WEBVTT -  Former National Economic Council Director Lael Brainard Talks Fed

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let me start with I don't respond to comments by

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<v Speaker 2>other officials, whoever they may be. It's just not appropriate

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<v Speaker 2>to do that. I will tell you why I attended.

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<v Speaker 2>I would say that that case is perhaps the most

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<v Speaker 2>important legal case in the FED one hundred and thirteen

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<v Speaker 2>year history, and as I thought about it, I thought

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<v Speaker 2>it might be hard to explain why I didn't attend.

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<v Speaker 2>In addition, Paul Volker went to a Supreme Court case famously,

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<v Speaker 2>and I guess nineteen eighty five or so, so it's precedented,

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<v Speaker 2>and I thought it was an inappropriate thing, and I

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<v Speaker 2>did it.

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<v Speaker 3>That was Federal Reserve Chairman Jerome Palell answering questions today

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<v Speaker 3>on why he attended the Supreme Court hearing regarding President

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<v Speaker 3>Trump's attempt to dismiss FED Governor Lisa Cook. As we

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<v Speaker 3>also wait to hear who President Trump's next FED chair

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<v Speaker 3>pick will be, let's discuss all this with Laol. She

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<v Speaker 3>is Distinguished Fellow at the Georgetown Center for Financial Markets

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<v Speaker 3>and Policy. She's also the former Vice chair of the

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<v Speaker 3>Federal Reserve and the former NEC director. It's fantastic to

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<v Speaker 3>have you with us. There was a lot. Jerome Prow

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<v Speaker 3>did not address today, nothing on the dollar, nothing on

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<v Speaker 3>his plans as to whether he'll leave the FED in May,

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<v Speaker 3>and nothing really more on political pressure on the Fed

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<v Speaker 3>on himself. But he did comment on that case against

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<v Speaker 3>Lisa Cook his decision to attend that hearing. Do you

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<v Speaker 3>agree with that characterization that this potentially is the most

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<v Speaker 3>important legal case in the Fed's one hundred and thirteen

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<v Speaker 3>year history.

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<v Speaker 4>I do. I think that the Supreme Court case on

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<v Speaker 4>whether the President can fire a sitting governor of the

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<v Speaker 4>Federal Reserve Board without any due process and without showing

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<v Speaker 4>clearer connection to their ability to undertake the responsibilities that

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<v Speaker 4>they were confirmed by the Senate to do, is extremely

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<v Speaker 4>important for the independence of the FED. And I think

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<v Speaker 4>that the press conference the statement today just really conveyed

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<v Speaker 4>the message that the Federal Reserve is doing its job.

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<v Speaker 4>It is staying out of the political fray. It is

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<v Speaker 4>looking carefully at the data and making policy exactly on

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<v Speaker 4>the lines that Congress told it to, which is to

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<v Speaker 4>preserve a strong labor market, maximum employment, and to get

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<v Speaker 4>inflation down to two percent. And I think that was

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<v Speaker 4>the focus of the Federal Reserve Chair today in the

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<v Speaker 4>press conference, didn't allow himself to get distracted, didn't really

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<v Speaker 4>get pulled into the political fray.

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<v Speaker 3>How much longer, though, do you think that the Fed

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<v Speaker 3>can stay out of that political phray, especially as we

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<v Speaker 3>approach May, when the President will have his pick of

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<v Speaker 3>who to nominate to the Federal Reserve. Of course, the

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<v Speaker 3>chair is just one of many votes, but even still,

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<v Speaker 3>you have to imagine that ideological they will fall in

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<v Speaker 3>line with the President's thinking on interest rates.

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<v Speaker 4>Well, certainly that is important to the president. He has

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<v Speaker 4>said that many times that the chair that he selects

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<v Speaker 4>needs to reflect his views. On the other hand, all

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<v Speaker 4>of the candidates also will be looking carefully at the data.

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<v Speaker 4>We heard a lot about the data today from share pal.

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<v Speaker 4>We saw that the statement reflected the fact that there's

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<v Speaker 4>been an upgrade to the labor market. There's less concern

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<v Speaker 4>now about unemployment. And so the new chair is going

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<v Speaker 4>to have to get support from the remainder of the committee,

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<v Speaker 4>that committee that's been in place for some time now

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<v Speaker 4>if he wants to take the committee in a very

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<v Speaker 4>different direction, and he'll have to do it based on

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<v Speaker 4>the dual mandate that was provided by Congress and based

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<v Speaker 4>on the evolution of the outlook and.

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<v Speaker 1>The I'm curious though with regards to that data level.

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<v Speaker 1>I mean, obviously, you know, a lot of a big

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<v Speaker 1>takeaway from the statement in the press conference was the

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<v Speaker 1>idea that the economy is kind of a surprisingly stronger

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<v Speaker 1>I think I'm kind of paraphrasing his words there than

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<v Speaker 1>what they thought a little bit more stabilization in the

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<v Speaker 1>labor market. But then towards the end of that press conference,

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<v Speaker 1>he started talking about I think what a lot of

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<v Speaker 1>us has talked about, this K shaped economy, the idea

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<v Speaker 1>that yeah, overall we're doing good, but there is some bifurcation,

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<v Speaker 1>and I'm wondering if it's the fed's job to address

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<v Speaker 1>that or do they ignore that and just focus on

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<v Speaker 1>the aggregate.

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<v Speaker 4>Well, we're certainly seeing this divergence with strong aggregate growth

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<v Speaker 4>clearly being driven by the AI boom, the boom and

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<v Speaker 4>data centers and semiconductors in AI infrastructure. But on the

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<v Speaker 4>other hand, we're seeing the labor market basically treading water,

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<v Speaker 4>with low hiring, low firing being kind of the characterization

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<v Speaker 4>really the last several months in the labor market and

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<v Speaker 4>in consumer sentiment. We saw yesterday that the combination of

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<v Speaker 4>high prices and diminished job opportunities are leading to some

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<v Speaker 4>real concern on the part of consumers, with the lowest

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<v Speaker 4>consumer sentiment since twenty fourteen, which is a little just

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<v Speaker 4>a little hard to understand given the pandemic. But the

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<v Speaker 4>job of the Federal Reserve is to focus on the

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<v Speaker 4>overall labor market, and it does look like the labor

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<v Speaker 4>market is in pretty good balance. It certainly has stabilized.

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<v Speaker 4>We saw some uptick in the unemployment rate, but then

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<v Speaker 4>in the last month or so it seems to be

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<v Speaker 4>holding steady, and growth is certainly strong, and of course

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<v Speaker 4>you've still got strong inflation, which the chair talked about

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<v Speaker 4>core PCE, which is really their focus three point one percent.

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<v Speaker 1>Yeah, well, I am curious, so lil too about another

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<v Speaker 1>aspect of this talk about the FED being data dependent.

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<v Speaker 1>One of the reporters asked them a question about the

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<v Speaker 1>reliability of the FED models, specifically in the context of

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<v Speaker 1>some meaningful structural changes going on in our economy, whether

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<v Speaker 1>it's the potential advocation for a week or dollar. Obviously

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<v Speaker 1>a huge shift in trade policies and other things here,

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<v Speaker 1>and you seem to suggest that those are to a

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<v Speaker 1>certain degree or another incorporated into the FED models, are

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<v Speaker 1>they so?

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<v Speaker 4>Look, I think every policy maker on the FOMC uses

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<v Speaker 4>a combination of both the fed's models but also outside models.

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<v Speaker 4>They look at private sector forecasts, They talk to business contacts.

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<v Speaker 4>I certainly talk to community leaders, labor leaders, consumers. You

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<v Speaker 4>gather as much information as you can about how the

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<v Speaker 4>economy is likely to evolve, so it's not really driven

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<v Speaker 4>by a single model. I think that would lead to

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<v Speaker 4>perhaps much less robust policy making. And of course you're

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<v Speaker 4>right that with AI driving potentially a real structural shift

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<v Speaker 4>in the economy, they have to be getting data from

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<v Speaker 4>businesses and from workers on the ground to get a

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<v Speaker 4>sense of that turning point, which is so hard to

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<v Speaker 4>capture in models that are based on past data and

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<v Speaker 4>past relationships.

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<v Speaker 1>Well, I have to ask you, with all the things

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<v Speaker 1>going on in Washington right now, do you have faith

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<v Speaker 1>conviction that this will remain an independent FED.

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<v Speaker 4>Well, it will, I think, remain to be seen. It

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<v Speaker 4>will hinge on whether or not the Supreme Court strengthens

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<v Speaker 4>the independence of the Federal Reserve by making clear that

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<v Speaker 4>the four cause protection that Congress put into the Statute

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<v Speaker 4>in nineteen thirty five is really observed, or whether it

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<v Speaker 4>turns out the president can fire a governor at will,

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<v Speaker 4>in which case I think the independence of the Federal

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<v Speaker 4>Reserve will be fundamentally compromised.

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<v Speaker 1>Loyle, always great to have you, great insights. Leil Brainer,

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<v Speaker 1>former vice chair of the FED. Now where we're at

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<v Speaker 1>the Georgetown Center for Financial Markets and Policy