A Bloomberg Surveillance Jackson Hole Special

Bloomberg Audio Studios, Podcasts, radio news. 0:00:12.000 --> 0:00:15.600 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.640 --> 0:00:19.000 with Paul Sweeney. Join us each day for insight from 0:00:19.000 --> 0:00:23.159 the best in economics, finance, investment, and international relations. You 0:00:23.200 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.320 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.320 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.040 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.400 --> 0:00:42.920 or anywhere else you listen. And always I'm Bloomberg Radio, 0:00:43.120 --> 0:00:47.760 the Bloomberg Terminal and the Bloomberg Business app from Wyoming. 0:00:47.840 --> 0:00:52.320 From Jackson Hole, Wyoming for our audience worldwide, Bloomberg Surveillance 0:00:52.680 --> 0:00:54.520 on television, on radio. 0:00:54.720 --> 0:00:57.280 And it is a perfect, perfect. 0:00:56.840 --> 0:00:59.880 August Friday here in Jackson Hall with a back to 0:01:00.120 --> 0:01:02.640 up with the political miles from the Democratic Convention. I 0:01:02.640 --> 0:01:05.160 know you stayed up Lisa time and watch the entire 0:01:05.720 --> 0:01:07.240 every minute of it as well. 0:01:07.400 --> 0:01:09.040 But now we turn to the Powell speech. 0:01:09.319 --> 0:01:11.880 The key question here is how much can this fed 0:01:11.959 --> 0:01:14.120 share ratify what we're seeing in markets, which is the 0:01:14.160 --> 0:01:16.959 expectation for a rate cutting cycle after one of the 0:01:17.000 --> 0:01:20.919 longest periods without any move whatsoever after a rate hiking 0:01:20.959 --> 0:01:22.760 cycle by a federal reserve and modern history. 0:01:22.760 --> 0:01:24.560 A question here, can they stick this. 0:01:24.520 --> 0:01:27.200 Soft landing and will think give any guidance whatsoever to 0:01:27.880 --> 0:01:28.720 a lot of people think. 0:01:28.640 --> 0:01:28.880 That it's not. 0:01:29.120 --> 0:01:32.080 I'm data dependent of at fourteen cups of coffee this morning. 0:01:32.120 --> 0:01:33.040 They're data dependent. 0:01:33.080 --> 0:01:35.640 They're going to get out to the speech today and 0:01:35.680 --> 0:01:39.919 then on to the September sixth employment report, and maybe 0:01:39.959 --> 0:01:42.640 we staggered to the believe it's September twenty. 0:01:42.440 --> 0:01:44.800 One, meeting September eighteen. They're going to give us ense 0:01:44.959 --> 0:01:47.400 whether they of whether they actually are. 0:01:47.319 --> 0:01:48.800 Going to cut rates or not. 0:01:49.040 --> 0:01:50.920 A key question that I have is how far have 0:01:51.000 --> 0:01:52.960 we already come. Take a look at We are seeing 0:01:52.960 --> 0:01:55.640 a rally right now in markets after yesterday's sell off, 0:01:55.680 --> 0:01:56.680 which is the biggest. 0:01:56.320 --> 0:01:58.880 In two weeks. But what I find fascinating is just. 0:01:58.800 --> 0:02:00.480 That we've seen the two year yield to move so 0:02:00.560 --> 0:02:02.520 much more than anything else. It is down more than 0:02:02.520 --> 0:02:05.080 a percentage point from the last time that we were 0:02:05.120 --> 0:02:07.480 here in Jackson Hole August twenty sixth, and. 0:02:07.440 --> 0:02:08.160 You see that move. 0:02:08.280 --> 0:02:11.160 We're up more than twenty five percent since that day 0:02:11.480 --> 0:02:12.440 on the s and P five. 0:02:12.440 --> 0:02:14.520 I'm going to get out front with an essay that 0:02:14.560 --> 0:02:17.280 I only discovered. Thank you Peter or zagat Lazard for 0:02:17.320 --> 0:02:19.760 this and that. What we're battling with here in the 0:02:19.840 --> 0:02:22.640 years and years i've come here is we're still coming 0:02:22.680 --> 0:02:26.320 off the pandemic. Peter or Zag with Robin Brooks at 0:02:26.320 --> 0:02:30.720 Brookings writing a beautiful essay about do we really know 0:02:30.840 --> 0:02:33.720 where we are off the pandemic? And that's an overlain 0:02:33.840 --> 0:02:36.320 not being discussed here is where are we in that 0:02:36.360 --> 0:02:37.120 continuum and. 0:02:37.120 --> 0:02:39.480 Just sort of accentuating that overlay where the jobs or 0:02:39.560 --> 0:02:42.920 visions that we had just earlier this week the idea 0:02:43.000 --> 0:02:45.840 of eight hundred and eighteen thousand jobs fewer that were 0:02:45.840 --> 0:02:49.079 added in the year ended in March versus the initially 0:02:49.080 --> 0:02:51.600 reported we've got an incredible lineup today. We do have 0:02:51.639 --> 0:02:53.720 about a six ten percent gain in the SMP. I 0:02:53.800 --> 0:02:55.840 want to just get set up with Michael McHugh sitting 0:02:55.840 --> 0:02:57.560 on set with us not wearing his hat. He's been 0:02:57.560 --> 0:03:02.120 told not to by HMRT. Why because I think your 0:03:02.160 --> 0:03:04.440 ten gallon hat looks absolutely fabulous when you head to 0:03:04.440 --> 0:03:06.280 the rodeo, Mike, what are you expecting today? 0:03:06.400 --> 0:03:08.960 Smaller hat this year? Maybe only five six gallons. 0:03:10.520 --> 0:03:13.200 We're expecting kind of what you laid out with Tom, 0:03:13.280 --> 0:03:16.680 the idea that the FED is fed chairman is going 0:03:16.680 --> 0:03:21.440 to ratify the idea that rate cuts are coming without 0:03:21.800 --> 0:03:26.880 absolutely promising it or giving any kind of amount, And 0:03:26.919 --> 0:03:29.600 I think the markets have basically priced that in. The 0:03:29.720 --> 0:03:32.560 rate cuts are coming is what's got the two year 0:03:32.680 --> 0:03:37.280 yield lower. But going beyond that, the question then becomes 0:03:37.320 --> 0:03:39.000 where do they stop? How far do they go and 0:03:39.040 --> 0:03:41.960 how fast do they get there? And that's something else 0:03:42.000 --> 0:03:43.280 we probably won't hear today. 0:03:43.560 --> 0:03:47.040 What's so important? Mike McKee's the expert on this, much 0:03:47.120 --> 0:03:50.160 less so me. The number one question I get here 0:03:50.200 --> 0:03:53.600 at Jackson Hole, particularly by media, why hasn't there been 0:03:53.640 --> 0:03:54.320 a recession? 0:03:54.600 --> 0:03:57.160 Mike McKee? Why haven't we had the recession? 0:03:57.480 --> 0:04:01.240 Everyone except Rafaelbostis predicted since time began we sent at 0:04:01.320 --> 0:04:02.120 least out shopping. 0:04:05.320 --> 0:04:08.560 We've had a number of reasons. Two things in particular, 0:04:08.560 --> 0:04:11.320 well three things in particular. One is the pandemic savings. 0:04:11.600 --> 0:04:13.920 The people got extra checks during the pandemic and they 0:04:13.960 --> 0:04:18.720 had extra money to spend. We've also had some government 0:04:18.880 --> 0:04:24.640 fiscal spending with the IRA and the other acts that 0:04:24.720 --> 0:04:27.960 the Biden administration got passed. Most of that money hasn't 0:04:28.000 --> 0:04:30.920 gone out yet, but some has and businesses have started 0:04:30.920 --> 0:04:34.040 committing based on the idea that it's going to come in. 0:04:34.320 --> 0:04:37.799 And then, of course, because unemployment was low, wages were rising, 0:04:37.880 --> 0:04:42.599 and on the political side, wages have been rising faster 0:04:42.640 --> 0:04:45.200 than inflation. But nobody really gets that. But people have 0:04:45.240 --> 0:04:46.840 had enough money to spend well. 0:04:46.839 --> 0:04:48.960 I will say that when I went shopping, I went 0:04:49.040 --> 0:04:51.440 shopping in the Atlanta Airport because we were laid over 0:04:51.440 --> 0:04:52.240 there for about. 0:04:52.040 --> 0:04:53.120 Three and a half hours. 0:04:53.160 --> 0:04:55.520 So that really is the key place that we want 0:04:55.520 --> 0:04:57.360 to focus right now, and we are so glad to 0:04:57.400 --> 0:04:59.240 have shopping expert in the Atlanta Airport. 0:04:59.279 --> 0:05:00.320 Atlanta fed price is it at. 0:05:00.360 --> 0:05:02.920 Raphael Bostik, who is with us here on site, really 0:05:02.960 --> 0:05:05.800 appreciate you being with us. President bos Tak, I want 0:05:05.800 --> 0:05:07.760 to start with a change in tone that we have 0:05:07.839 --> 0:05:10.320 heard from you over the past couple of weeks. It 0:05:10.360 --> 0:05:13.520 seems like three months ago you were not that urgent, 0:05:13.880 --> 0:05:17.200 urgently feeling like we needed to see lower rates. You've 0:05:17.240 --> 0:05:20.480 kind of changed recently and really seen the need for it. 0:05:20.839 --> 0:05:23.440 What's caused that change, Well, I think two things have 0:05:23.600 --> 0:05:25.599 really happened to lead to that change. 0:05:25.640 --> 0:05:26.839 First of all, good morning. 0:05:26.560 --> 0:05:28.320 It's good to see Y'all's good to see, really good 0:05:28.360 --> 0:05:31.520 to be here. The one change is that inflation has 0:05:31.600 --> 0:05:35.240 moved a lot faster than I had anticipated. We've for 0:05:35.279 --> 0:05:38.679 the last two years have really been in a mission 0:05:39.200 --> 0:05:42.200 of getting inflation back to our two percent goal. We 0:05:42.240 --> 0:05:44.599 had seen a lot of progress early this year, it 0:05:44.640 --> 0:05:46.280 seemed like it may have been stalling out. 0:05:46.720 --> 0:05:48.320 I'm really gratified. 0:05:47.760 --> 0:05:50.200 To see that it's continuing back on that pace, and 0:05:50.240 --> 0:05:52.760 that's a very good thing. And then the second part 0:05:52.839 --> 0:05:56.080 is the employment side. So we know that unemployment rates 0:05:56.080 --> 0:05:58.320 have gone from about three point four percent to four 0:05:58.320 --> 0:06:02.000 point three percent. That's a big change. Now it's from 0:06:02.240 --> 0:06:04.880 super hot to solid, right. So I don't want to 0:06:04.920 --> 0:06:07.360 make it seem like labor markets are a week, but 0:06:07.600 --> 0:06:09.680 it really starts to tell me that things are much 0:06:09.720 --> 0:06:12.800 more in balance than they have been for quite some time. 0:06:13.040 --> 0:06:16.840 And that's really a sign that our policy has done 0:06:16.880 --> 0:06:20.359 his job, and now we need to start the path 0:06:20.480 --> 0:06:22.760 back to our more neutral stance. 0:06:22.960 --> 0:06:24.720 More than anyone at the FED, you've got a more 0:06:24.760 --> 0:06:27.400 holistic view with John Show and at Stanford, with all 0:06:27.440 --> 0:06:31.279 the academics you've done in southern California about racism, about 0:06:31.320 --> 0:06:34.599 society and all. We're in the maelstream of a political election. 0:06:34.720 --> 0:06:36.920 Greg Ypp, writing in the Wall Street Journal in the 0:06:37.000 --> 0:06:42.360 last twenty four hours, says, the politicians are not practicing economics. 0:06:42.600 --> 0:06:44.400 How does the FED get to the. 0:06:44.400 --> 0:06:48.720 September meeting, get to the November meeting and avoid the 0:06:48.760 --> 0:06:52.600 first Tuesday of November. How do you maintain FED independence 0:06:52.800 --> 0:06:55.080 with this crazy economic dialogue? 0:06:55.080 --> 0:06:58.039 We're here so I actually don't think it's that hard 0:06:58.080 --> 0:07:00.960 to remain independent. I think for us us the job 0:07:01.080 --> 0:07:04.640 is to keep our heads down, do our work, read 0:07:04.680 --> 0:07:08.440 the data, study it, get input from businesses and people 0:07:08.520 --> 0:07:11.400 all over this country to get a good handle about 0:07:11.400 --> 0:07:13.920 where the economy is, how it's moving, and how people 0:07:13.960 --> 0:07:16.680 feel is going to move forward, and then use that 0:07:16.760 --> 0:07:20.200 information to figure out what the most appropriate policy is. 0:07:20.600 --> 0:07:22.920 The worst thing that we can do is not do 0:07:23.280 --> 0:07:27.760 the right thing for reasons other than this not being 0:07:27.760 --> 0:07:30.320 the right thing right and to me, I think we 0:07:30.440 --> 0:07:35.040 must at all times be true to Our job is 0:07:35.080 --> 0:07:38.280 to set up a long run environment for this economy 0:07:38.320 --> 0:07:41.320 so that it's got a firm foundation, and that means 0:07:41.360 --> 0:07:44.840 we can't be focused and pulled into the shorter run issues. 0:07:45.040 --> 0:07:46.160 So I'm just gonna keep my head down. 0:07:46.280 --> 0:07:49.360 The FED has a long history of doing whatever it takes, 0:07:49.400 --> 0:07:52.520 whenever it takes, and that's what I expect we'll do too. 0:07:53.040 --> 0:07:55.520 You've been criticized. The Fed's been criticized by a lot 0:07:55.520 --> 0:07:57.920 of people on Wall Street who say you're too data dependent, 0:07:58.000 --> 0:08:01.360 you're looking backwards too much. I don't think they realize 0:08:01.360 --> 0:08:03.960 that you're constantly talking to people in your district to 0:08:04.000 --> 0:08:05.320 get the current lay of the land. 0:08:05.600 --> 0:08:06.880 So what is that lay of the lane? 0:08:06.920 --> 0:08:09.880 What are CEOs telling you about their plans and their 0:08:09.960 --> 0:08:12.760 view of demand and business going forward? 0:08:12.960 --> 0:08:15.840 Well, you should tell people more often. We spend a 0:08:15.840 --> 0:08:18.440 lot of time looking forward. That's actually a really important thing. 0:08:18.680 --> 0:08:22.200 We do surveys. Our bank has a lot of surveys 0:08:22.200 --> 0:08:24.360 that we do, asking what's your outlook for the next 0:08:24.360 --> 0:08:25.760 six months, for the next twelve months. 0:08:25.760 --> 0:08:28.080 In the light we hear a couple things. 0:08:28.320 --> 0:08:32.800 So one we hear the demand for product is weakening. 0:08:32.360 --> 0:08:33.920 But it's still quite solid. 0:08:34.640 --> 0:08:38.760 We hear that businesses are not expecting to expand their 0:08:38.760 --> 0:08:42.080 workforces in a very significant way, but they're also not 0:08:42.120 --> 0:08:44.840 expecting to light people off that that is not the mode. 0:08:44.880 --> 0:08:47.200 That they're really in a steady state where they can 0:08:47.240 --> 0:08:50.120 handle where things are, and their outlook for the next 0:08:50.280 --> 0:08:53.400 six to twelve months is by and large positive. Maybe 0:08:53.400 --> 0:08:56.480 a little lower in terms of revenues and profits from 0:08:56.600 --> 0:08:58.240 where we've been last two or three years, but last 0:08:58.280 --> 0:09:01.559 two or three years have been record breaking pretty much 0:09:01.600 --> 0:09:04.840 in every sector, every industry. So it's a solid picture, 0:09:05.440 --> 0:09:08.320 and it's one of the reasons why I do think 0:09:08.320 --> 0:09:11.000 that we've had some space to be patient with our 0:09:11.000 --> 0:09:14.119 policy moves, and we'll just have to see. 0:09:13.880 --> 0:09:16.360 Whether their outlook plays out. I'm hopeful that it does. 0:09:16.880 --> 0:09:19.040 Given the problems least we talked about earlier with the 0:09:19.120 --> 0:09:21.280 data and coming out of the pandemic and everything. How 0:09:21.280 --> 0:09:24.760 certain are you that your data is correct enough that 0:09:24.800 --> 0:09:25.959 you're not behind the curve? 0:09:26.640 --> 0:09:30.959 Well, I mean, we try really hard to get our 0:09:31.080 --> 0:09:35.000 view based on the pulse that business leaders are showing 0:09:35.000 --> 0:09:38.240 at every moment. We talked to folks day to day, 0:09:38.400 --> 0:09:41.560 week to week, and we ask two questions all the time. One, 0:09:41.800 --> 0:09:44.080 what's your outlooked for the next six months, and how 0:09:44.120 --> 0:09:46.760 has that changed relative to where you were two weeks 0:09:46.760 --> 0:09:49.360 ago or three weeks ago. We are trying really hard 0:09:49.600 --> 0:09:52.679 to notice those inflection points so that we can speak 0:09:52.679 --> 0:09:55.679 to that, we can bring that to our policy table 0:09:55.720 --> 0:09:58.719 and make sure that we're not behind the curve. But 0:09:59.080 --> 0:10:01.360 this is a turbulent as you know. I mean, you'll 0:10:01.520 --> 0:10:06.360 recover the economy. Things are happening in unexpected ways, in 0:10:06.480 --> 0:10:09.959 many different venues and many different parts of the economy, 0:10:10.200 --> 0:10:13.280 and so there is a natural trend. There's always some uncertainty, 0:10:13.480 --> 0:10:15.559 and we've just got to sort of navigate our way 0:10:15.600 --> 0:10:17.640 through and do the best that we can to get 0:10:17.679 --> 0:10:19.880 as much information so we can make good policy. What 0:10:19.920 --> 0:10:24.520 does gradual means, Well, that's a very good question. So 0:10:25.080 --> 0:10:29.760 to me, I think it is taking one step at 0:10:29.760 --> 0:10:33.440 a time and after each step, looking around to see 0:10:33.440 --> 0:10:34.800 how the economy is evolved. 0:10:34.800 --> 0:10:37.480 Okay, what everyone's asking is really is that step twenty 0:10:37.480 --> 0:10:38.240 five basis points? 0:10:38.320 --> 0:10:41.240 Is it fifty basis points? Does one mean gradual? And whatnot? 0:10:41.720 --> 0:10:45.959 So I would say this the first step. It will 0:10:46.000 --> 0:10:48.120 depend on what the next couple of data points come in. 0:10:48.360 --> 0:10:51.760 The next couple of data points come in, and inflation 0:10:51.920 --> 0:10:55.280 is moving and unemployment is staying pretty stable, I think 0:10:55.720 --> 0:10:56.760 a move would be on. 0:10:56.720 --> 0:10:58.360 The lower side. 0:10:58.679 --> 0:11:01.520 But there's a there's a narrative that says inflation comes 0:11:01.559 --> 0:11:04.079 in super hot and maybe we don't move at all, 0:11:04.720 --> 0:11:08.280 or that unemployment spikes in an unexpected way and we 0:11:08.360 --> 0:11:09.200 have to move bigger. 0:11:09.600 --> 0:11:11.760 I don't want to really. 0:11:11.440 --> 0:11:16.959 Be sitting on any one action as my modal expectation today. 0:11:17.000 --> 0:11:19.440 I'm really gonna let things play out. And you know, 0:11:19.480 --> 0:11:21.240 one of the things I've learned very much in the 0:11:21.280 --> 0:11:25.800 last four years is that getting too far out ahead 0:11:25.800 --> 0:11:28.839 of what actually happens just causes me. There's been a 0:11:28.880 --> 0:11:31.360 lot of extra energy that I wind up having to 0:11:31.400 --> 0:11:34.360 sort of undo and then get to where the reality is. 0:11:34.360 --> 0:11:36.680 So I really am trying as much as possible to 0:11:36.760 --> 0:11:38.800 be in the moment and of the moment. 0:11:39.280 --> 0:11:41.560 Well, markets are forward looking, they're not in the moment. 0:11:41.640 --> 0:11:44.080 So everybody wants to know where do you end up? 0:11:44.080 --> 0:11:46.800 Where do you think neutral is going to end up 0:11:46.880 --> 0:11:48.640 when you finish your cutting cycle. 0:11:48.800 --> 0:11:51.800 So I'll say two things on this one. In the 0:11:51.920 --> 0:11:54.000 SEPs and the dot plus, we have to put a 0:11:54.040 --> 0:11:56.240 long run number for me. Right now, that long run 0:11:56.320 --> 0:11:58.960 number is three percent. I think it's a little higher 0:11:59.000 --> 0:12:01.479 than where it was that the depths of the pandemic, 0:12:02.840 --> 0:12:06.320 But where that is precisely is unclear. The second thing 0:12:06.360 --> 0:12:09.160 I would say, though, is I've really been focused much 0:12:09.200 --> 0:12:11.400 more on making sure that inflation gets to two percent 0:12:11.679 --> 0:12:14.720 than what a long run number is, and now that 0:12:14.760 --> 0:12:19.280 we're close to moving on that way, that's a question 0:12:19.320 --> 0:12:21.440 that I will spend a lot more time with my 0:12:21.520 --> 0:12:25.480 team trying to figure out. In my building, we started 0:12:25.480 --> 0:12:29.520 to have discussion slash arguments about this, and in my book, 0:12:29.559 --> 0:12:32.280 I get views ranging from two and a half to 0:12:32.360 --> 0:12:35.400 four and a quarter. Right, that's a large range, and 0:12:35.480 --> 0:12:38.200 we're going to have to narrow that down, and so 0:12:38.240 --> 0:12:40.960 I'm really looking forward to a robust discussion that will 0:12:40.960 --> 0:12:43.760 help me get a sense of where I think it is. 0:12:43.840 --> 0:12:46.680 Two years ago, J. Powell's speech was eight minutes long. 0:12:46.760 --> 0:12:48.000 How long do you think this speech. 0:12:47.760 --> 0:12:48.120 Is going to be? 0:12:48.640 --> 0:12:50.839 So you know, I don't get any insights on that. 0:12:51.480 --> 0:12:56.319 Eight is historically a record breaking short. I'm not expecting 0:12:56.400 --> 0:12:59.840 a break records today, but we'll have to see what happens. 0:13:00.360 --> 0:13:02.360 President of the Atlanta Fed, thank you so much for 0:13:02.400 --> 0:13:15.680 being with us. She is former Cleveland FED president Loretta Mester. 0:13:15.920 --> 0:13:18.720 This is the first time that she's joining us as 0:13:18.880 --> 0:13:22.240 a non FED member in ten years. At this Jackson 0:13:22.240 --> 0:13:25.880 Hole meeting, Lorettamester, President Master, I will still call you 0:13:25.920 --> 0:13:29.040 that You've always been a thought leader. How much do 0:13:29.080 --> 0:13:33.560 you hear more dissent than usual among members at a 0:13:33.600 --> 0:13:36.160 time where we really are at a pivot. 0:13:36.880 --> 0:13:39.240 I'm not hearing that much to send Frankly, I think 0:13:39.280 --> 0:13:41.440 we're in a good place in terms of where the 0:13:41.480 --> 0:13:44.640 economy is. If you think about inflation, look how much 0:13:44.640 --> 0:13:46.599 it's come down. You know, we're in two and a 0:13:46.679 --> 0:13:50.480 half percent range, and the labor market is moderating. There's 0:13:50.480 --> 0:13:54.240 definite signs of that, but it's not weak, right, It 0:13:54.280 --> 0:13:57.880 hasn't turned into a strong you know, weakness coming into it. 0:13:57.960 --> 0:14:00.680 So we're in a good spot. And now what the 0:14:00.679 --> 0:14:03.920 Fed needs to do is make sure that it can 0:14:04.200 --> 0:14:06.679 maintain the momentum of inflation going all the way back 0:14:06.679 --> 0:14:10.000 down to two percent while keeping the labor market healthy. 0:14:10.040 --> 0:14:12.560 And I think that's where the focus is gonna be. 0:14:12.640 --> 0:14:15.800 If you remember at the start of the tightening cycle, 0:14:16.320 --> 0:14:19.880 you know, we had to go very aggressively because policy 0:14:19.920 --> 0:14:23.240 wasn't well calibrated to where the economy is and where 0:14:23.240 --> 0:14:26.080 it was going, uh or was and where it was going. 0:14:26.200 --> 0:14:28.720 And now we wanna make sure that you know, the 0:14:28.760 --> 0:14:32.160 FED wants to make sure that policy stays well calibrated 0:14:32.200 --> 0:14:34.560 to the economy. So the discussion now, I think, is 0:14:34.600 --> 0:14:37.480 about we have a dual mandate. We have to focus 0:14:37.560 --> 0:14:40.400 on both parts of that. We have to be forward looking. 0:14:40.720 --> 0:14:43.040 You know, it's where the economy is going, not necessarily 0:14:43.040 --> 0:14:46.080 where it death is here today, but where it's going. 0:14:46.600 --> 0:14:49.720 And that's why I think now it's it's actually appropriate 0:14:49.800 --> 0:14:53.000 to really be thinking about, Okay, it's time now to 0:14:53.120 --> 0:14:56.920 enter this new phase where we can start normalizing the 0:14:56.920 --> 0:14:57.640 policy rate. 0:14:58.120 --> 0:15:02.560 Wall Street and the financial media want specificity, they want certitude, 0:15:02.560 --> 0:15:05.120 they want single point statements. 0:15:04.600 --> 0:15:06.000 About exactly where we are. 0:15:06.600 --> 0:15:09.320 The reality is just a look at productivity is a 0:15:09.320 --> 0:15:13.440 capital analysis, a labor analysis, and an all in analysis, 0:15:13.520 --> 0:15:17.600 call it total factor productivity. The noise in there, to me, 0:15:17.840 --> 0:15:22.200 with the overlay of technology is highly uncertain. Do you 0:15:22.240 --> 0:15:26.840 have any handle of the overlay of productivity and technologies 0:15:26.840 --> 0:15:29.760 effect on the Cleveland and American economy. 0:15:30.160 --> 0:15:33.960 Well, I mean we've seen over history, right, that technology 0:15:34.040 --> 0:15:37.160 can be very additive to productivity growth, right, I mean, 0:15:37.160 --> 0:15:41.200 that's kind of the engine of an economy that's increasing 0:15:41.280 --> 0:15:46.600 and having potential growth rise. But in any point in time. 0:15:46.640 --> 0:15:48.680 It's very hard to measure productivity growth. 0:15:48.720 --> 0:15:49.240 Even if we. 0:15:49.200 --> 0:15:53.880 Didn't have this big technological innovation of AI, it's very 0:15:53.880 --> 0:15:56.240 difficult to measure it. So you have to take into 0:15:56.240 --> 0:15:59.440 account that there's uncertainty around productivity growth. I mean, some 0:15:59.600 --> 0:16:02.360 estimates saying that we're still in a low productivity regime. 0:16:03.760 --> 0:16:06.520 Other restamates are saying, well, let's look forward and maybe 0:16:06.520 --> 0:16:08.480 we're going to be in a higher But for the 0:16:08.480 --> 0:16:11.000 FED right now, right that's not sort. 0:16:10.840 --> 0:16:11.400 Of the focus. 0:16:11.440 --> 0:16:15.720 The focus is, you know, are we calibrated well, it's 0:16:15.800 --> 0:16:17.040 policy calibrating well. 0:16:17.120 --> 0:16:19.880 To the court, you've been great on this. She just 0:16:19.880 --> 0:16:23.400 said they're not focused on productivity. We have to be 0:16:23.400 --> 0:16:28.000 because business leaders every day are focused on those outcomes 0:16:28.240 --> 0:16:28.960 and they're invested. 0:16:29.000 --> 0:16:31.640 Well, they've sort of been forced to by inflation and 0:16:31.680 --> 0:16:34.000 a lack of workers, and they've been forced to put 0:16:34.800 --> 0:16:36.720 investment into productivity and. 0:16:36.720 --> 0:16:38.480 We'll see if it starts to pay off. 0:16:38.720 --> 0:16:41.080 But Loretta is right, at the moment, you know, you don't, 0:16:41.120 --> 0:16:43.960 you're not seeing it. But that's not the key for them. 0:16:44.640 --> 0:16:47.720 But I do want to know how you respond to 0:16:47.760 --> 0:16:51.960 the criticism that the FED has not communicated well what 0:16:52.000 --> 0:16:56.440 it's thinking and what it's planning, or if not planning, 0:16:56.480 --> 0:16:59.160 you know, what are the potential outcomes because we've seen 0:16:59.200 --> 0:17:02.040 some very wild in the markets as data comes around. 0:17:02.560 --> 0:17:04.680 Have you said data dependent too much? 0:17:05.520 --> 0:17:08.720 I think there's a misunderstanding what data dependant means, and 0:17:08.760 --> 0:17:12.760 that means that I think Chairpal today will be explaining 0:17:13.359 --> 0:17:17.879 where he sees policy going, not necessarily at the next meeting, 0:17:17.920 --> 0:17:20.280 whether fifteen to twenty five, which in some sense is 0:17:20.320 --> 0:17:23.600 really not the big issue. I know for financial markets 0:17:23.640 --> 0:17:26.120 it is, but not in terms of monetary policy. It's 0:17:26.160 --> 0:17:29.600 really what's the path forward? Are we beginning now to 0:17:29.720 --> 0:17:33.760 bring policy down? And the pace, of course, and the 0:17:34.000 --> 0:17:37.520 magnitude eventually of how far our indust rates go down, 0:17:37.600 --> 0:17:40.680 that's going to depend on how the economy evolves, right, 0:17:40.720 --> 0:17:43.000 But we're going to enter this new phase, I think, 0:17:43.080 --> 0:17:47.040 and appropriately so in July. I probably wouldn't have supported 0:17:47.560 --> 0:17:49.640 actually moving the rate down in July, and of course 0:17:49.680 --> 0:17:52.080 the committee didn't, but I could have made a case 0:17:52.119 --> 0:17:55.000 for it. And that's a change, right, That's the economy 0:17:55.040 --> 0:17:58.000 has changed enough, Inflation has come down quite a bit. 0:17:58.440 --> 0:18:00.640 It's on a path I think where we can be 0:18:00.680 --> 0:18:03.200 pretty confident it'll get back to two percent, and now 0:18:03.280 --> 0:18:05.360 we really have to balance both sides of the mandate. 0:18:05.520 --> 0:18:09.000 So it's basically keep the momentum going on inflation at 0:18:09.040 --> 0:18:12.520 the same time making sure that labor markets remain healthy. 0:18:13.040 --> 0:18:15.280 What do you think it would take for the committee 0:18:15.280 --> 0:18:17.840 to decide you needed to do more than the standard 0:18:17.880 --> 0:18:19.840 twenty five basis point cut? 0:18:20.160 --> 0:18:23.040 So I think it would have to be that, you know, 0:18:23.520 --> 0:18:26.399 somehow they thought they were a little behind and they 0:18:26.440 --> 0:18:28.639 needed to catch up, and frankly, I don't see that 0:18:28.720 --> 0:18:30.800 in the data. I think they're actually in a very 0:18:30.840 --> 0:18:34.040 good place now. If it turns out that, you know, 0:18:34.119 --> 0:18:36.680 the forecasts are saying, wow, you know, we may be 0:18:36.920 --> 0:18:42.720 seeing the moderation in labor markets being more than moderation 0:18:42.840 --> 0:18:45.520 and we actually see a weakening, they may have to 0:18:45.560 --> 0:18:48.680 adjust that and then do more. But I think there's 0:18:48.720 --> 0:18:50.879 sort of a record if you think about when we 0:18:51.000 --> 0:18:54.280 started to raise rates, right, we started at a twenty 0:18:54.280 --> 0:18:56.400 five and then a fifty. Then we did our seventy five, 0:18:56.520 --> 0:18:59.840 and that's sort of the preferred path because that means you're, no, 0:19:00.280 --> 0:19:03.080 you're not doing too much too ahead of time, And 0:19:03.119 --> 0:19:05.160 the other thing I think I would be worried about 0:19:05.280 --> 0:19:08.159 is if you do a fifty to start with the 0:19:08.240 --> 0:19:11.120 market send you know, building even more. And I think 0:19:11.160 --> 0:19:13.400 that's a calibration that you have to think about when 0:19:13.400 --> 0:19:17.760 you're doing this. So I think being steady right, thinking 0:19:17.800 --> 0:19:21.080 about what the right pace is gear to how the 0:19:21.119 --> 0:19:24.080 economy is working and evolving, it's the right way to go. 0:19:24.359 --> 0:19:25.399 You said that you expect j. 0:19:25.560 --> 0:19:27.440 Powell to come out and give a sense of where 0:19:27.440 --> 0:19:29.639 we're going. And I think that's actually the frustration for 0:19:29.640 --> 0:19:31.760 a lot of people in markets. We don't know where 0:19:31.800 --> 0:19:33.520 we're going. We don't have a sense of what the 0:19:33.560 --> 0:19:36.120 neutral rate is. Right now, the market has about two 0:19:36.160 --> 0:19:38.280 hundred basis points of rate cuts priced in by the 0:19:38.359 --> 0:19:39.080 end of next year. 0:19:39.600 --> 0:19:40.520 Is that appropriate? 0:19:40.640 --> 0:19:41.520 What is neutral? 0:19:41.640 --> 0:19:44.920 Well, remember what the markets are doing is and appropriately 0:19:44.960 --> 0:19:47.560 so looking at different scenarios, right and they're waiting and 0:19:47.560 --> 0:19:49.720 then when they when you get those kind of things 0:19:49.760 --> 0:19:51.680 out of the financial markets about how many rate cuts, 0:19:51.720 --> 0:19:55.040 it's balancing different scenarios. When the fence talking about you 0:19:55.040 --> 0:19:57.800 know where they're seeing is they're talking about, here's what 0:19:57.800 --> 0:20:01.840 we think if the economy evolves as we expect, wouldn't 0:20:01.840 --> 0:20:04.960 be appropriate policy path. But they also have to think 0:20:04.960 --> 0:20:08.360 through alternative scenarios too, So it's kind of a different 0:20:08.720 --> 0:20:12.560 answer or different question answer to a question, and that's 0:20:12.840 --> 0:20:16.359 I think the frustration is that the FED is trying 0:20:16.400 --> 0:20:19.040 to answer a different question is here's where we see 0:20:19.440 --> 0:20:22.040 policy going. But of course they don't want to commit 0:20:22.080 --> 0:20:25.199 themselves to something because the economy could evolve differently, and 0:20:25.200 --> 0:20:26.600 that's been hard to communicate. 0:20:27.400 --> 0:20:32.520 You founded an inflation lab at the Cleveland FED. 0:20:33.359 --> 0:20:36.040 What do you think inflation dynamics are now? 0:20:36.119 --> 0:20:40.160 Is this a completely different kind of situation post pandemic 0:20:40.560 --> 0:20:46.360 than models coming out of other recessions have worked with. 0:20:46.920 --> 0:20:49.560 Well, I think one thing that we saw during the 0:20:49.560 --> 0:20:53.000 pandemic and the aftermath, who sent the supply side right 0:20:53.119 --> 0:20:56.040 had a lot to do with inflation dynamics. But the 0:20:56.119 --> 0:21:00.359 key thing to remember is that those supply shocks would 0:21:00.359 --> 0:21:04.439 not have necessarily resulted in higher inflation if we hadn't 0:21:04.520 --> 0:21:07.800 had a very strong demand side of the economy. So 0:21:07.840 --> 0:21:10.879 it's this balance between supply and demand. Typically right in 0:21:10.920 --> 0:21:13.680 the past, right, it was all about demand. Supply you 0:21:13.680 --> 0:21:16.879 could sort of say it was sort of stable, and 0:21:16.920 --> 0:21:19.080 it was all about how demand was moving around. In 0:21:19.080 --> 0:21:22.520 this event, right, it was both supply and demand, and 0:21:22.560 --> 0:21:25.040 that made it more challenging. And so in that sense, 0:21:25.080 --> 0:21:29.520 I think there's a renewed understanding that dynamics on inflation. 0:21:30.200 --> 0:21:33.520 It's both sides, that's supply and demand, and understanding both 0:21:33.960 --> 0:21:36.040 I think is going to be a focus going forward. 0:21:36.160 --> 0:21:38.359 Well as if it goes into its review process for 0:21:38.480 --> 0:21:43.640 its Monetary policy framework, does what happened change the way 0:21:43.680 --> 0:21:47.080 you think the committee should look at policy? In other words, 0:21:47.160 --> 0:21:49.680 maybe you want to be a little bit more preemptive 0:21:49.720 --> 0:21:50.200 than you were. 0:21:50.840 --> 0:21:53.800 So I know a lot of people characterized the FED 0:21:54.200 --> 0:21:56.800 in the framework that came out in twenty twenty as 0:21:57.400 --> 0:22:00.240 walking away from being preemptive, but if you actually look 0:22:00.240 --> 0:22:03.240 at the language in there, still says preemptive. I agree 0:22:03.280 --> 0:22:06.040 with you that it sounded like we were just being 0:22:06.160 --> 0:22:09.800 data dependent in the moment. But we've always were focused 0:22:09.800 --> 0:22:12.640 on where is the economy going? So it's data coming in, 0:22:13.400 --> 0:22:17.440 assess that data relative to your outlook. If it's materially 0:22:17.520 --> 0:22:19.920 different than you expect, you might have to change your outlook, 0:22:19.960 --> 0:22:23.520 and therefore you might have to change policy, your policy 0:22:23.560 --> 0:22:27.160 expected policy paths. So I think we've always been forward looking. 0:22:27.280 --> 0:22:30.280 I expect the FED to remain forward looking. They may 0:22:30.480 --> 0:22:33.439 change the language in the statement so that that's a 0:22:33.480 --> 0:22:36.240 little bit more transparent, if you will, so that people 0:22:36.280 --> 0:22:39.720 actually understand that the policy has to look forward. 0:22:40.000 --> 0:22:41.919 I would never ask you this question if you're on 0:22:41.960 --> 0:22:44.399 the watch, But now that you're gainfully retired and in 0:22:44.440 --> 0:22:46.440 the real world, I'm going to ask you this question. 0:22:46.960 --> 0:22:50.840 Cleveland has reasonable real estate, but Shaker Heights as a 0:22:50.920 --> 0:22:54.960 boom real estate economy. And part of that asset success 0:22:55.000 --> 0:22:58.879 of Shaker Heights and the Shaker Heights of America is 0:22:58.920 --> 0:23:03.800 the gains thats are getting from this financial system. How 0:23:03.800 --> 0:23:08.120 does the FED distribute the benefit more across America rather 0:23:08.160 --> 0:23:10.880 than this illusion than only the have nots that own 0:23:11.200 --> 0:23:13.840 the havelves that own Nvidia are making way? 0:23:13.920 --> 0:23:18.879 Yeah, I mean the FED always focuses on the macro economy, right, 0:23:18.920 --> 0:23:22.280 It doesn't have tools that can really do much about 0:23:22.440 --> 0:23:27.399 red distributing or fairness or making sure that everyone gains. 0:23:27.440 --> 0:23:29.920 But what we can do in the FED, and what 0:23:29.960 --> 0:23:32.199 the new committee will be doing at the FED, is 0:23:32.240 --> 0:23:36.320 making sure that we maintain healthy labor markets, which again 0:23:36.440 --> 0:23:42.040 helps distribute and brings inflation and you know, the inflation 0:23:42.160 --> 0:23:45.440 rate down and getting back to price stability is also 0:23:45.600 --> 0:23:48.080 very key to having a strong economy so that everyone 0:23:48.119 --> 0:23:51.080 can prosper from the economy. The FED really can't do 0:23:51.160 --> 0:23:53.320 the other part of what you're talking about, and that's 0:23:53.359 --> 0:23:56.439 what the federal government policies are about, and the fiscal 0:23:56.480 --> 0:23:57.320 policy is about. 0:23:57.640 --> 0:23:59.040 We thought that you were going to retire and build 0:23:59.080 --> 0:24:03.080 homes to offset some of the supply issues. Lurida, there 0:24:03.119 --> 0:24:06.240 is this question Mike was talking about how the Queen 0:24:06.400 --> 0:24:08.919 of Inflation studies and how the Cleveland Fed really does 0:24:09.200 --> 0:24:11.679 have an incredible metric for that. Do you have a 0:24:11.760 --> 0:24:15.000 sense of how much more inflationary this post pandemic economy 0:24:15.080 --> 0:24:16.640 is and that really speaks. 0:24:16.359 --> 0:24:18.080 To what is the new neutral? 0:24:20.320 --> 0:24:24.280 Well, there are certain factors that really affect inflation, right, 0:24:24.320 --> 0:24:27.119 but the basics are similar to what we saw before. 0:24:27.240 --> 0:24:27.480 Right. 0:24:27.600 --> 0:24:31.359 Inflation expectations are still an important driver of inflation. Making 0:24:31.359 --> 0:24:35.680 sure they remain stable is helping to keep inflation moving down, 0:24:35.720 --> 0:24:39.440 which is important. Supply side conditions matter, and the labor 0:24:39.480 --> 0:24:41.679 market tightness matters. We're going to hear a paper at 0:24:41.760 --> 0:24:45.240 Jackson Home that's really addressing that how much tightness in 0:24:45.240 --> 0:24:48.600 the labor market affects what you want to see when 0:24:48.840 --> 0:24:52.120 demand gets out of lap with supply, so again it's 0:24:52.119 --> 0:24:55.240 the same basic factors, but of course the supply side 0:24:55.280 --> 0:24:58.119 during the pandemic changed quite a bit, and those factors 0:24:58.359 --> 0:25:00.680 are going to become I think, more signal and going 0:25:00.720 --> 0:25:02.639 forward than perhaps they were in the past. 0:25:02.800 --> 0:25:04.800 Are you having more fun now that you're not on 0:25:05.040 --> 0:25:05.720 the committee? 0:25:05.760 --> 0:25:06.560 I'm having fun. 0:25:07.920 --> 0:25:11.080 Well, hopefully you can go hiking or enjoy the beautiful 0:25:11.240 --> 0:25:15.399 Wyoming Lord Semester, formerly of the Cleveland Federal Reserve. Just 0:25:15.440 --> 0:25:17.879 going back to the end of June, when you step 0:25:17.920 --> 0:25:19.879 down and she is here for the first time in 0:25:19.960 --> 0:25:33.480 it ten years, Joining us now is someone who has 0:25:33.560 --> 0:25:36.040 been in that room, who has seen the decision making 0:25:36.040 --> 0:25:38.800 in the speech crafting former Saint Louis FED President Jim 0:25:38.840 --> 0:25:42.920 Bullard Joining us now. Jim, I would love your take 0:25:42.960 --> 0:25:45.400 on this speech. What did you think of it? 0:25:46.119 --> 0:25:49.120 I thought this was a good speech. I thought it 0:25:49.320 --> 0:25:55.199 was not quite a victory lap, but certainly emphasizing that 0:25:55.240 --> 0:25:58.800 this policy since twenty twenty two has been extremely effective 0:25:59.080 --> 0:26:02.840 in inflation down substantially putting us on a path to 0:26:02.880 --> 0:26:08.119 two percent inflation without substantial weakening in the labor market. 0:26:08.119 --> 0:26:11.639 That labor market was super hot. It has cooled, but 0:26:11.680 --> 0:26:15.040 it's only cool to a sort of normal labor market, 0:26:15.080 --> 0:26:17.720 and so that's why everyone's talking about the soft landing. 0:26:17.760 --> 0:26:20.640 So I think to the extent there are critics out there, 0:26:20.680 --> 0:26:24.600 which is great, they have to contend with the fact 0:26:24.640 --> 0:26:27.640 that this policy worked very, very well over the last 0:26:27.640 --> 0:26:28.120 two years. 0:26:28.920 --> 0:26:34.240 Appropriate Jim Bowler to your acclaimed speech years ago on 0:26:34.560 --> 0:26:38.520 regimes of a FED staggering from regime to regime or 0:26:38.600 --> 0:26:43.560 planning from regime to regime. Does this speech signal a 0:26:43.600 --> 0:26:45.680 new post pandemic regime? 0:26:48.080 --> 0:26:50.119 You know this is going to be studied for years. 0:26:50.119 --> 0:26:57.760 In this episode about disinflation without recession will be studied 0:26:57.760 --> 0:27:02.320 for many years, and exactly how it works is a 0:27:02.400 --> 0:27:05.679 good question. But Chair Powell said in the speech, I 0:27:05.680 --> 0:27:09.520 think basically lined out the argument. If you can keep 0:27:09.520 --> 0:27:15.680 inflation expectations on target, and even when the world seems 0:27:15.720 --> 0:27:20.240 to be exploding with inflation, then you can get the 0:27:20.280 --> 0:27:24.159 disinflation to occur relatively rapidly and relatively pain mostly. So 0:27:24.200 --> 0:27:28.760 I think that's a new mode for many people and 0:27:28.920 --> 0:27:30.959 thinking about how monetary policy works. 0:27:32.680 --> 0:27:35.359 I've been asking his question, Jim Bollard of many and 0:27:35.440 --> 0:27:38.520 with great respect to your public service, out of Saint Louis. 0:27:39.320 --> 0:27:42.760 Where is the unemployment rate that begins to hurt for 0:27:42.880 --> 0:27:45.840 Jim Bullard. I think a lot of America wants to 0:27:45.840 --> 0:27:49.960 know what's a statistic and unemployment rate where it says 0:27:49.960 --> 0:27:53.520 some pain? Is it five percent? Is it four point 0:27:53.720 --> 0:27:56.119 x percent? Where's that number for Jim Bullard? 0:27:56.240 --> 0:27:56.320 Go? 0:27:58.200 --> 0:28:01.240 You know, estimates of the natural rate for most people 0:28:01.480 --> 0:28:06.040 are in the mid four percent range somewhere. And so 0:28:06.200 --> 0:28:09.359 I think it's true that unemployment has come up, but 0:28:09.400 --> 0:28:11.440 it has come up from this, you know, a three 0:28:11.480 --> 0:28:14.880 handle that it was apt for several years. I think 0:28:14.960 --> 0:28:17.200 what you should think about is if the three handles 0:28:17.400 --> 0:28:21.240 the thing that's unusual for the US economy, four handle 0:28:21.320 --> 0:28:26.920 would be a very normal market turn. And now we're 0:28:26.960 --> 0:28:27.600 at that level. 0:28:27.720 --> 0:28:27.840 Now. 0:28:27.840 --> 0:28:29.960 If it goes up from here, it goes up substantially 0:28:30.000 --> 0:28:33.120 from here, you know that's going to be a substantial weakening. 0:28:33.200 --> 0:28:38.040 That's why I think Cherpel didn't want to get any 0:28:38.200 --> 0:28:40.560 anything further to happen in the labor market. 0:28:40.600 --> 0:28:42.760 I think he said, further cooling is unwelcome. 0:28:43.360 --> 0:28:48.840 Yeah, Jim, I said Jim Bullard here easily a decade 0:28:48.880 --> 0:28:52.560 ago with Alan Meltzer of Carnegie Mellon, and he lectured 0:28:52.600 --> 0:28:56.600 me on the silliness of a fifty basis point move. 0:28:57.200 --> 0:29:01.840 If we discuss a fifty basis point, are we defeating 0:29:02.280 --> 0:29:05.720 all the history of measured and all the value of 0:29:05.760 --> 0:29:06.960 a gradual approach. 0:29:08.920 --> 0:29:11.080 Yeah, I just think right now, they just probably don't 0:29:11.120 --> 0:29:13.840 need to go fifty basis points. I think that would 0:29:15.080 --> 0:29:19.720 you know, trigger expectations about a really rapid pace of 0:29:21.000 --> 0:29:21.760 rate decline. 0:29:22.440 --> 0:29:23.840 They probably don't need to do that. 0:29:24.320 --> 0:29:27.160 They would like to ask them toe the have the 0:29:27.440 --> 0:29:31.800 inflation come, ask them tote down to two percent. Also, 0:29:32.640 --> 0:29:35.480 you know, basically with this speech and certainly with the 0:29:35.560 --> 0:29:39.280 July meeting as well, they've been heavily signaling that they're 0:29:39.320 --> 0:29:42.200 going to make this move in September and subsequent moves. 0:29:42.240 --> 0:29:45.280 So that's already been pricing in the market. So they'll 0:29:45.280 --> 0:29:49.800 just be confirming at a September meeting of what's pretty 0:29:49.880 --> 0:29:52.000 much already happened as far as market price. 0:29:54.360 --> 0:29:56.760 Jim Bullerd, the former Saint Louis fed President, thank you 0:29:56.800 --> 0:29:57.440 so much for. 0:29:57.360 --> 0:29:58.000 Being with us. 0:30:07.920 --> 0:30:10.040 But the real issue is this is a German Paul 0:30:10.080 --> 0:30:12.160 who at the back end of the speech said, now 0:30:12.240 --> 0:30:15.320 is the time for humility. Yeah, I think that's an 0:30:15.320 --> 0:30:20.240 allusion to the election and the incredibly intense economic policies 0:30:20.240 --> 0:30:21.920 we're getting both from Trump and Harris. 0:30:22.360 --> 0:30:23.520 You're just trying to roll up. 0:30:26.000 --> 0:30:27.959 Is here he is. Let's go to him right now. 0:30:28.000 --> 0:30:32.360 Former Kansas City Fed Thomas Ahoning. I'm very curious to 0:30:32.400 --> 0:30:36.440 see why you actually think maybe it is too soon 0:30:37.000 --> 0:30:39.640 to sort of sound the all clear and the victory 0:30:39.680 --> 0:30:42.440 signal that we seem to hear from Federal Reserve Chair 0:30:42.880 --> 0:30:43.600 Jerome Powell. 0:30:44.440 --> 0:30:46.880 Well, I understand where he's coming from, first of all. 0:30:46.920 --> 0:30:49.120 And you know, first of all, we have an economy 0:30:49.120 --> 0:30:52.240 that is strong but slowing, which is what you want. 0:30:52.760 --> 0:30:55.680 You have a labor market that has been strong but 0:30:56.320 --> 0:31:00.720 slowing as you would expect and want, and you've had 0:31:01.080 --> 0:31:06.640 a relatively tight interest rate environment. If you think about it, 0:31:06.680 --> 0:31:09.080 interest rates, real interest rates are between two and a 0:31:09.160 --> 0:31:11.959 quarter and two and three quarter percent. If the equilibrium 0:31:12.040 --> 0:31:14.600 raise around two, you're modestly tight. So you would expect 0:31:14.760 --> 0:31:17.240 a continuation, and that's what he said. We expect to 0:31:17.240 --> 0:31:21.880 see a continuation and the decline of inflation. So with 0:31:21.960 --> 0:31:24.480 that in mind, we are getting close to where we 0:31:24.520 --> 0:31:26.440 can make a cut. So that's the statement. But the 0:31:26.480 --> 0:31:29.920 fact of the matter is, and here's the catch, inflation 0:31:30.960 --> 0:31:32.720 is between two and a half and three percent. I 0:31:32.760 --> 0:31:34.800 know they like to use the PCEE, but there is 0:31:34.800 --> 0:31:37.880 a CPI two and this CPI is three percent, and 0:31:37.920 --> 0:31:40.520 that's what people index to and that's what people look at. 0:31:40.680 --> 0:31:43.040 So inflation is still if you say three percent, it's 0:31:43.080 --> 0:31:46.200 fifty percent above target. So why are you in such 0:31:46.200 --> 0:31:49.120 a rush? So that's that's the counter argument to that. 0:31:49.480 --> 0:31:52.280 But I think based on what he said was, you know, 0:31:52.360 --> 0:31:56.320 we were very close. The next move is down, and 0:31:56.360 --> 0:31:59.200 that's what they've been saying for nine months, and that 0:31:59.280 --> 0:32:03.200 gives the markets kind of a let's say we're gonna speculate. 0:32:03.280 --> 0:32:05.800 Let's speculate long because rates are going to go down. 0:32:05.840 --> 0:32:09.280 The heritage of this discussion out of your Iowa State 0:32:09.320 --> 0:32:12.920 economics and all you did in building Kansas City, is 0:32:12.960 --> 0:32:15.840 a distrust of those people over in the east coast 0:32:15.880 --> 0:32:19.520 and maybe the left coast about the debt and the deficit. 0:32:20.080 --> 0:32:21.280 Tom Hanig, right. 0:32:21.080 --> 0:32:24.360 Now, on what you got, you got every every Trump supporter, 0:32:24.760 --> 0:32:26.840 every Hair supporter is looking at the debt and the 0:32:26.880 --> 0:32:30.440 deficit and saying, you've got to be kidding me. How 0:32:30.480 --> 0:32:34.720 afraid of you are the fiscal realities of America folded 0:32:34.760 --> 0:32:36.280 into our monetary policy. 0:32:36.400 --> 0:32:37.760 Oh, it's very much folded in. 0:32:38.480 --> 0:32:43.000 For example, regardless of what they do, the deficit is 0:32:43.000 --> 0:32:45.040 only going to grow. We know the interest on the 0:32:45.080 --> 0:32:48.760 debt is exploding. We have a huge UH deficit of 0:32:48.800 --> 0:32:51.040 two trillion. It's going to continue to be well above 0:32:51.080 --> 0:32:54.080 the train for some time. So here's the question, who's 0:32:54.080 --> 0:32:57.600 gonna who's gonna learn the money. There's gonna be the 0:32:57.600 --> 0:32:59.760 foreign interest and they're pulling away from the dollars somewhat, 0:33:00.000 --> 0:33:01.600 it's going to be domestic. How much do you want 0:33:01.640 --> 0:33:03.520 to take away from the private sector to fund the 0:33:03.560 --> 0:33:06.080 debt right and then maybe redo it in some kind 0:33:06.080 --> 0:33:09.840 of fiscal stimulus it's less efficient. Or are you going 0:33:09.840 --> 0:33:12.080 to turn to the Federal Reserve? And I call it. 0:33:12.720 --> 0:33:15.360 I call it knocking on the central Bank's door, because 0:33:15.800 --> 0:33:17.600 when you're the only source, if you're going to keep 0:33:17.600 --> 0:33:19.960 integration from exploding, the Fed's going to happen. 0:33:19.960 --> 0:33:22.560 Well reported, you've got kruger Ins and your your addresser 0:33:22.600 --> 0:33:25.560 in your bedroom. Gold at twenty five hundred. I mean 0:33:25.640 --> 0:33:27.200 we go back to Wayne Angel. We can go back 0:33:27.240 --> 0:33:31.480 further than that. The primal Midwest economist has got to 0:33:31.520 --> 0:33:34.600 be screaming about the combination of the debt and the 0:33:34.640 --> 0:33:37.080 deficit in gold at twenty five hundred. 0:33:37.240 --> 0:33:39.680 Well, I hope it's more than the Midwest because it 0:33:39.760 --> 0:33:42.560 affects the whole nation, and it is. It is a 0:33:42.720 --> 0:33:45.440 very significant problem. You know, the dollar used to be 0:33:45.520 --> 0:33:47.600 a stable coin, right. 0:33:47.800 --> 0:33:52.080 Tied to the gold because first somebody take a note 0:33:51.840 --> 0:33:54.320 ut stable coin. 0:33:54.160 --> 0:33:55.120 Really look at it. 0:33:55.120 --> 0:33:58.080 It was backed by the goal and therefore you had 0:33:58.120 --> 0:33:59.200 you had discipline around. 0:33:59.240 --> 0:34:03.720 It's all fiat, right, which is fine. If your policy is. 0:34:03.760 --> 0:34:04.760 Can we extend an hour? 0:34:04.880 --> 0:34:08.480 He's just getting fired up. Look, well, think about it. 0:34:08.520 --> 0:34:09.719 That's all I'm asking you to do. 0:34:10.160 --> 0:34:14.960 Think about what is the discipline to the value of 0:34:15.000 --> 0:34:18.920 our currency. It's the FMC with more and more pressure 0:34:18.920 --> 0:34:20.719 coming from the size of the death that we have 0:34:20.840 --> 0:34:21.720 to fund. 0:34:22.000 --> 0:34:23.719 Someone has to fund that not to go. 0:34:23.680 --> 0:34:26.719 Too far afield. When we're talking about the gold standard. 0:34:27.200 --> 0:34:30.000 This goes back to the question of inflation and just 0:34:30.080 --> 0:34:34.560 how pegged inflation is in this economy that does look 0:34:34.600 --> 0:34:38.520 different than it did pre pandemic. Do you have any 0:34:38.560 --> 0:34:42.480 concerns about the fact that we don't understand neutral and 0:34:42.520 --> 0:34:45.879 we talk about normalizing policy without a sense of where 0:34:45.880 --> 0:34:46.360 we're going. 0:34:47.160 --> 0:34:49.799 Well, I think people know where we're going, and you know, 0:34:49.840 --> 0:34:53.399 the estimates are neutral, are like every other estimate. It's 0:34:53.440 --> 0:34:57.600 not certain, but many researchers now are saying neutrals around 0:34:57.600 --> 0:35:01.560 two percent. So if neutrals two percent and the rate 0:35:02.000 --> 0:35:04.680 the Fed Funds rate is real rate is two to 0:35:04.760 --> 0:35:07.080 quarter two to three quarters percent, you have a type 0:35:07.080 --> 0:35:09.840 policy and the other part of it isn't And I 0:35:09.880 --> 0:35:14.160 will say Chairman Power emphasizes is inflationary expectations. So if 0:35:14.200 --> 0:35:18.680 they can stay firm in terms of we're not gonna 0:35:18.680 --> 0:35:21.840 ease so much that we reignite inflation. We don't know 0:35:21.880 --> 0:35:24.320 what that is, but we know we are somewhere around 0:35:24.520 --> 0:35:27.359 real rate of two percent, we'll get our rate down 0:35:27.400 --> 0:35:30.439 to two percent as inflation comes down. And if they 0:35:30.480 --> 0:35:32.960 move in September, the main thing will be how they 0:35:33.000 --> 0:35:35.719 message it, because if they don't message your right, the 0:35:35.719 --> 0:35:38.120 markets will immediately start saying, well, what's the next quarter 0:35:38.160 --> 0:35:40.279 or a half or some point, and then you will 0:35:40.280 --> 0:35:41.120 lose that anchor. 0:35:41.280 --> 0:35:43.879 I like what you said because it hints to where 0:35:43.920 --> 0:35:45.680 I was going to go next. Is this a fetter 0:35:45.719 --> 0:35:48.480 reserve that wants to see a market rally, because ultimately 0:35:48.560 --> 0:35:53.640 that's more supportive of no further deterioration in the label market. 0:35:54.160 --> 0:35:56.680 I think this is a FED that not necessarily want 0:35:56.680 --> 0:35:58.680 to see a market rally, but it does not want 0:35:59.000 --> 0:36:02.600 to see inflation night, nor does it want to see 0:36:03.440 --> 0:36:06.719 unemployment struct a rise. So they're in that tight spot 0:36:07.320 --> 0:36:09.279 and that's why they're being very careful as they go 0:36:09.360 --> 0:36:09.920 forward from here. 0:36:09.960 --> 0:36:11.600 But they have a lot on their shoulders. 0:36:11.680 --> 0:36:14.080 There's a state in the vicinity of tom Honing. It's 0:36:14.080 --> 0:36:18.279 called Missouri. McChesney Martin came out of Missouri, and he 0:36:18.320 --> 0:36:21.600 and Truman of Missouri had a pitched battle in the 0:36:21.640 --> 0:36:25.200 early nineteen fifties. Are we going to reduct fed independence 0:36:25.239 --> 0:36:30.120 battle into twenty twenty five? Well, it's yes, as possible 0:36:30.400 --> 0:36:33.480 because of the pressure to print money to buy the 0:36:33.520 --> 0:36:36.319 debt of the US government. And that's when the FED, 0:36:36.600 --> 0:36:39.160 I think it's hard decisions are ahead of them, because 0:36:39.360 --> 0:36:40.880 I think the FED is going to have to say 0:36:42.040 --> 0:36:45.360 behind the doors, I don't care how they do it, Congress, 0:36:45.360 --> 0:36:47.719 get your house in order. We cannot carry these kinds 0:36:47.719 --> 0:36:53.760 of debt forward and retain ourselves as the strongest, most 0:36:53.800 --> 0:36:55.360 reliable currency in the world. 0:36:55.440 --> 0:36:56.120 We're at a time. 0:36:56.200 --> 0:36:59.160 Can you get beefun toasts back on the menu at 0:36:59.160 --> 0:37:02.520 the Pioneer Grip? With all your power, can you get 0:37:02.520 --> 0:37:03.920 the menu back to what it was? 0:37:04.120 --> 0:37:06.400 I don't I'm not hosting this anymore, so my power 0:37:06.440 --> 0:37:08.279 is kind of limited, so I can't probably. 0:37:10.000 --> 0:37:10.880 Give you my opinion. 0:37:11.920 --> 0:37:13.800 Give you a toast to Jackson Hole. 0:37:14.440 --> 0:37:17.760 I'm a fan former Kansas City FED President Thomas Honeg 0:37:17.920 --> 0:37:18.879 joining us here in. 0:37:18.920 --> 0:37:19.680 Jackson Hall. 0:37:30.040 --> 0:37:30.959 From Jackson Hole. 0:37:31.160 --> 0:37:34.960 For our radio and television audiences worldwide. This is a 0:37:34.960 --> 0:37:38.919 Bloomberg special interview following up on the J. Powell Fed 0:37:39.000 --> 0:37:43.040 Chairman's speech. Here in Jackson Hole, we have Philadelphia FED 0:37:43.080 --> 0:37:47.560 President Patrick Harker joining me, Lisa Bradwitz and Tom Keene, 0:37:47.640 --> 0:37:49.480 and we'd like to thank you very much, Pat for 0:37:49.520 --> 0:37:54.600 coming out, uh, interrupting your your seminar rumor? 0:37:54.640 --> 0:37:57.280 Has it you're going to cut rates? 0:37:58.480 --> 0:37:59.040 Was it you? 0:37:59.040 --> 0:38:01.920 You've been some what reluctant? Are you on board? 0:38:02.320 --> 0:38:02.400 No? 0:38:02.560 --> 0:38:06.319 I said the last couple of days that it's time 0:38:06.480 --> 0:38:08.640 to start a process. And I think it's a process. 0:38:08.680 --> 0:38:12.680 It's not about a particular number. The process needs to 0:38:12.680 --> 0:38:16.319 be dictated by the data we see but we need 0:38:16.360 --> 0:38:19.040 to start moving rates down, no question about it. 0:38:19.640 --> 0:38:22.239 Well, if you start moving rates down. The one thing 0:38:22.280 --> 0:38:24.760 that didn't come through in the speech is by how much? 0:38:25.080 --> 0:38:27.040 Yeah, And again I think we need to let the 0:38:27.080 --> 0:38:29.600 data dictate this. I think what matters more than a 0:38:29.640 --> 0:38:31.680 particular number. Now, I've been out and about in my 0:38:31.719 --> 0:38:35.160 district all summer talking to contacts, and one thing I 0:38:35.200 --> 0:38:38.319 heard is twenty five point fifty. That doesn't matter so 0:38:38.400 --> 0:38:42.480 much as commit to a process. Be methodical about the 0:38:42.520 --> 0:38:46.720 process in particular, because what I've heard, particularly from the bankers, 0:38:46.760 --> 0:38:50.480 is they need time to absorb the changes. So don't 0:38:50.520 --> 0:38:54.719 just stop and start. Don't just do a large decrease 0:38:55.120 --> 0:38:57.239 and then stop and then starting it. Just start a 0:38:57.280 --> 0:38:58.560 process and keep it moving. 0:38:58.920 --> 0:39:02.280 This to me, really underscores what LORDA Master was saying 0:39:02.560 --> 0:39:05.560 formerly of the Cleveland Fed Reserve, where it makes sense 0:39:05.560 --> 0:39:07.560 for the Fetch Reserve to go by twenty five basis 0:39:07.560 --> 0:39:11.520 points to begin with and then potentially cut more significantly 0:39:11.600 --> 0:39:14.120 later on, because then you're not signaling to markets that 0:39:14.120 --> 0:39:14.959 you're going to go much further. 0:39:15.000 --> 0:39:15.840 Isn't what you agree? 0:39:15.960 --> 0:39:18.120 And we'll see how things. You know, there are a 0:39:18.160 --> 0:39:20.160 lot of risks are out there in the economy and 0:39:20.160 --> 0:39:23.360 the global economy. So we start with twenty five and 0:39:23.400 --> 0:39:26.400 we just let it run and keep moving that and 0:39:26.480 --> 0:39:28.319 we're already seeing it, right, We're seeing the long end 0:39:28.320 --> 0:39:31.080 of the curve start to come down. That's been good. 0:39:31.200 --> 0:39:34.359 The mortgage business is back. You talk to bankers, they're 0:39:34.360 --> 0:39:37.319 starting to write mortgages again. That's all good news for 0:39:37.400 --> 0:39:38.040 the economy. 0:39:38.200 --> 0:39:41.520 I've got to ask the engineer the question. Susan Collins 0:39:41.640 --> 0:39:44.720 was channeling Patrick Kreker here the other day. She says, 0:39:44.920 --> 0:39:47.160 we need to lose a pessimism. We need to be 0:39:47.200 --> 0:39:51.120 more optimistic about where we are right now. You, more 0:39:51.160 --> 0:39:53.920 than anyone I know, listens to business. What are you 0:39:54.000 --> 0:39:56.759 hearing from business about investment next year? 0:39:57.000 --> 0:39:58.600 About their confidence forward? 0:40:00.160 --> 0:40:02.640 They're cautiously optimistic, I would say, right now, I think 0:40:02.640 --> 0:40:07.360 they are optimistic. But depends on the industry and depends 0:40:07.920 --> 0:40:11.439 on where they are in their own business cycle, right. 0:40:11.719 --> 0:40:15.080 But yeah, generally we're seeing take housing for example, Housing 0:40:15.160 --> 0:40:17.400 is a good example. We know that a lot of 0:40:17.440 --> 0:40:19.799 developers are sitting on their hands waiting for rates to 0:40:19.880 --> 0:40:22.960 come down for this process to start. I think that's 0:40:23.000 --> 0:40:26.960 a good thing because we need them to build affordable houses, 0:40:27.400 --> 0:40:30.799 loan moderate income houses, and I think they will do 0:40:30.880 --> 0:40:32.480 that as we start this process. 0:40:33.680 --> 0:40:36.480 When the Chairman's book today, he suggested that the balance 0:40:36.480 --> 0:40:39.719 of risks has changed. Inflation is coming down and it's 0:40:39.800 --> 0:40:42.279 probably not going to shoot up again because of the 0:40:42.400 --> 0:40:45.880 rising unemployment rate. But the rising unemployment rate in turn 0:40:46.200 --> 0:40:48.360 is a bigger risk. At this point, how much of 0:40:48.400 --> 0:40:52.319 a risk do you see of downturn from unemployment? 0:40:52.480 --> 0:40:55.480 So I don't see a large outside risk. The employment 0:40:55.520 --> 0:40:57.719 unemployment can go up some right, and it probably will 0:40:57.719 --> 0:41:00.959 go off a little bit. It will definitely, in our view, 0:41:01.280 --> 0:41:04.399 not peak above say five percent. I mean it will 0:41:04.400 --> 0:41:07.520 be below that for sure. Well not for sure. We 0:41:07.680 --> 0:41:10.960 never nothing for sure. But you got to look at 0:41:11.000 --> 0:41:12.920 the totality of the data too. It's not just about 0:41:12.960 --> 0:41:17.480 that number, right, It's about what we're hearing from our contacts, 0:41:17.680 --> 0:41:20.879 the claims data, the job to job transition data. There's 0:41:20.920 --> 0:41:22.640 a host of data. You have to look at it. 0:41:23.320 --> 0:41:26.319 Well, this is a confidence question. Recessions are always a 0:41:26.360 --> 0:41:30.680 confidence question. You're talking about confidence CEOs that the business 0:41:30.760 --> 0:41:32.359 is going to be okay. But what do you hear 0:41:32.400 --> 0:41:35.640 from the average person who could pull back if. 0:41:35.520 --> 0:41:37.359 They see the unemployment rate going up. 0:41:38.239 --> 0:41:42.360 It really is a tale of two consumers. To simplify things. 0:41:42.400 --> 0:41:45.360 Those who have the money are spending the money. They're 0:41:45.400 --> 0:41:50.839 not that concern. Low moderate income households are really still 0:41:50.840 --> 0:41:53.520 feeling the pain. They're feeling the pain of housing prices, 0:41:53.640 --> 0:41:56.719 food prices, you name it. So they are very concerned. 0:41:56.719 --> 0:41:59.560 So it really depends. It's not one size fits all. 0:41:59.560 --> 0:42:02.600 There's not the average consumer. That person doesn't exist in 0:42:02.640 --> 0:42:03.480 our economy. 0:42:03.960 --> 0:42:06.719 So everyone's talking about this process, right, You talked about 0:42:06.719 --> 0:42:06.960 that too. 0:42:07.000 --> 0:42:08.440 This is the beginning of a process. 0:42:08.880 --> 0:42:11.759 One thing that Neil dot noticed was missing was the 0:42:11.760 --> 0:42:14.319 word gradual from Jpalas, which we can get to that 0:42:14.360 --> 0:42:14.920 in a second. 0:42:15.320 --> 0:42:16.760 Do you have a sense of where we're heading? 0:42:17.120 --> 0:42:19.279 Yeah, so I like the word methodical. That's what I'm 0:42:19.320 --> 0:42:23.520 hearing from my contacts. Please just make it so that 0:42:23.600 --> 0:42:27.400 we know where you're going in a very clear way, 0:42:27.920 --> 0:42:30.320 and then you start that process and don't just stop 0:42:30.320 --> 0:42:30.680 and start. 0:42:30.719 --> 0:42:32.520 As I said earlier, So where are you going. 0:42:33.200 --> 0:42:35.600 Well, we're going to go back to whatever that new. 0:42:35.719 --> 0:42:36.440 Neutral rate is. 0:42:36.719 --> 0:42:37.920 We have an idea of what that could be. 0:42:38.560 --> 0:42:40.480 Yeah, I mean we don't know exactly what it is. 0:42:40.520 --> 0:42:42.800 We'll know it when we get there. Let's be honest, 0:42:42.880 --> 0:42:45.799 you can't know it out priori, but you know it's 0:42:45.840 --> 0:42:49.040 probably around something around three percent, is sure, you know, 0:42:49.160 --> 0:42:51.399 or somewhere around that, But we don't know that for sure. 0:42:51.760 --> 0:42:54.520 One of the new things that social media is wonderful people. 0:42:54.560 --> 0:42:57.160 There's a guy named Triple Net Investor that's out there 0:42:57.480 --> 0:43:01.360 revealing empty office buildings for next to nothing. 0:43:01.640 --> 0:43:02.480 We got good news. 0:43:02.520 --> 0:43:05.200 Philadelphia is not on the latest list of this city, 0:43:05.280 --> 0:43:08.440 that city and the other city. From where you stand 0:43:08.600 --> 0:43:11.680 and from all your contexts, and Philadelphia's let on this. 0:43:12.280 --> 0:43:15.080 Where are we on the washout and clean up of 0:43:15.120 --> 0:43:16.320 commercial real estate? 0:43:16.960 --> 0:43:17.200 Again? 0:43:17.320 --> 0:43:20.839 Let's commercial real estate isn't one size fits all thing. 0:43:21.280 --> 0:43:24.800 So downtown office is what we're talking about. The dentist 0:43:24.880 --> 0:43:27.640 in the suburban office mall is doing just fine. Right, 0:43:27.680 --> 0:43:30.919 it's that downtown office space. We are starting to see 0:43:30.920 --> 0:43:33.720 that clean out some again, it's going to take some time, 0:43:34.320 --> 0:43:37.680 whether it's new businesses moving into that space at much 0:43:37.719 --> 0:43:41.120 lower rents or conversion. We're seeing a lot of conversion 0:43:41.160 --> 0:43:41.919 activity as well. 0:43:42.040 --> 0:43:45.120 Do you have a confidence that the banking industry is 0:43:45.239 --> 0:43:48.399 resilient to that conversion that's so far? 0:43:48.560 --> 0:43:51.279 Yes, I do, but it's something we clearly need to 0:43:51.360 --> 0:43:51.920 keep our eye on. 0:43:52.560 --> 0:43:55.800 Let's sticky with real estate. Let's talk about the residential side. 0:43:55.880 --> 0:43:58.680 You were populistic at the start of the interview here 0:43:58.680 --> 0:44:01.640 talking about mortgages coming back. There's been a lot of 0:44:01.640 --> 0:44:04.840 criticism of a FED maybe breaking the mortgage market because 0:44:05.000 --> 0:44:08.600 interest rates rose above what the majority of people had 0:44:08.680 --> 0:44:09.600 for their mortgage rate. 0:44:10.680 --> 0:44:11.399 Do you have an. 0:44:11.320 --> 0:44:16.160 Idea of what level housing it takes for housing to 0:44:16.200 --> 0:44:19.120 come back and is that figured into your calculations of 0:44:19.160 --> 0:44:20.200 where neutral should be. 0:44:20.880 --> 0:44:24.640 Yeah, so we had to do what we did to 0:44:24.680 --> 0:44:27.920 get inflation under control. So I don't know apologies that 0:44:27.960 --> 0:44:32.120 we took rates up quickly. I think about my generation, 0:44:32.400 --> 0:44:35.120 the Baby Boomers, the largest generation to go into retirement. 0:44:35.400 --> 0:44:38.719 We're sitting on these low mortgages. We want to move, 0:44:39.080 --> 0:44:42.280 We don't want that big house anymore. That lock in effect, 0:44:42.400 --> 0:44:45.080 it will start to ease as rates come down, and 0:44:45.120 --> 0:44:47.560 we're already starting to see a little bit of that again. 0:44:47.719 --> 0:44:50.400 I talked to the bankers. They're writing mortgages again, not 0:44:50.480 --> 0:44:53.960 just refise, but they're writing new mortgages again. That combined 0:44:54.000 --> 0:44:57.359 with the new supply that'll come on the market I'm 0:44:57.400 --> 0:44:59.200 pretty optimistic we can get this. 0:44:59.200 --> 0:45:02.400 This is a critical statement from mister Harker, the idea 0:45:02.440 --> 0:45:04.799 of like, when the rate comes down, where does the 0:45:04.840 --> 0:45:05.719 fevers step in? 0:45:05.800 --> 0:45:06.600 Again, are you. 0:45:06.600 --> 0:45:11.000 Looking in Jackson? It would take a lot, a lot. 0:45:11.160 --> 0:45:12.760 It would take a lot for that to happen. 0:45:13.520 --> 0:45:16.320 Another question that comes up now that you're essentially starting 0:45:16.320 --> 0:45:18.319 the path to rate cuts is what do you do 0:45:18.360 --> 0:45:21.279 about the balance sheet? Because in theory they work in 0:45:21.320 --> 0:45:25.040 opposition to each other, and it had been sort of 0:45:25.080 --> 0:45:28.320 the fence policy that we wouldn't do them simultaneously. 0:45:28.520 --> 0:45:29.840 But it looks like you're going to be doing that. 0:45:30.040 --> 0:45:30.719 Yeah, that's okay. 0:45:30.800 --> 0:45:33.640 I think again we I've always been in the camp 0:45:33.640 --> 0:45:37.000 of putting the balance sheet on autopilot, essentially starting the process, 0:45:37.520 --> 0:45:40.360 letting it run until we get and get there. We 0:45:40.480 --> 0:45:42.920 definitely don't know exactly where that's going to end. The 0:45:43.040 --> 0:45:46.160 data will dictate when we end that process. I'm okay 0:45:46.200 --> 0:45:48.840 with doing that because it's in the background, it's running. 0:45:49.080 --> 0:45:52.200 We need to get back to ample it reserves. We 0:45:52.239 --> 0:45:54.320 don't know what that number is, but we'll know what won't. 0:45:54.400 --> 0:45:56.960 You get an estimate about when that might be? 0:45:57.480 --> 0:46:02.719 I do, but I'm not gonna. It's so uncertain. We 0:46:02.800 --> 0:46:05.319 had an estimate last time we did this, right, we're off, 0:46:05.760 --> 0:46:07.520 So I'm cautious about that. 0:46:07.600 --> 0:46:08.880 If he told you, you'd have to kill you. 0:46:08.960 --> 0:46:12.520 I think that there's this question right now about heading 0:46:12.520 --> 0:46:15.480 into your end. And Adam Posen was really highlighting this earlier. 0:46:15.520 --> 0:46:18.600 There's this anxiety about what the fiscal backdrop will do 0:46:19.080 --> 0:46:23.680 to derail some of the calm, the methodical aspects of 0:46:24.040 --> 0:46:27.839 FED policy. I don't know that you can or want 0:46:27.880 --> 0:46:31.840 to comment on basically what that policy could be. But 0:46:31.920 --> 0:46:34.040 how much does that keep FED officials up at night? 0:46:34.080 --> 0:46:35.920 How much is that part of the discussion what you 0:46:36.000 --> 0:46:40.560 have to do to respond to any potential expansion of 0:46:40.600 --> 0:46:43.040 the deficit that could be inflationary next year. 0:46:44.000 --> 0:46:46.640 So I stay out of fiscal policy. Honestly, you have 0:46:46.680 --> 0:46:48.880 to respond, We have to respond to it exactly. And 0:46:48.920 --> 0:46:51.000 so I can't speak for the FED either, but for myself, 0:46:51.200 --> 0:46:54.879 what keeps me up are many risks. That's one of them, right. 0:46:55.239 --> 0:46:59.359 There's also if we see what we're seeing around the world, 0:46:59.680 --> 0:47:02.960 content licks get worse. I mean that would be tragic 0:47:03.080 --> 0:47:07.920 to humanitarian tragedy alone, but the tragedy also to the economy, 0:47:07.640 --> 0:47:09.080 the hurt to the economy. 0:47:09.360 --> 0:47:10.680 So there are a lot of risks that keep me 0:47:10.760 --> 0:47:11.239 up at night. 0:47:11.280 --> 0:47:12.000 That's just one of them. 0:47:12.160 --> 0:47:16.560 Well, tariffs, were you more or the deficit depends. 0:47:17.360 --> 0:47:20.759 It depends the devil's in the detail, Like what's specific 0:47:20.760 --> 0:47:23.959 about the tires, what specifically we're investing in in terms 0:47:24.000 --> 0:47:28.200 of deficit. You know, I'm a simple guy. I think 0:47:28.480 --> 0:47:32.160 if we're investing in something that's improving the productivity of 0:47:32.200 --> 0:47:35.440 the American economy, that's a good thing. If we're spending 0:47:35.480 --> 0:47:38.760 money that doesn't do that, that worries me more. So, Again, 0:47:38.960 --> 0:47:41.680 it's not just one one thing. It really depends on 0:47:41.719 --> 0:47:42.239 what we're doing. 0:47:42.320 --> 0:47:44.920 So you mentioned productivity. We had the big revision to 0:47:45.200 --> 0:47:48.320 the non farm payrolls right this week, but that should 0:47:48.360 --> 0:47:52.319 raise productivity. You view that as good news offsetting the 0:47:52.360 --> 0:47:53.600 bad news of Lord John. 0:47:53.680 --> 0:47:56.080 That's an interesting that's an interesting way of thinking about it. 0:47:56.320 --> 0:48:01.440 We were expecting this adjustment and we looked at in 0:48:01.480 --> 0:48:04.000 Philly FED. We've been looking at this the payroll adjustments, 0:48:04.360 --> 0:48:06.160 and we knew this was coming. It's a little larger 0:48:06.160 --> 0:48:07.920 than we expected, but we knew it was coming, so 0:48:07.960 --> 0:48:10.640 that wasn't a surprise. And it's still a good number overall, 0:48:10.640 --> 0:48:12.680 if you average out over twelve months, we're still doing 0:48:12.840 --> 0:48:15.640 just fine in the American economy. But there's risk there. 0:48:15.719 --> 0:48:17.800 That's why we need to start to take action now. 0:48:18.040 --> 0:48:19.720 Well, we'll see you on September eighteenth. 0:48:19.800 --> 0:48:23.160 Patrick Harker, President of the Philadelphia Fed, thank you very 0:48:23.239 --> 0:48:25.680 much for joining us on Bloomberg Radio and television. 0:48:26.120 --> 0:48:29.319 This is a Bloomberg Surveillance podcast, bringing you the best 0:48:29.360 --> 0:48:34.120 in economics, finance, investment, and international relations. 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