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Speaker 1: Let's get to our guest for the half hour, Randy

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Speaker 1: Krasner's with us. He is professor of economics at the

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Speaker 1: University of Chicago Booth School of Business. Randy was a

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Speaker 1: FED governor from two thousand six to two thousand nine.

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Speaker 1: Thanks for making time for us, Randy A. Latton pack

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Speaker 1: here on Fed Day. Powell certainly left no doubt that

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Speaker 1: the policy is going to remain aggressively tight. FED funds

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Speaker 1: right now is forecast to reach a four point four

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Speaker 1: percent by the end of the year. So if you're

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Speaker 1: in the FEDS seat right now, so to speak, how

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Speaker 1: do you know whether you're going to overdo it overtighten?

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Speaker 1: Is that a real risk here? It certainly is a

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Speaker 1: real risk. But there's also the risk that if they

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Speaker 1: don't really try to slay the inflation dragon, uh, it'll

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Speaker 1: come back. If you only cut off one head, it's

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Speaker 1: it's like a hydras will be more heads will come

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Speaker 1: back out. You really have to make sure the job

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Speaker 1: is done. And that's we admit it clear that he's

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Speaker 1: going to do. Make sure the job is done. So

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Speaker 1: much questioning Randy about whether or not we've reached pake inflation.

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Speaker 1: What about the impact here on just everyday goods that's

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Speaker 1: really weighing into the economy, the likes of rent and

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Speaker 1: the likes. Yeah, and so obviously we're seeing uh inflation,

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Speaker 1: not just with energy and food prices, because when you

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Speaker 1: look at cor inflation, that's UH because that strips out

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Speaker 1: energy and food prices that's still high, and rents are

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Speaker 1: probably one of the key contributors. Once you've taken away

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Speaker 1: food and energy prices, and rents are gonna be starting

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Speaker 1: to come down with the lag. Housing prices are just

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Speaker 1: starting to turn. Rents will turn a little bit later,

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Speaker 1: So we'll probably see a lot of persistence in cor

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Speaker 1: inflation through the end of the year. Powell today seemed

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Speaker 1: to stop short of saying that the US is going

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Speaker 1: to fall into a recession, although I would point out

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Speaker 1: the FETE is projecting the unemployment rate to pick up

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Speaker 1: about six tenths of one percent, maybe reaches around four

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Speaker 1: point four percent. Historically, the US has never avoided a

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Speaker 1: recession with an increase in the unemployment rate of around

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Speaker 1: six tenths of one percent. Are you thinking that recession

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Speaker 1: is is more likely than not at this point? Uh? Yeah,

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Speaker 1: I think it's it's a very very narrow path to

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Speaker 1: be able to have a soft or soft fish landing

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Speaker 1: without having uh, some of that would be considered a recession. Also,

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Speaker 1: I think the FIT is being a little bit optimistic

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Speaker 1: in its projections. I think really to bring inflation down

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Speaker 1: as they wanted to come down, unemployment rate is likely

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Speaker 1: to go up perhaps to five now by historical measures,

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Speaker 1: that's actually not that high in terms of unemployment rate

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Speaker 1: during recession, but obviously from where we are, it's a

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Speaker 1: big change. Randy, what is the impact of the very

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Speaker 1: strong dollar also having in terms of some of these

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Speaker 1: economic headwinds, and so it's creating a lot of challenges

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Speaker 1: for many countries, particularly emerging market countries that have a

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Speaker 1: lot of dollar denominated tad outstanding, because there is increased

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Speaker 1: by fifteen percent against a whole bunch of currencies, and

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Speaker 1: that means that in order to pay that dollar to

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Speaker 1: nominee to debt, you have to pay fift more in

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Speaker 1: terms of local currency. So those those burdens have have

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Speaker 1: gone up, and so um it's a challenge for for

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Speaker 1: countries around the world. One of the reasons, or a

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Speaker 1: couple of reasons why the dollar is strengthening is that

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Speaker 1: the FED is being more aggressive than many other major

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Speaker 1: countries in raising rates, and also the US is likely

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Speaker 1: to be hit a little less hard than some other

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Speaker 1: major countries like in Europe, because we're a net energy

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Speaker 1: export or we're not as dependent upon MR putin for

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Speaker 1: energy supplies. It's often said that the FED is essentially

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Speaker 1: the central bankers to the world. In a situation like this, Randy,

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Speaker 1: if you're at the FED, you have to begin to

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Speaker 1: do some coordination with other key central banks. Well, there

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Speaker 1: are always discussions that that go on is a bi

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Speaker 1: monthly meeting, and the Bank for International Settlements the Center

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Speaker 1: Bankers Bank in Bostil, Switzerland, UM, but there typically is

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Speaker 1: in formal coordination except in a crisis. So when I

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Speaker 1: was at the FED during the global financial crisis, we

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Speaker 1: did do a coordinated interst rate cut along a number

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Speaker 1: of among the number of countries. But outside of crisis,

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Speaker 1: basically it's just a discussion about what you're going to

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Speaker 1: do rather than formal coordination. And Denise talking about hotel quarantine. Certainly,

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Speaker 1: the dynamic zero policy that China has been pushing on

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Speaker 1: with very much impacting its economy. As Doug mentioned, Goldman

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Speaker 1: now cutting China three growth forecast. As that COVID zero

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Speaker 1: policy stays, when does the picture change for China? Could

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Speaker 1: we see that change after the Party Congress? That's certainly yeah,

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Speaker 1: the hope that people have that there'll be a change

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Speaker 1: a pivot on that, although I'm not so sure that

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Speaker 1: will be so quick. I think there's a very deep

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Speaker 1: commitment to the zero COVID policy, and so I don't

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Speaker 1: think it's just going to be Well after the Party

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Speaker 1: Congress then we'll sort of fundamentally change. I think there'll

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Speaker 1: be an evolution should away from it because it is

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Speaker 1: very costly. Um, but I don't think it's going to

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Speaker 1: be immediate. When you look at countries like China and Japan,

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Speaker 1: they are not fighting the inflation headwinds that the US

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Speaker 1: and Europe seemed to be fighting right now, What is

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Speaker 1: that differential due to global markets? In your opinion? And so,

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Speaker 1: one of the things that's been happening is you've seen

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Speaker 1: especially a special weakness in the in the end because

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Speaker 1: many other central banks have been responding by starting to

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Speaker 1: raise interest rates. On the Bank of Japan so far

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Speaker 1: has has not done that. And uh, and so the

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Speaker 1: interest rate differential between the US Japan is greater, and

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Speaker 1: so you have a we your currency obviously, as you've

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Speaker 1: been talking about a lot of pressure on the the

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Speaker 1: the Chinese yuan also for exactly the same reasons. Yes,

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Speaker 1: and we saw the yuan reference right there, said with

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Speaker 1: a stronger bias for a twentieth straight day. You mentioned

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Speaker 1: we were mentioning earlier about the impact of the dollar.

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Speaker 1: I mean, how much does that currency paying kind of

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Speaker 1: remind you of what happened in nine seven in Asia

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Speaker 1: so well, that I think was much more of a

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Speaker 1: um uh, an extreme sort of thing that happened because

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Speaker 1: a lot of countries had tagged specifically to the dollar.

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Speaker 1: They're doing an enormous amount of borrowing in dollars, which

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Speaker 1: was much cheaper than borrowing the local currency. Um there

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Speaker 1: is some courtsy mismatch, but it's not as extreme as

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Speaker 1: it was, and I don't see the likelihood of the

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Speaker 1: same kind of disorderly changes as happened back back in

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Speaker 1: So when it comes back to the FED, I mean,

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Speaker 1: should they be tracking this in terms of the weakness

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Speaker 1: that it may get created in markets offshore? And should

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Speaker 1: they adjust at the rate of change a little bit

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Speaker 1: so that these movements aren't as drastic or should they

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Speaker 1: not concern themselves with that so much? Well, they are

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Speaker 1: concerned in so far that it is going to affect

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Speaker 1: global growth and effect demand and supply conditions in the

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Speaker 1: in the US. But the feder Reserve, like every other

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Speaker 1: central bank, is a creature of its um of its Congress.

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Speaker 1: And so the mandate for the FED is to focus

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Speaker 1: on employment and inflation in the US, not in other countries.

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Speaker 1: The same is true for every central bank around the world.

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Speaker 1: Of course, they take into account their global implications what

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Speaker 1: their mandate is to focus on the US, So the

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Speaker 1: mandate from the FED. But at the same time you

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Speaker 1: have President Putin making what Joe Biden has called overt

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Speaker 1: nuclear threats, the war in Europe, the war in Ukraine,

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Speaker 1: the energy crossis. How much does that concern you? It's

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Speaker 1: a very big concern. Um. It's the wild card that,

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Speaker 1: of course the FED really has no control over. UM.

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Speaker 1: An awful lot will be writing on choices that Mr

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Speaker 1: Putin makes, and of course that makes things very very fragile.

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Speaker 1: We obviously have a slowing global economy and UM, and

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Speaker 1: then with those kinds of fragilities that are there, UM,

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Speaker 1: you know that could be a very difficult mix. Um.

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Speaker 1: Going forward, Randy, we've been talking about tighter financial conditions

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Speaker 1: and how it's playing out in the equity market and

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Speaker 1: in the treasury market as well. Where are we right

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Speaker 1: now in your view in terms of the way in

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Speaker 1: which markets have responding. Are so we still in the

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Speaker 1: early innings? Is there much more negativity that will manifest

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Speaker 1: as a result of these tighter financial conditions. So one

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Speaker 1: of the things that we don't know exactly how play

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Speaker 1: out is as the fid starts to increase the run

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Speaker 1: off of its balance sheet and then potential sale of

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Speaker 1: of securities, what effect that will have. UM. I don't

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Speaker 1: think it's it's likely in and of itself to have

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Speaker 1: an enormous effect, but it broadly makes things more fragile,

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Speaker 1: so of the other shocks that come in, it could

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Speaker 1: make it more difficult to to respond to those those shocks. Randy,

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Speaker 1: an absolute pleasure, pleasure. Thank you for joining us. Randy

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Speaker 1: Krosner as professor of economics at University of Chicago, both

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Speaker 1: School of Business, joining us from Chicago