speaker 3: Yeah, I mean I think we're at the point where
Speaker 3: we run an ample reserves. I gave a speech in
Speaker 3: July on our balance sheet. We run an ample reserves
Speaker 3: to ensure that there's sufficient liquidity in the banking system,
Speaker 3: in the financial markets that people don't have to at
Speaker 3: the end of the day go scrambling around looking for
Speaker 3: nickels and dimes in the couch to cover their reserve positions.
Speaker 3: That to me is idiocy. So you have ample reserves,
Speaker 3: the reserves are there, nobody has to spend the whole
Speaker 3: evening looking for money under the cushions. We're about at
Speaker 3: that point. We had an excessively large balance sheet due
Speaker 3: to the quantitative easing. We ended that. We've been on
Speaker 3: a quantitative tightening policy since May of twenty two, and
Speaker 3: we're basically back to where we think we should be.
Speaker 3: Just for ample all the QES stuff is taken out
Speaker 3: in terms of how much liquidity it still has affected
Speaker 3: the composition of our balance sheet. Which was part of
Speaker 3: my speech I gave in July. QUEA really distorted the
Speaker 3: maturity structure of our balance sheet and our next choice.
Speaker 3: Even though we get the level right, our next job
Speaker 3: is trying to get the composition right, and that'll take
Speaker 3: some time.
Speaker 2: I sure the stage of Jason Furman up at Harvard
Speaker 2: boring because an act ten in basic economics, and you
Speaker 2: had a brilliant tweet the other day here he said,
Speaker 2: we need to fold in the wealth effect into our consumption.
Speaker 2: You have brilliant consumption numbers in here of the haves
Speaker 2: the Upperdessa. They're trading one block over on Madison Avenue.
Speaker 2: Explain the wealth effect and how it boosts monthly consumption.
Speaker 2: You mentioned luxury travel and others. How wealth effect is
Speaker 2: America right now?
Speaker 3: Yeah? So, I mean, if you go back to some
Speaker 3: kind of some basic economic theory, one kind of rule
Speaker 3: of thumb is for every one dollar of wealth you
Speaker 3: get the real interest rate a three percent, two percent,
Speaker 3: your consumptions should go up by two to three percent
Speaker 3: for every dollar in wealth you get so like two
Speaker 3: or three cents for every dollar of wealth. That's what
Speaker 3: mean by the wealth tech. Now, those numbers also mean
Speaker 3: that wealth increases permanent, it's not a one time. If
Speaker 3: it's just a one off, you're not going to change
Speaker 3: your entire consumption path. So this is always kind of
Speaker 3: the challenge with the wealth effect because it's not that
Speaker 3: big of a number in terms of a dollar increase.
Speaker 3: It's only like three cents of consumption. But that also
Speaker 3: has to be permanent. It's not like a one off
Speaker 3: and then comes back down. So wealth ficks often sometimes
Speaker 3: are smaller than that. But the run we've had for
Speaker 3: the last few years, that's looking pretty permanent and pretty big.
Speaker 3: It's not just a one dollar increase.
Speaker 2: I'ming a couple more questions, you know. This one's from
Speaker 2: the first. David Gurrah gave me this question over at
Speaker 2: Bloomberg News because he's vicious in his questions. Should we
Speaker 2: get rid of the dots?
Speaker 3: That's a good question. I mean, I personally have doubts
Speaker 3: about whether we should have the SEP at all, But
Speaker 3: I've been told that what are you trying to hide? Then?
Speaker 3: Why would you take him away? Why would you not
Speaker 3: be as transparent?
Speaker 2: What would happen if the dots went away?
Speaker 3: Well, you'd kind of be back to twenty eleven and
Speaker 3: then you know, we would say that, now you could
Speaker 3: change the dots. I personal believe you should get rid
Speaker 3: of the calendar dating, get rid of the long run numbers,
Speaker 3: and just say, look, what's the next optimal policy over
Speaker 3: the next six, twelve, eighteen months. That's as good as
Speaker 3: we can do. So then it's a rolling number and
Speaker 3: you get away from this crazy thing. It's like, wow,
Speaker 3: there's three meetings left in the year. How many more
Speaker 3: rcuts this year? Who cares the media?
Speaker 2: We wouldn't have a job.
Speaker 3: So if I said, okay at the September he said,
Speaker 3: here's how many over the next six months, that's what
Speaker 3: the focus would be, not the end of the calendar year.
Speaker 3: So I would do that and then get away from
Speaker 3: the long run stuff. Just the best we can do
Speaker 3: is six twelve, maybe eighteen months out any kind of forecast,
Speaker 3: We're no, we don't have any genius insights over everybody
Speaker 3: else on Wall Street who does this, So that would
Speaker 3: be one of the critical things I would do is
Speaker 3: change the calendar dating and shorten the horizon that we
Speaker 3: actually do it.
Speaker 2: One of my hallmarks is who are these guys literally
Speaker 2: like Butch Cassidy, And so we're going to find out
Speaker 2: who Christopher Waller is. I mentioned you were accounting major
Speaker 2: and you got bored because a professor was putting, so
Speaker 2: you switch to economics. The Waller of nineteen ninety one
Speaker 2: is a spectacular thirteen page paper. I think it is
Speaker 2: on prodigious game theory. And what he didn't know in
Speaker 2: nineteen ninety one is he would be describing the game
Speaker 2: theory of twenty twenty five. I'm not going to get
Speaker 2: you in trouble with the Secretary of Treasury right now,
Speaker 2: but I'm going to review this you set up in
Speaker 2: nineteen ninety one off of James Baker's word Bashing of
Speaker 2: where administrations bash the Central Bank and there's corrosion involved.
Speaker 2: The title of the paper, Bashing and Corrosion, you sub
Speaker 2: out strong administrations and weak administrations. No, I'm going to
Speaker 2: not ask you what this administration is, but I want
Speaker 2: to take it forward to the present day. If we
Speaker 2: have bashing and corrosion, and we have to be ex
Speaker 2: antew're trying to get out front of the debate, the fence,
Speaker 2: trying to glean what's going on, or we go true
Speaker 2: ex post literally in a Georgia school, where we wait
Speaker 2: for the data to come in. How does the bashing
Speaker 2: and coercion affect the monetary challenge of ex ante versus
Speaker 2: ex post? Do we become more do we become more
Speaker 2: x post with an administration going after a central bank?
Speaker 3: Well, like I said, I wrote this paper back because
Speaker 3: at the time there was a lot of discussion about
Speaker 3: central bank independence and institutional design, and the kind of
Speaker 3: presumption was once you picked a central banker, that's the policy,
Speaker 3: and every other external influence just kind of went away.
Speaker 3: And I was kind of looking around, going that's not
Speaker 3: what I'm hearing. That's not what I'm seeing. Back in
Speaker 3: the eighties, right, there was a lot of criticism, and
Speaker 3: so this idea of Baker's was, look, the administration can
Speaker 3: push the FED one way or the other by publicly
Speaker 3: criticizing the feed. Now, when I wrote this paper in
Speaker 3: nineteen eighty nine, nineteen nine, I didn't think I'd be
Speaker 3: the one receiving it twenty five years, thirty years later.
Speaker 3: So it was when I reread the intro the other day,
Speaker 3: I was like, wow, what was I thinking? So, but
Speaker 3: I mean, that is kind of this situation and it's
Speaker 3: not just the curt administration. This has been done forever.
Speaker 3: I mean George Bush, bash Greenspan in him costing in
Speaker 3: the election. Criticism had come out, and this was a
Speaker 3: norm until basically Bob Rubin came along and then it
Speaker 3: was like, don't talk about the FED and that kind
Speaker 3: of became the rule through serious sequence of administrations until
Speaker 3: President Trump came in in twenty eighteen started criticizing the
Speaker 3: FED more publicly than had been done in along.
Speaker 2: Does it change the behavior of a given central bank?
Speaker 2: If we have bashing, you're trying to get out front
Speaker 2: the public. The media want you to be out front, omniscient,
Speaker 2: have a crystal ball, or do you have to slam
Speaker 2: back to a massively expost data dependency because you're getting crushed.
Speaker 2: Whatever the executive branch is, whatever the nation is.
Speaker 3: I mean, at the end of the day, this is
Speaker 3: what I tell everybody. I just go to work and
Speaker 3: I try to do my job the best I can.
Speaker 3: That's all I can do. A lot of this is
Speaker 3: just out of my control, you know, whether the administration's
Speaker 3: views drive people to push one way or the other.
Speaker 3: And you know, I can't speak for anybody else, but
Speaker 3: I just try to do the best job I can.
Speaker 3: Using the theory that I know, the models of the
Speaker 3: economy that I use and the data that I use.
Speaker 3: So you know the call I made in June, which
Speaker 3: was I was saying the labor market is not as
Speaker 3: good as it looks, and I was accused of being
Speaker 3: political August first, that suddenly didn't look so political. The
Speaker 3: data came in exactly the way i'd said it was
Speaker 3: going to. So what sometimes looks like people say, ah,
Speaker 3: they were interpreting this as purely a political position. Suddenly
Speaker 3: the data said, maybe it's not political. Maybe it was
Speaker 3: actually the right call. And so that's how I kind
Speaker 3: of think of this. You can always look at something
Speaker 3: and interpret it as political when it's not. That's kind
Speaker 3: of the problem and what we decided what we do.
Speaker 2: One more question. I'm going to go to the floor
Speaker 2: and also out on Zoom worldwide with the Council on
Speaker 2: Foreign Relations. I want to get this one question, and
Speaker 2: I have to ask, with your heritage of the Dakotas
Speaker 2: in the old Northwest, how bad is it for the
Speaker 2: farmers right now? Soybeans is a news, but French Hill
Speaker 2: down in Arkansas is telling me guess what. They're flat
Speaker 2: on their back reporting that police well. Back in the
Speaker 2: first Trump administration, there was a you know, tariffs on
Speaker 2: China and tariffs. China immediately responded by not buying US soybeans.
Speaker 2: And I was at the Saint Louis fad some of
Speaker 2: the biggest soybean producers were in our district. I heard this.
Speaker 3: We had barges of soybeans lined up on the Mississippi
Speaker 3: River that were never going anywhere, and they only have
Speaker 3: a certain shelf life before they rot and they're gone.
Speaker 3: So we saw this. China was I think, don't quote
Speaker 3: me exactly, but this is in the ballpark, but China
Speaker 3: has sort of bought like seventy five percent of US soybeans.
Speaker 3: Even later when some of this came off, soyvings never recovered,
Speaker 3: China was only buying like thirty five Again don't quote
Speaker 3: me on the exact but like thirty five percent, and
Speaker 3: now it's back down to basically zero. So they've just
Speaker 3: shifted their entire supply chain to Brazil and South America
Speaker 3: and they never came back. And so that's the one
Speaker 3: thing you want to be a little careful of, is
Speaker 3: just because the supply scene gets disrupted and then you
Speaker 3: reverse something, it doesn't necessarily mean it comes back. Once
Speaker 3: it's changed, it's changed. So yeah, solving farmers are typically
Speaker 3: getting hammered and China buying.
Speaker 2: I've seen the new Foreign Affairs magazine. It is brilliant.
Speaker 2: Shannon O'Neill with a great article on supply lines, which
Speaker 2: to me is the discussion of Q one next year.
Speaker 2: Edward Cox, please, sir with our first question.
Speaker 4: Ed Cox can be for economic development of the conference board.
Speaker 4: Governor Waller, your excellent presentation. I appreciate it very much
Speaker 4: about the data, but there's several mega things out there
Speaker 4: for which the FED is not responsible that I'm sure
Speaker 4: are in the background or part of your consideration, and
Speaker 4: that's the extraordinary deficits, fiscal deficits going forward, and the
Speaker 4: value of the dollar. Would you explain how those might
Speaker 4: enter into your considerations as to the what monetary policy
Speaker 4: should be.
Speaker 3: Yeah. When you know, we have a kind of a
Speaker 3: long standing view that we don't, you know, praise or
Speaker 3: criticize fiscal policy. We take it as a given for
Speaker 3: doing our own job. But when you're running six percent
Speaker 3: deficits three percent primary deficits, we know that that's just
Speaker 3: not sustainable in the long run. How long is the
Speaker 3: long run. I don't know the old joke, I'll be
Speaker 3: dead before we find out, but we just know what
Speaker 3: economicy you can do it persistently just not going to happen.
Speaker 3: So that has general concerns. The our Star speech I
Speaker 3: gave back in Iceland was if you think about our
Speaker 3: Star and government debt, which is the closest thing to
Speaker 3: should matter for me, and reserves, it's a race between
Speaker 3: the growing demand for US Treasury debt and the growing supply.
Speaker 3: For the last forty years, demand has outstripped supply. And
Speaker 3: what does that mean. Prices go up, yields go down.
Speaker 3: At some point. If that reverses and the supply starts
Speaker 3: succeeding demand, the only way you're going to get the
Speaker 3: markets in the world to hold this stuff is you
Speaker 3: lower the price, which means the yield's going to go up.
Speaker 3: So for me, having good stable fiscal policy is the
Speaker 3: best way to ensure that you don't have that happen.
Speaker 3: But again this is not under my control. That's up
Speaker 3: to the Congress, White House to think about fiscal policy.
Speaker 3: That's it. That's just my view on it.
Speaker 2: Chris Sir Mock raising adventure in Great capital.
Speaker 5: Alna Walla, you talked about AI, and you said that
Speaker 5: you thought short term it could have some risks for
Speaker 5: the labor market. Long term is good for productivity, but
Speaker 5: a lot of forecasters are predicting that it will be
Speaker 5: negative or the labor market longer term, that it will
Speaker 5: reduce jobs. How does that impact monetary policy, how does
Speaker 5: it impact your dual mandate? And how do you think
Speaker 5: about it generally?
Speaker 3: Right? So that's what I'm saying, is this a structural
Speaker 3: or a cyclical phenomenon with AI? So if you think
Speaker 3: about labor demand and employment just over time just grows
Speaker 3: with the economy, what I worry about is AI being
Speaker 3: a structural is there's this one time, permanent drop in
Speaker 3: the level of demand. The question is does it continue
Speaker 3: to grow at the same rate as before, in which
Speaker 3: case it's just a level effect employment growth and everything
Speaker 3: will continue on in the future. Or does it drop
Speaker 3: and then it just tastes flat. It not only drops
Speaker 3: in the level, but it has a lot or growth
Speaker 3: rate of employment. I as a policymaker cannot do anything
Speaker 3: about that latter case. If it's just the fact that
Speaker 3: there's this kind of cyclical movement in labor Evan, that's
Speaker 3: what I'm designed to have some influence over. But if
Speaker 3: it's a sharp structural drop, you know, lowering the FED
Speaker 3: funds right fifty base points isn't going to overcome that.
Speaker 3: And that's what we're trying to figure out is going
Speaker 3: to happen now. In the past, whenever we've seen technological change,
Speaker 3: I gave a speech yesterday down to Amazon. You know,
Speaker 3: you see jobs going away, you know which ones are
Speaker 3: going to go away, but you never know which jobs
Speaker 3: are coming. And usually there's a kind of enough of
Speaker 3: a gap where there's the jobs are slowly going away,
Speaker 3: new ones are coming on. This time when I worry
Speaker 3: about it's so fast. It's happening so fast that the
Speaker 3: jobs go a way faster than we can figure out
Speaker 3: what the new jobs are. The new jobs will show up.
Speaker 3: I have no doubt about that. It's just the timing
Speaker 3: may be a little more disruptive than technology we've seen
Speaker 3: in the past.
Speaker 2: Thank you for that question. I forgot to ask that
Speaker 2: you saved me there with that question. Here's a footnote
Speaker 2: from this speech this morning. Technology that improves labor productivity
Speaker 2: leads firm to demand more labor, not less a huge
Speaker 2: body of America doesn't agree with that. And to your
Speaker 2: point on innovation with a Nobel prize, the celebration of
Speaker 2: the last forty eight hours of Schumpad and across profit
Speaker 2: of innovation, this new innovation, the gains are going to
Speaker 2: go to a narrow group or do you think they
Speaker 2: will This is a truche word.
Speaker 6: They will diffuse out across America. Well, the history of
Speaker 6: technology is that they do diffuse. I mean, one of
Speaker 6: the things I pointed out the speech yesday. If you
Speaker 6: look back to Karl Marxist year of capitalism.
Speaker 3: Machines robots would replace labor to produce all the output.
Speaker 3: Everybody would lose their jobs, be unemployed. There'd be this
Speaker 3: mass army of the unemployed, there'd be a social revolution,
Speaker 3: Capitalism would die, and we'd have a socialist utopia. That
Speaker 3: doesn't happen, right, I mean, when capital goes out, machines
Speaker 3: and technology go up, it makes labor more productive, and
Speaker 3: firms like productive workers and that's why they want to
Speaker 3: hire them, because they don't want to keep their output constant.
Speaker 3: They want to produce more and they need both of
Speaker 3: these things to breach more output. This is what we've
Speaker 3: seen in the history, certainly of the US. In the
Speaker 3: last two hundred years, the capital stock in the US
Speaker 3: is seven times larger than it was in nineteen fifty
Speaker 3: in terms of machines, equipment, everything. The unemployment rate is
Speaker 3: exactly the same. So employment grows with technology, it doesn't
Speaker 3: go negative with it.
Speaker 2: But to the President's point, and arguably his election, a
Speaker 2: huge body of America feels let down. We had productivity,
Speaker 2: we had capital deepening of an extraordinary amount, and the
Speaker 2: jobs went to China. That's his theme with AI. Are
Speaker 2: we going to replicate that in some unknown way and
Speaker 2: the jobs are going to go to you name the place.
Speaker 3: Well, even with the China shock, totally, employment in the
Speaker 3: US has grown ever since the China Shock. It hasn't
Speaker 3: gone negative or falling. It's just go look at say
Speaker 3: the employment right, go to fred my favorite data series,
Speaker 3: pull up employment. Look what it does. It just goes up. So, yes,
Speaker 3: there are reallocations. Jobs get lost and they go somewhere
Speaker 3: else or they get eliminated. But that's my point. New jobs,
Speaker 3: new things came up, people reskilled going to new areas.
Speaker 3: So when the China shock was hitting manufacturing, we had
Speaker 3: a whole it software, phone technology, information technology that created
Speaker 3: thousands and millions of jobs.
Speaker 2: Is FRED an unfair advantage for the Saint Louis fed
Speaker 2: Do they wake up every day different than any other bank?
Speaker 3: FRED is one of the greatest gifts from the Federal
Speaker 3: Reserve to the planet.
Speaker 2: There we go, ma'n.
Speaker 7: Please hi, Ginger Color.
Speaker 1: I'm to remember cfr Overwall or just what you just
Speaker 1: said about how unemployment is the same as it was
Speaker 1: in nineteen fifty and the China Shock didn't really necessarily
Speaker 1: affect employment. I guess I want to harken back to
Speaker 1: what you said about where wealth is concentrated in the
Speaker 1: hands of Americans, right, and how you said that what
Speaker 1: the bottom sixty percent of households owned fifteen percent of
Speaker 1: wealth and forty five percent of spending. I'm curious how
Speaker 1: that figures into what you just said about unemployment being
Speaker 1: the same as it was in nineteen fifty and the
Speaker 1: China Shock ultimately not really having an effect on the
Speaker 1: labor market. I'm curious how inequality factors into that.
Speaker 3: Yeah, so, any like it was just trying to get
Speaker 3: with employment. You get sectoral shifts. Some sector goes down,
Speaker 3: some other sector goes up. In my speech yesterday said look,
Speaker 3: when automobiles came up, if you were making saddles or wagons,
Speaker 3: your jobs were going away. But those same skills got
Speaker 3: transferred over to precy chassis for cars, making car seats,
Speaker 3: the same skills they just had to transfer. So those
Speaker 3: jobs went away, but other jobs came up that took
Speaker 3: their place. That's why you can't just look at one
Speaker 3: sector and say, oh, that's going to kill the entire
Speaker 3: I don't believe that's going to happen with AI either.
Speaker 3: In terms of wealth and income and equality, this has
Speaker 3: been an issue in the US for the last forty
Speaker 3: to fifty years. There's been a tremendous increase or a
Speaker 3: reasonable increase in wealth inequality, income inequality. For me, as
Speaker 3: a policymaker, I have one instrument. I can't deal with inequality.
Speaker 3: It's really not in my toolkit. I can't say, here's
Speaker 3: an interest rate for this group, as Tom was saying,
Speaker 3: I can't say here's an interest rate without our star,
Speaker 3: and here's an industrate without our star. That's not in
Speaker 3: my set. I have to look at the aggregate. It's
Speaker 3: really my only choice. Can I look at these discrepancies
Speaker 3: and think how I might want to lean one way
Speaker 3: or the other. Sure, I can. You know, we kind
Speaker 3: of got criticized for that before with our last framework,
Speaker 3: that we were kind of leaning a particular way. There's
Speaker 3: nothing wrong with it, it's just we only have we
Speaker 3: there's very little we can do about it, and that
Speaker 3: was my issue with our last framework. I could care
Speaker 3: about this, but there's very little I can do with
Speaker 3: it for particular.
Speaker 2: Groups I think we have here in the digital world.
Speaker 2: We'll take the next question from Chris Thomas.
Speaker 8: Good morning, Governor Wallert, Thank you for the time today.
Speaker 8: Ex Intel X McKenzie. Now, I help global companies think
Speaker 8: about their global footprint and where they put advanced manufacturing facilities,
Speaker 8: and the constant refrain is that no matter how high
Speaker 8: the tariff, the US is just completely uncompetitive and now
Speaker 8: it's the most expensive place in the world to do business,
Speaker 8: especially if you're building something. To what extent does this
Speaker 8: matter for the growth and success of the US economy
Speaker 8: and is there anything that could be done about it.
Speaker 8: I've heard that even if it's one hundred percent tariff,
Speaker 8: it's still cheaper to manufacture in Taiwan or Vietnam, or
Speaker 8: Japan or Korea or China than.
Speaker 2: In the US.
Speaker 3: Yeah, I mean, this is this is way outside my wheelhouse,
Speaker 3: I have to say on trade policy, you know, particularly
Speaker 3: worrying about one sector over another, manufacturing versus others. This
Speaker 3: is just something I can't make those decisions. That's what
Speaker 3: the president got elected to do, and he's following through
Speaker 3: on his promises. Whether you get stuff on shoring or not,
Speaker 3: I don't know. We'll see. We did learn something with
Speaker 3: the pandemic that supply chains stretched across the globe are
Speaker 3: pretty fragile, and there was a lot of emphasis on
Speaker 3: getting near shoring. Maybe not on shoring, but near shoring
Speaker 3: as a result over time, you know, if tariff's were
Speaker 3: big enough, I'm pretty sure you bring your factory back.
Speaker 3: There is a price at which you will bring it back.
Speaker 3: It's not infinite, So that's what I don't know. We'll
Speaker 3: see how this all works out, whether there's a lot
Speaker 3: of incentives to bring stuff back or not, or whether
Speaker 3: the people that you know, you bring these jobs back,
Speaker 3: whether people want to do them or not. I mean,
Speaker 3: in the US we've moved into much more of a
Speaker 3: service sector mentality and the idea of screwing lugnuts on
Speaker 3: the tire for eight hours a day is not something
Speaker 3: most Americans typically want to do.
Speaker 2: Well. I'm not going to ask you about bananas and
Speaker 2: terrorifts because I don't think we're growing bananas. Sir over here, please.
Speaker 7: Andrew Watchers is Morgan Stanley, Governor Waller. Thank you for
Speaker 7: your comments. I want to ask you to say a
Speaker 7: little bit more about what you are intending to convey
Speaker 7: with the phrase to a more neutral stance of policy.
Speaker 7: In a sense, if you're restrictive just cutting once, is
Speaker 7: moving to a more neutral sense of policy? Or is
Speaker 7: this describing sort of a process where over several meetings
Speaker 7: you have an idea of a range in mind that
Speaker 7: is more neutral, and you're describing a process of moving
Speaker 7: towards that range.
Speaker 3: Yeah, I'd say it's the latter. It's really the process.
Speaker 3: So if you're at neutral and you think you're restrictive
Speaker 3: and your policy ready to set up here, what's going
Speaker 3: to cause you to bring it down? You think inflation
Speaker 3: is coming back to target, you think the labor market
Speaker 3: is either stable or weakening, you want to kind of
Speaker 3: bring it back towards neutral. It doesn't mean you go
Speaker 3: below and you want to stimulate the economy. Things would
Speaker 3: have to really get bad. We're not seeing that in
Speaker 3: the labor market that we want to go below netrol
Speaker 3: or I'm not seeing it. I can't speak for anybody else.
Speaker 3: But and the debate right now is about inflation. Inflation
Speaker 3: is running three percent, it's way over our target. It's
Speaker 3: been above target for five years, four years. Why are
Speaker 3: you lowering rates? So you have to say what is
Speaker 3: the outlook for inflation? And that's what I've argued, that
Speaker 3: any teriff effects are going to be temporary. You look,
Speaker 3: this is a classical line in central banking. You look
Speaker 3: through those things. You think about what is it going
Speaker 3: to be inflation twelve months from now? When the next
Speaker 3: twelve months. So that's what I'm doing. And in that world,
Speaker 3: I see inflation coming back down to target. I see
Speaker 3: a softening labor market. So I want to bring things
Speaker 3: back to target. I don't want to go below target
Speaker 3: right now because inflation is above target.
Speaker 2: We in Q and A, we go to tens of
Speaker 2: a percentage point. You were talking whole numbers up there.
Speaker 2: You say two percent is where the FED is right now?
Speaker 2: What is the latest thinking you see around the raging
Speaker 2: debate to take a tailor roll, look at the output gap,
Speaker 2: look at Nahru and all the rest of the mumbo jumbo,
Speaker 2: and plug in a more normal two point two or
Speaker 2: two point four or two point six percent run rate
Speaker 2: versus the decades long hope for a two percent.
Speaker 3: Change the inflation target.
Speaker 2: Yeah.
Speaker 3: Yeah, I mean there's always a good argument or debate
Speaker 3: about what should you pick a point or pick a range.
Speaker 3: A lot of central banks in the world they run
Speaker 3: with a range. They don't seem to have big problems
Speaker 3: with that, you know, like the bank a Canna is
Speaker 3: a range of one to three percent, So you know,
Speaker 3: there's often a question you're just as happy with three
Speaker 3: percent inflation as one percent?
Speaker 2: Should we be? Ah? Should we we want two?
Speaker 3: But they're not going to do crazy stuff to get
Speaker 3: it to two. That's the key point. You'll get there.
Speaker 3: You'll take your time, but you're not going to do
Speaker 3: drastic policies to drive it to exactly two. I think
Speaker 3: two is a good thing. I'll give you my spiel
Speaker 3: on what's the real value of having a two percent
Speaker 3: target with a particular price index. It holds you accountable.
Speaker 3: If I just said inflation in general somewhere between one
Speaker 3: and three percent. There's a lot of loose things that
Speaker 3: go on in there that I could always slippery slide, say,
Speaker 3: I did my job. What are you talking about? That
Speaker 3: happened with the money growth targeting back in the early eighties. Yeah,
Speaker 3: and one was pretty good, but M two was lousy.
Speaker 2: But next month two, Remember how the world stopped. I
Speaker 2: think it was Thursday and whenever it was three thirty
Speaker 2: for M one M two.
Speaker 3: And it is money growth. So I like two percent
Speaker 3: because it holds me accountable. Okay, now you want to
Speaker 3: hold me accountable because it's two point two instead of two.
Speaker 3: Come on, that's where a range kind of helps. I
Speaker 3: always like to tease my friends and things. Is in
Speaker 3: the year two thousand, if I had told you the
Speaker 3: FED would keep inflation between one and two percent for
Speaker 3: a decade, everybody in the year two thousand, that is
Speaker 3: a phenomenal monetary policy success. But because it ran one
Speaker 3: point seven, we didn't hit two, it was a failure.
Speaker 3: Think about that. One point seven, not two was a failure.
Speaker 3: But if I'd asked you before any specific two percent
Speaker 3: target you said one to two, that's amazing. That is
Speaker 3: phenomenal monitoring. So that's the danger with the two percent.
Speaker 3: It's so precise that if you don't hit it, you
Speaker 3: start saying you're failing and hitting your target. That's why
Speaker 3: I actually kind of like arrange myself.
Speaker 2: I want to talk one final questionnaire for me about
Speaker 2: the culture and the fabric of America and are economics
Speaker 2: there is such a conceit and bias in a distrust
Speaker 2: back to nineteen oh seven or even before of three
Speaker 2: zip codes in Manhattan or maybe the corridor from Washington
Speaker 2: up to Boston. You represent a part of America, some
Speaker 2: would say the backbone of America from Bimidgi, the Dakota's
Speaker 2: Bimigi all the way out to Washington State and then
Speaker 2: to Saint Louis. How would the Federal Reserves system change
Speaker 2: under a Chairman Waller given that cultural geography versus every
Speaker 2: day the East Coast certitude. It's the heritage of the
Speaker 2: modern economic FED.
Speaker 3: Well, I mean, this is one of the brilliant aspects
Speaker 3: of the design of the FED. I've studied the structure
Speaker 3: of the FED for forty years now. The whole idea
Speaker 3: was to say, look, you need some political accountability in DC,
Speaker 3: but you want to have a lot of this outside
Speaker 3: of DC. That was the typical grassroots get people away
Speaker 3: from DC talk to the American public. I always say,
Speaker 3: we're the one government agency that has contact with all
Speaker 3: parts of the US. Who are are twelve districts and
Speaker 3: all the branches in those districts. Everybody can come talk
Speaker 3: to a president of the Bank, they go out, they
Speaker 3: go out regularly speak to the public. You can come
Speaker 3: talk from me. You can have a conversation with somebody.
Speaker 3: I mean, the only other institution is they have that
Speaker 3: kind of contact, or the IRS and the Post Office,
Speaker 3: and we typically don't want to have them knocking on
Speaker 3: our door. So that's when the big advantage of the
Speaker 3: FED in our structure of having people on the outside.
Speaker 3: There has been debates forever of moving more political accountability
Speaker 3: to the FED or moving in a way. Sometimes people's
Speaker 3: viewship back and forth depending on what the situation is.
Speaker 3: But I believe the basic structure that we have has
Speaker 3: served the country well by representing all the country in
Speaker 3: the decision making process, just not a few handful of
Speaker 3: elites in Washington, Washington, DC, So that I think is important.
Speaker 3: I would say, like I said, for me, one of
Speaker 3: the critical things i'd changed the SVP. I would encourage
Speaker 3: the sense. I'm not somebody who's afraid of like, oh,
Speaker 3: if you're dissenting against what I'm pushing, that lowers my
Speaker 3: confidence or min It'll.
Speaker 2: Be so much better for us, you know, it'll be
Speaker 2: I highly recommend lots of dessense. It'll make the FED
Speaker 2: show better.
Speaker 3: Well, I just think that's the whole point of it.
Speaker 3: That was the idea of the structure was you put
Speaker 3: nineteen members so you get this diversity of views from
Speaker 3: around the country coming in different points of views. If
Speaker 3: everybody comes in, no matter what part of the country,
Speaker 3: no matter what the situation is, and you always say
Speaker 3: the same thing, we don't need it, you know, just
Speaker 3: have four or three governors and that's it. It's the
Speaker 3: board and you're done with everything.
Speaker 2: Governor Waller, thank you for joining the hustle and