Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Inflation, Interest Rates and Economic Growth

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Inflation, Interest Rates and Economic Growth · The Capitalism and Freedom in the Twenty-First Century Podcast

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[MUSIC]
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>> Sherry Bauer: Good afternoon, thank you all for being here with us today.
0:33
I'm Shari Bower,
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I'm the regional executive based here at our Miami branch in Doral.
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But I work for the Federal Reserve Bank of Atlanta.
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Fun fact, so one of the many roles that the Federal Reserve plays is to provide
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financial services to financial institutions,
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one of which is distribution of cash and plain.
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And the Miami branch here, based in Doral, is actually the third largest distributor
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of cash and plain for the Federal Reserve system after New York and San Francisco.
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So we have a very exciting program for you today.
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We're joined by two esteemed economists who will answer all of your pressing
1:07
questions about inflation and interest rates.
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But first, I would like to thank Miami Bay College for
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hosting our event here today at the Wolfson campus.
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And also thank you to the Economic Club for
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having this great event with us here today.
1:20
Before we dive in, I'd like to introduce Dr. Malou Harrison,
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executive vice president and provost, who will give some welcoming remarks.
1:28
And then I will introduce our two speakers I`m going to do some sort
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of abridged bios.
1:33
Because if I read everyone's bios in the hall, you would be here for hours.
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So Dr. Harrison is a respected leader with more than 35 years of transformative
1:41
leadership experience,
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championing the cause of underserved students in public higher education.
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She has served in various capacities at the college,
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including president of multiple campuses and US students.
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Throughout her tenure, she has led the establishment of many high impact
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partnership initiatives at the college that have further equity,
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academic excellence.
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And student success, as well as holistic service such as single stop, year up, and
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educate tomorrow.
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She's also a prolific writer on educational issues, served on several
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boards, and has been recognized for her leadership with numerous awards.
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So Dr. Harrison, thank you.
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>> Audience: [APPLAUSE] >> Dr. Malou C. Harrison: Thank you so
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much, Shari, and good afternoon.
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>> Audience: Good afternoon.
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>> Dr. Malou C. Harrison: It is such a pleasure to welcome each and
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every one of you here to Miami Dade College for this convening this evening.
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We have many students in the audience and
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I have to tell you that partnering with the Economic Club
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of Miami is truly meaningful for us for that very reason.
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The fact that we are able to provide the opportunity to our students,
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our Miami Dade college students to learn from experts and
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economists such as David Altig.
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And let's give Mr. Altig a round of applause and a welcome.
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>> Audience: [APPLAUSE].
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>> Dr. Malou C. Harrison: [INAUDIBLE] But we're growing global
3:15
citizens here at Miami Dade College.
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And along with our students, we have faculty here,
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we have chairpersons, we have our unit of business and
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other colleagues in addition to the Miami community.
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And this is one of the most important weeks on the academic calendar for
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Miami Dade College.
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And so we're happy that this convening is taking place this week.
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On Saturday, we will graduate over 12,000 students from
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Miami Dade College, students who are earning associate degrees,
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baccalaureate degrees, as well as career certificates.
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Why is that important in the economic schema [INAUDIBLE]?
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>> Audience: [APPLAUSE] >> Dr. Malou C. Harrison: It's so
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important because Miami Dade College is contributing to
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the socioeconomic impact here in our community.
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We're coupling a very robust liberal arts and science program,
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with a workforce development and training program that really
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provides a synergy for students to go out into the world.
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To be on the world stage as employees, as entrepreneurs, as leaders,
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if you will, because of their start at Miami Dade College.
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And so we're very proud of the outputs that our college
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produces in terms of graduates.
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And we're also proud of the partnerships that we're able to procure and
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to convene with companies all over Miami Dade county,
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throughout South Florida, regionally and also internationally.
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And so with that, I want to again,
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welcome the Economic Club of Miami, we are your partner.
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We were so happy to partner with you recently when you had
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a fireside chat with Ken Griffin right here in our auditorium.
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And apart from the academic and workforce training aspects of life,
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so to speak, Miami Dade College is also a cultural convener.
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Miami Book fair hails from Miami Dade College,
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the Miami Film Festival hails from our institution.
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And as a matter of fact, as it relates to Tech Month, this month,
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you may have seen where the college yesterday launched its second
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artificial intelligence center right here at this campus.
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The first one of which was at our north campus, again,
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bringing that economic impact to Miami Dade county in so very many ways.
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So tonight, I know I'm very much interested in learning more about
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inflation, what we can look forward to, not only here, but
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throughout the United States and internationally.
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And I'd like to welcome you once more on behalf of President Madeline Pumariega and
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the 123,000 students that are enrolled here at
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Miami Dade College across our eight campuses.
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Welcome here in, [FOREIGN] thank you.
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>> Audience: [APPLAUSE] >> Sherry Bauer: Let
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me quickly introduce Dave and Jon, and then we can get started.
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So, John Hartley, is an economist, investor and researcher.
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He's also currently a research fellow at the foundation for Research
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on Equal Opportunity and an economics PhD student at Stanford University.
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He previously graduated from the University of Chicago with a DA in
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economics and mathematics with honors.
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An MBA from the Wharton School, University of Pennsylvania, and
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an MPP from the Harvard Kennedy School.
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John worked in various roles at Goldman Sachs, the World bank,
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the Committee on Capital Markets Regulation.
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US Congress to Economic Committee, and
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also the Federal Reserve Banks of New York and Chicago.
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And Dr. David Altig is the executive vice president and
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director of research at the Atlanta Fed.
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In addition to advising the Atlanta Fed president on monetary policy and
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related matters, Dr.
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Altig oversees the research division which includes a team of economists.
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The regional economic information network, and
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the community economic development function.
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Dr. Altig is a fellow and immediate past president of the National Association for
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Business Economics.
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In addition, he is a member of the advisory council of
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the Global Interdependence center and its College of Central Bankers and
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a member of the National Business Economic Issues Council.
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With that, Dave Atlig, thank you.
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>> Audience: [APPLAUSE] >> Jon Hartley: Thank you for
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that very kind introduction and
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I also just want to thank Miami Dade College for hosting us.
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For those who aren't aware, Miami Dade College is an unbelievable institution.
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I believe it is actually the largest school in the United States by
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enrollment and just in terms of the services they're providing
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students here in Miami is just unparalleled in scope.
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And so again, if you could have just a round of applause for my name is Paul.
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>> Audience: [APPLAUSE].
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>> Jon Hartley: So Dave, I wanna get thrown into this.
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And for the students who are here and maybe those that are a little
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less familiar with the Fed, I just want to get into how the Fed
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is structured and what is the Atlanta Fed role in Miami?
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There are 12 regional Fed banks out there,
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they're part of the Federal Reserve systems.
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They're the Federal Reserve Board of governors based in DC.
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What one does it mean when the Miami falls into the Atlanta Feds regional district?
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Why don't we have our own federal board, bank of Miami here?
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Can you explain a little bit about how Miami falls into the sort of
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greater scope of monetary policy making and infantry regulation?
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>> David Altig: Sure, I wanna thank you for the invitation to come here,
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especially Miami college.
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We have a long relationship, the Atlanta Fed, and
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a very happy relationship, and a big fan of everything that happens here.
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So you're trying to create a coup, I think, by my colleagues here.
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So if you wanna know why the Federal Reserve is structured
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geographically as it is, I don't know the answer to that exactly.
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I'm not sure anyone exactly knows the answer to it, it goes back to 1913.
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Essentially, the 12 district banks were designed to be bankers to banks.
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And it was roughly sort of organized around
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the lines of population where the banks were,
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in terms of the market capitalization, all sorts of things,
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not to mention some political elements that came into play.
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We're the 6th district of the Federal reserve system,
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we actually have five branches.
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Our region covers from, basically Nashville east and
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Tennessee, all of Georgia, all of Florida, all of Alabama.
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Southern Mississippi from about Jackson down, and
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southern Louisiana from about Baton Rouge now.
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So we actually have the very best cities in the country in our district.
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And it represents, in terms of its industrial mix,
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it looks very much like the United States.
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Because if you think about Miami versus Nashville versus New Orleans,
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these are very, very different places with very different cultures,
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with very different business mix across.
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And so we're able to use that footprint to get a pretty good
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picture about what's happening in the national economy.
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And that is one of the fundamental roles of all of our branches and
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the work that my colleagues here at the Atlanta and the Miami branch do.
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For that, we're about a week and a half from an FOMC meeting,
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and so we are deep into the rhythm of an FOMC meeting.
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So that rhythm sort of starts this week, really.
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So Shari and her colleagues have been out ever since the last FOMC meeting,
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trying to get answered with boots on the ground,
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getting information from business contacts throughout
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the South Florida in the Miami branch case.
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Answers the questions that are, we wanna know about, which
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are the questions I think are probably gonna come up in our conversation.
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We will meet with the board of directors for the Miami branch on Friday,
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and we will ask them these same questions and basically ask for
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their input on what's going on in the economy from their business point of view.
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And what should we do about it as policymakers?
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That will all go back to Atlanta next week, when Shari and
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her colleagues will report to the president, President Bostick.
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What they've been hearing over the past eight weeks or so we'll have in Atlanta.
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And then a bunch of economists will wait, a bunch of economist stuff.
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So one day is data, what the data is telling us,
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what models are telling us, and another day is what
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people in the real world are telling us about what's going on.
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And then we'll have an Atlanta board of directors meeting.
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We'll try to all consolidate it all at the end of next week and
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writing kind of the policy positions and statements about
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the economy that President Bostick will take to Washington.
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Very, very much the stuff that we hear from,
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maybe many of you, and the information that Shari and
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the other members of our team in the branches throughout
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the district collect makes its way to the table in Washington.
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I can't remember, I've been at this a while.
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I can't remember a single meeting where part of our statement
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at the table to Raphael's colleagues on the committee.
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Where some anecdote, the set of information that we had collected from
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our outreach in the district didn't end up as part of the conversation at the table.
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So the branch, really,
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are the voice of our constituents, which is you,
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directly to the policy making body in Washington.
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>> Jon Hartley: Fantastic.
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I'm a big fan of Rafael, since I seem to be, as well,
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I`m a bit biased in terms of your role, research director.
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One of your big responsibilities is putting together
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economic forecasts for the Fed and briefing the president.
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And leading policy decision making process within the Atlanta FedEx,
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which we get up to the FOMC meetings that come up every six weeks or so.
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Let's dig into your outlook and your forecast.
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Where do you think GDP, inflation, unemployment,
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where do you see those going?
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What part of your forecast?
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>> David Altig: GDP down, inflation down, unemployment up.
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So, we go through this exercise where four times a year we
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actually publish what our forecast on those things are.
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So we won't do it at this meeting, but
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at the last one we did publish that, the narrative about the,
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I thought I was gonna actually have to show a couple weeks ago.
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I thought I was gonna have to show up here today and
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completely change my tune about what was happening after.
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I know we'll probably talk about the failures of
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a couple California entities later on.
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But I was a little bit fearful that my story
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was gonna have to fundamentally change to ask.
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And I don't think our story, and so when I say our, and we, I got,
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I mean, I have, I'm contractually obligated to say the views that
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I express are not necessarily those in the Federal Reserve system.
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And when I say we,
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I`m really talking in our role as a policy advisors of the Atlanta Fed.
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So what is the Atlanta Fed staff thinking?
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So by the time we got to the end of last year,
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our story was pretty much that it was likely
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that we were going to see some softening in
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the economy associated that would be continued,
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but slow progress on inflation.
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And associated with some of that softening in the economy would
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see some cooling off in labor markets and some noticeable but
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not really dramatic increases in the unemployment rate or
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slowdown in pace of employment growth.
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That's my story and I'm sticking to it.
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I mean, as of yet, that seems to be the track we're on.
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What that means for policy, the policymakers are gonna decide.
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But if you look at the summary of economic projections
17:45
that were published in March, the story was that kind
17:51
of outlook with growth kind of flat for the rest of this year.
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Kind of do the math and think about what the first quarter looked like.
18:00
The minutes from the FOMC meeting came out and
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one of the big splash eating pieces of news from it was.
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So there are two things that happened in immediate one and two things.
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One of the things happens at the meeting is there is a presentation by the staff
18:17
and the board of governors and they give their outlook.
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And then all of the participants, all the presidents and
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all the governors go around and give their outlook,
18:27
some of it which is published in some of the economic projections.
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Interestingly, staff projected a recession, and that was in the minutes.
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It was not kind of hidden or anything.
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The committee numbers don't really quite add up to that, but
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it is kind of flattish soft growth for the rest of the year.
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The rate of inflation ending the year, kind of low,
18:54
three ish area, any unemployment rate ticking up some.
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The story I just exactly said, and as I said, I mean,
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I don't think that there is anything happening yet that we've seen.
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We're gonna hear a lot in the next week from lots of people,
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but we still seem to be on track for
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what feels like the proverbial soft land.
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>> Jon Hartley: I wanna get into [INAUDIBLE], first,
19:25
I wanna talk about inflation.
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A lot of people are, general, a little bit upset about inflation or
19:30
trying to figure out what's going on with it.
19:33
Inflation is now one that sort of heat that
19:38
some of the greatest ties since the 1980s,
19:44
inflation hit nearly 8%.
19:47
It's now back down to about 5% in the headline measure,
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almost 5.5% core inflation.
19:57
So the Fed has had this 2% inflation target officially since I think 2012,
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but sort of unofficially since the early 90s,
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there's been a number of commentators and comments that said,
20:13
maybe we should change this to 3% or 4%.
20:17
Why 2%, why should the fed think of it?
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>> David Altig: Yeah, so I think it's sometimes forgotten by people
20:26
that the 2% was not a number pulled out to hair.
20:31
There had actually been a lot of thought about it.
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I mean, kind of the pad answer is, so New Zealand had already done 2%,
20:38
so why shouldn't everyone else did 2%?
20:40
In fact, all kind of advanced comedies decided they'd latch on to 2%.
20:45
But there's actually some great articles written by Ben Bernanke back in
20:51
the early two thousands where he kind of laid out the case for 2%.
20:56
And the logic went as follows,
21:01
we want low inflation.
21:04
And in fact, in some world, zero would be the best.
21:08
And actually, if you're old macroeconomic students,
21:13
Milton Friedman says, actually negative.
21:17
Well, that did not seem to be the ideal rate of inflation,
21:22
because there was an issue of when times get tough,
21:26
you want to be able to cut interest rates.
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And if rates of inflation are very, very low, then the buffer for
21:35
being able to cut interest rates is going to be small.
21:40
So what you're trying to do is you're trying to set a balance between what's
21:45
an interest rate that would give policy room to maneuver if needed.
21:49
And rates of inflation that were not so
21:52
high that they were significantly distorting decision making in the economy.
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So there was a bunch of analysis done,
22:01
this is maybe not reflecting well on my profession.
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>> Audience: [LAUGH] >> David Altig: There's no reason for
22:08
it to, so I'd try to hide anything.
22:11
There was a bunch of analysis done at the time that indicated 2% was
22:16
a number that was low enough to actually not determine much damage to the economy.
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And there are various views of how you define what price ability is.
22:27
Allen Greenspan used to say all the time the rate of inflation is low
22:32
enough that nobody thinks about it.
22:35
2% seemed like that was plausibly fitting that definition.
22:42
And then the analysis that was done was basically modeling that says,
22:47
well, if you ran a 2% rate of inflation, the circumstances under which
22:51
you would have to drive interest rates to zero would be relatively rare.
22:56
That is essentially a time when people believe that the inflation adjusted
23:01
rate of return on treasuries was going to be something like 2%.
23:05
Or the normal ten year treasury rate was 4% or something like that and
23:10
all the way, reality kind of mug this.
23:12
And that turned out to be period of time post 2000,
23:17
when kind of structural interest rates just fell a lot.
23:22
Of course, we've now hit the zero bound on interest rates several times.
23:28
That is sort of the rationale behind people saying, well,
23:33
maybe we gotta up the inflation target to reflect the fact that kind of
23:38
the structure of interest rates in the world economy,
23:41
not in the United States, but in the global economy, has changed.
23:46
But the problem is then you run into the issue of, well, if you go above 2%,
23:51
are you still honoring this notion that you want inflation rates that are so
23:56
low or low enough that people aren't really thinking about it.
24:00
And they're not having to protect themselves significantly against
24:04
inflation, wages aren't kind of consistently falling on.
24:08
And chair Powell and every member of the federal marketing committee has
24:13
been very clear that they're not inclined to revisit the 2% question.
24:18
And if you wanted to rationale for
24:20
why that's more than just being stubborn, this would be my rationale.
24:26
My rationale would be, look, I mean, one of the things we've discovered
24:32
in this episode, inflation kind of is ravaging to the economy and
24:37
not least by individuals who are the most vulnerable in the economy.
24:43
So you don't wanna run into this world and
24:48
I've heard various views on how high is too high.
24:55
But to say something like 4%, I think that started territory where
25:00
you really have to worry about whether you fixing the problem of running too low
25:06
on interest rates by doing something that is in the end, of course, for the economy.
25:13
>> Jon Hartley: Yeah, and remember, to chair Bernays,
25:16
you talked many times about risks of inflationary spiral treatment and
25:22
that's why we should have a 2% inflation target, 0% inflation target,
25:28
I think it was by folks like Paul Volcker and others.
25:32
So, [INAUDIBLE] why not?
25:36
>> David Altig: [LAUGH].
25:38
>> Jon Hartley: Yeah, it's very interesting to think that
25:42
podcast period in the early nineties when this,
25:47
I guess the Fed was transitioning from the Goldberg era,
25:53
inflation revenue came in.
25:56
I want to talk a little bit about the balance sheet, just a little bit.
25:59
So interest rates are at 5%, just below 5% now, federal funds rate 5%.
26:06
And it's certainly one the Fed's main tools helping to bring down inflation.
26:12
What is the balance sheet role in bringing down inflation and
26:17
where do you think the best balance sheet should be?
26:21
>> David Altig: Well, that's a determinant.
26:25
It's easier for me to consider it going much harder for me to answer.
26:29
So again, there's gonna be differences
26:35
of opinion kind of on, but I think that most
26:40
in any event tend to think of the balance sheet and
26:46
interest rate policy at substitutes for one another.
26:53
Don't forget the reason that, on that kind of discourse I had about choosing 2%,
26:59
the reason they wanted to stay away from zero is because once you get to zero,
27:04
you got two choices.
27:06
Do nothing, make interest rates negative,
27:10
which is number been felt to be viable.
27:14
Actually in unique us economy we're not bank centric enough.
27:19
There's too much opportunity for disintermediation.
27:23
It would be a problem.
27:25
So balance sheet policy came into play during the financial crisis.
27:31
Exactly because we had hit zero and
27:33
couldn't really cut interest rates anymore.
27:36
And so balance sheet policy was a substitute for
27:38
what otherwise would have been cuts in interest rate.
27:42
The committee has said many times, times that it wishes or
27:47
that it chooses to make interest rates the primary tool of monetary policy.
27:53
And there's a recognition that the balance sheet needs to be lower,
27:59
but it's going to be made lower.
28:01
Kind of running in the background, there are various estimates of what the so
28:08
called quantitative tightening plan would imply.
28:12
If you translate it into an interest rate effect,
28:15
50 basis points is maybe something that kind of comes up very often, but the idea
28:21
is to make it kind of invisible and really do the work of fighting inflation.
28:26
Keeping the economy on even keel while you do it, is going to be done by the bank of.
28:33
What the terminal point of that process of running down the balance sheet actually
28:39
turned out to be a much trickier question than I ever thought it would have been.
28:44
You'll remember we were doing it at one point, not all that long ago,
28:48
and then we ran into the fall of 2019.
28:51
And we found that the size of the balance sheet,
28:56
which we thought would be appropriate for
29:00
smooth functioning treasury markets, for
29:05
example, was much larger than we stopped
29:09
in well over a trillion dollar range like that.
29:14
[INAUDIBLE] >> David Altig: Yeah, and
29:16
thought we would get down.
29:18
Estimates kind of varied again, but thought we would get down to
29:23
500 to 800 billion in reserves in the banking system.
29:28
That turned out to not really be appropriate for
29:32
the smooth functioning of financial markets, for
29:36
reasons that I don't fully, really worked out quite yet.
29:43
>> David Altig: That almost certainly has to do with regulatory changes after
29:48
the financial crisis.
29:49
So we're so far away from where kind of, probably the size of the balance
29:55
sheet needs to go that it's not really a live question at this point,
30:00
but sooner it's going to kind of pop back up.
30:03
And this sort of issue of how low is too low on the balance sheet
30:08
is actually going to reemerge and be one of the next really important
30:14
credit policy questions we have to answer once we get over this inflation.
30:20
>> Jon Hartley: I'm curious about inflation expectations.
30:23
How important do you think inflation expectations are for monetary policy?
30:28
And there's a couple different schools of thought.
30:30
I think sort of pre traditional school of thought is that they matter a lot in that
30:36
they sort of shift inflation expectations, then sort of shift inflation.
30:42
But there's some people that argue that there's sort of like an identification
30:45
problem there.
30:45
Like maybe the inflation expectations are going up
30:50
because inflation is going up, causality kind of thing.
30:55
How important do you think inflation expectations are for policymakers?
30:59
>> David Altig: Well, there's always an identification, so that never goes away.
31:04
But in my mind, and I think that this is,
31:09
again, a pretty conviction view.
31:14
Certainly for policymakers in the Federal Reserve system,
31:19
expectations are everything.
31:22
If you lose control, if you conduct your affairs in
31:27
such a way that people began to expect the rate inflation
31:33
five years from now, whatever the time frame might be,
31:39
is not going to revert to something like you say it's
31:44
going to revert to, you have lost that [INAUDIBLE].
31:49
He would say things like, there were always these accusations
31:54
that when Paul Volcker made a big change, he made in 79, saying,
32:00
we aren't gonna target interest rates, we're gonna target kind of money grows.
32:07
And the consequence of that was interest rates went through the roof.
32:11
He was always sort of accused by people of hiding his true motive,
32:16
that what he really wanted to do was raise interest rates for the topic.
32:22
He always said, no, that's not what I wanted at all, because,
32:27
yeah, I thought two things.
32:29
The first was,
32:30
everything we were trying to do to beat inflation in the seventies wasn't working.
32:34
So Milton Franklin had been bugging us for
32:36
a long time about controlling money supply to control inflation.
32:40
So I said, well, why not try that?
32:42
The second thing was, I thought I would walk into the room,
32:48
I would say, I'm here to bring the rate of inflation down,
32:53
and everyone would salute, and
32:55
inflation expectations would moderate and all would be good.
33:01
He said, I walked into the room again, nobody saluted.
33:05
>> Audience: [LAUGH] >> David Altig: And so consequently,
33:08
the price of bringing the inflation rate down was so
33:12
high as we went into the kind of early eighties,
33:16
precisely because you had to convince people that you really meant it.
33:22
And the only way to convince people that you really meant it was to
33:26
stick to your guns and endure the pain.
33:29
And that was fully because inflation expectations bad have been lost,
33:35
and those expectations are starting to build to wages.
33:40
The whole wage spiral story is really about expectations becoming
33:46
self fulfilling in the economy and making it very difficult to reverse.
33:52
We are not in that circumstance now.
33:54
And I think one of the ways to interpret the public pronouncements
34:01
of Fed policymakers is we have no intention of [INAUDIBLE] that happens.
34:07
>> Jon Hartley: I wanna get into just unemployment a little bit, and
34:11
you talked a little bit about top planning earlier.
34:15
Sort of whole debate around the Phillips curve is something that Phillips Curve
34:20
is sort of the classic trade off between unemployment and inflation,
34:25
that the idea is that if you get higher unemployment, you get lower inflation.
34:31
And the number of people, summers and others have argued that in
34:36
order to get inflation down we need to get unemployment up to 5% and
34:42
I guess if you think that we could have a soft landing.
34:47
And so far we haven't seen any signs on a planet going up even though
34:51
inflation has been falling it's like what your take is on sort of the state of
34:56
the folks curve and this potential for a soft landing.
35:00
Where we get sort of disinflation like we've been seeing but
35:06
without a significant how likely this.
35:11
>> David Altig: So the Phillips curve is a story that
35:15
persists because- >> Jon Hartley: [LAUGH] That's good.
35:21
>> David Altig: Because we can't think of another.
35:25
So I don't know, I guess everyone's familiar with Phillips curve,
35:30
this notion that high unemployment will put downward pressure on inflation and
35:35
low unemployment put up pressure on inflation.
35:38
So policy job as an engineer these changes in
35:43
the unemployment rate in such a way that control inflation.
35:49
Now, the relationship between inflation and
35:52
employment rate kind of broke down on us so
35:55
we kind of came up with these stories that well the Phillips curve used to be.
36:00
And now it's really flat.
36:05
>> David Altig: So we made up the explanation for why it works.
36:09
We're doing our best, I mean, but
36:13
confession is victim's soul, I want to have a stage or
36:19
life, I want to have a to meet my maker on this way.
36:25
So I got to say, look, the philistor is not a stable relationship,
36:30
it is a narrative, and I think it's best understood as a narrative.
36:36
And the narrative goes along the lines of, look, yeah, I mean,
36:40
if you've got a significant mismatch between demand and supply in the economy,
36:44
you've gotta close that mismatch somewhere.
36:47
And if you're a monetary policymaker,
36:50
you can't do much on the supply side of the economy.
36:52
Basically, the only thing you can do is kind of try to soften demand.
36:57
And I do think there is truth in that story.
37:01
Precise estimates of what it kind of tanks and whether in all
37:06
circumstances you have to drive the rate of equipment up to some specific,
37:12
precisely, estimated level is sort of a lost path, I think.
37:17
The soft range scenario really kind of relies on the notion that,
37:24
as we begin to close the gap between demand and
37:29
supply in the labor market, and
37:33
I think it is showing some signs of closing.
37:37
That, and we still see persistently higher than pre pandemic
37:43
levels of wage growth, as real wages catch up to the inflation,
37:48
that that's gonna be kind of absorbed in business margins.
37:54
Earnings are going to soften, and
37:57
those costs on the labor side will not be fully,
38:02
in any event, passed on the consumers.
38:06
So the soft landing is you don't have to hammer absolutely
38:11
the labor market to see progress on inflation,
38:15
which was created in this event by concealing some things.
38:21
Some of them are resolving themselves already,
38:24
some are not resolving themselves so quick.
38:27
One of those things to resolve is accommodating monetary policy,
38:31
which is now moved into restrictive phase.
38:34
So I think this general, when I said to me,
38:38
I'm gonna stick to my story I've been at for about six months,
38:44
it is this story that there's enough organic adjustment in the inflation rate.
38:51
As a result of the extraordinarily unusual circumstances of the pandemic,
38:57
that we can rely on that in combination with appropriate adjustments in policy.
39:03
Some slowing down in the economy to get to where
39:08
we need to get on inflation without an outsized amount of pain to workers.
39:16
>> Jon Hartley: I appreciate your confession on the Phillips curve,
39:21
and maybe someone can come up with an alti curve as
39:26
maybe that would, that would be a [INAUDIBLE].
39:30
>> Audience: [LAUGH] >> Jon Hartley: I wanna get to sort of
39:35
the big elephant in the room, and that is Silicon Valley Bank and
39:39
Signature Bank failures.
39:41
And what do you think their implications are for
39:45
the banking industry and and could they weigh on it?
39:50
And how do you diagnose this whole potential banking crisis?
39:56
>> David Altig: Well, I mean, there's lots of things to diagnose,
40:02
and one of them is obviously what happened,
40:07
that this SVB and Signature Bank were allowed
40:13
to get into the state that they were clearly in.
40:18
They were very unusual entities,
40:22
they didn't look at all like normal banks.
40:27
There will be questions about, well, okay, then who noticed?
40:31
How did they know this?
40:32
What was done about it?
40:35
I won't say anything more than that, for two reasons.
40:39
One is, I like my job.
40:40
>> Audience: [LAUGH] >> David Altig: And if there's anything
40:45
under potent, [INAUDIBLE] it's about this.
40:51
[INAUDIBLE] >> David Altig: It's okay during
40:54
the scientists, we're all part of the same team.
41:00
And also, I mean, I actually don't know, I mean, honestly, this is easy for
41:05
me to point on this, because I do not know what happened and why it happened.
41:10
And that will be the subject of one report
41:14
from the board of Governors Vice Chair Barr,
41:19
who issued his report on kind of post analysis of the events in May.
41:25
I'm sure there will be a bunch of others weighing in on exactly what went wrong.
41:32
I was talking to some folks this morning about it and I said,
41:37
well, I hope as that analysis takes place,
41:40
part of that analysis is also what went right with so many other institutions.
41:46
Because one of the things that I said earlier was that I was
41:51
fearful that I was gonna have to show up and kind of [INAUDIBLE]
41:56
tell me a very different story about my collapse very broadly.
42:01
It didn't happen, some of that's because of the policy response to the events.
42:07
But also because I think there were lots of things done right in this
42:12
environment where the key channel by which monetary policy is working now
42:18
is this sort of credit channel associated with interest rates that has emerged.
42:25
So, I mean, here's another confession I'll make,
42:31
we like to show and tell you what we think.
42:36
I'll tell you what, I like that.
42:38
So, monetary policy tightening cycles
42:43
are of course about constraining credit.
42:49
Now, you can constrain credit either on the demand side of the credit markets or
42:54
the supply of credit market.
42:56
And very honestly, in Atlanta, we were kind of pre SVB among the economists,
43:01
not necessarily the regulators, and I don't want to paint them with this brush,
43:06
but we were very focused on the demand side.
43:09
Okay, what sectors of the economy are really sensitive to
43:13
higher borrowing costs, and has that changed over time?
43:17
So does that make our tools less powerful now than maybe they were in the past?
43:22
These are kind of things we were discussing and contemplating.
43:26
And I think what SVB revealed, one of the lessons of this was that, no, no, no,
43:30
this one's gonna be about the supply side of the credit markets.
43:34
And it's gonna be about kind of credit constraints operating
43:39
through the banking system.
43:41
It was already kind of obvious before SVB, because if you look
43:45
at things like the senior loan officers survey, which, by the way,
43:50
has become kind of a bellwether indicator in this particular cycle.
43:55
It was already showing that the supply side of the credit markets
44:01
was going to be the story, and was already a story of the monetary
44:06
policy effects of the interest rate increases by the FOMC.
44:11
So we learned, I think, an important lesson there,
44:16
maybe lesson's too strong.
44:19
But it really refocused our attention on, okay, as we go forward and
44:24
we think about things like how high is too high and where should we be looking for
44:30
kind of the real effects of monetary policy operating.
44:34
That's gonna be on that credit supply side.
44:39
The other thing we learned is that this was an exercise that we had never in
44:45
the Federal Reserve done before, which is truly separated out interest rate policy.
44:52
Or policies designed to fight the inflation rate,
44:56
from financial stability policies, aimed at keeping things from blowing up,
45:02
like we did in the Great Recession or global financial crisis.
45:07
So if you think of last time we kind of worried about instability in
45:11
financial markets, it was the global financial crisis.
45:15
So we introduced a whole bunch of kind of new facilities to kind
45:20
of make sure that the financial market system did not collapse,
45:26
but we did that simultaneously with cutting rates down to zero.
45:31
Same thing in the pandemic, the pandemic hit,
45:34
we opened up a bunch of lending facilities to kind of get financial markets
45:38
through this period, and we cut interest rates back down to zero.
45:42
This is the first time where we've actually implemented a policy
45:48
combination where we threw a bunch of liquidity into the system through
45:53
the bank funding program to make sure that the issues that confronted SVB.
45:59
With respect to having to go to market and sell your securities,
46:04
if you were losing deposits and losing in a day, $2 billion or whatever it was.
46:09
At the same time, the committee turned around and
46:12
continued to raise interest rates to fight inflation.
46:15
So I think it was an important event in the sense
46:20
that there was the demonstration that we could
46:25
actually deal with financial crisis.
46:29
At the same time, not give up our macroeconomic goals and
46:33
implement the policies that are important to achieve those goals.
46:37
And it's early, so I always should say so far so
46:42
good, and I could show up here in six months and
46:47
the story will be very much different.
46:51
But I think this is really sort of an important
46:55
recognition that this was feasible, and
46:59
a feasible policy combination that allows us to fight
47:04
the fight on the many fronts where it's presenting itself.
47:10
>> Jon Hartley: One last question before opening up questions from the audience,
47:15
and this is a big one.
47:17
On the future path of interest rates,
47:19
I think it's something on a lot of people's minds.
47:22
The Fed comes futures and Euro-Dollar futures markets expect
47:28
pricing in the expected Fed to decrease interest rates by the end of this year.
47:35
The federal funds rate, as I mentioned earlier, just below 5%.
47:40
What is your forecast for where the Fed fund rate goes over the next few years?
47:48
And has any of that sort of thinking changed around what happens with
47:53
crisis in future?
47:54
You mentioned that there's a potential there for credit supply shock
47:59
that could sort of introduce tightening on top of the existing
48:03
tightening that the Fed has introduced to the system over the past year,
48:08
I'm curious what you think about future monetary policy.
48:12
>> David Altig: Well, I do I like my job, so I will not venture a personal opinion,
48:19
I will simply point out that in the summary of economic
48:24
projections that stand really from the narratives you
48:29
hear from Fed speakers, the story is pretty clear,
48:34
this notion is, so Raphael has many times kinda told the story.
48:40
You wanna think of this tightening cycle in two phases.
48:44
The first phase was just getting back to neutral, so
48:48
you can think about kind of the ramping up into the 75 basis point per medium move as
48:54
a recognition of we gotta at least get back to neutral pretty, pretty quickly.
49:00
And then in the second phase, which really sort of takes us to the end of the year,
49:06
is actually getting into tightening monetary policy region,
49:11
the median summary of economic projections have, and
49:15
of course the dispersion of those [INAUDIBLE].
49:18
So the summary of economic projections, which are the forecasts of the FOMC,
49:24
as most of you know, they're not a single forecast, it's 18 or 19, depending
49:30
on how many governors you have shown up who are on the board at the moment.
49:35
They all submit their own forecast, so they publish the median and
49:40
they publish the full distribution of the projections for
49:45
the federal funds rate, the GDP growth per inflation.
49:49
The median is at five and four sections, 1.25 basis points,
49:55
holding there until the end of the year.
49:58
The timing is not specified in those, obviously, but
50:02
we don't know whose [INAUDIBLE] you don't know who's are who's,
50:07
but if you pay attention, you can figure it out pretty easily for the most part.
50:13
I mean, I like to kinda point this out,
50:18
the thing about Chair Paul,
50:22
the thing about virtually all of the Fed FOMC
50:27
participants is what you see is what you get.
50:34
I mean, I've listened to the press conferences religiously,
50:42
and it is an attempt to be completely transparent
50:48
about the nature of the conversation and
50:52
the thinking of the committee.
50:56
And sometimes it's clearer than others, and
51:00
that almost always reflects the range of opinion in that room.
51:06
I mean, the chair is trying to do his level best at really
51:11
conveying the sense of what the conversation was and
51:16
how that led to a decision.
51:19
So everyone's been pretty clear that kinda
51:23
the intention is get to where they think they gotta go and
51:29
then Raphael's language is, be purposeful, be resolute and patient.
51:36
So resolute in getting to where we think we need
51:42
to go meet our objectives about inflation,
51:47
and resolute in not blinking the first
51:52
time the going gets a little bit tough.
51:57
I like to point out that if you're my age and
52:01
there's quite a few people in the Federal Reserve System who are at the top,
52:08
who are roughly my age, you grew up in the 70s and 80s.
52:14
I mean, you grew up with the experience of what
52:19
happens when monetary policy goes wrong and
52:24
allows the inflation rate to run out of control.
52:29
And it was traumatic, it was traumatic for
52:33
the economy, it was traumatic for real people, so
52:38
that lesson is not forgotten by the folks on the committee.
52:45
The market clearly has a different view,
52:49
one of us is gonna be right, we'll find out who.
52:54
I think for the most part, as far as I can tell,
52:58
that many people in this room who actually can speak more
53:01
authoritatively about this than I can, I think, in general,
53:06
the difference of opinion really has to do with different natural forecasts.
53:12
So I think that the market seems to be articulating the view, to the extent
53:17
that the market can articulate the view, that the inflation rate is gonna
53:22
come down faster and the economy is going to weaken more significantly than
53:27
what is reflected in the summary of economic projections by the committee.
53:33
And that, in the end, is gonna be borne out by the facts,
53:39
who has a more accurate assessment of the way this is gonna go?
53:45
I don't think it's because of confusion about what the Fed is likely to do.
53:49
I don't think it's a real difference of opinion about
53:53
objectives that the market may have versus [INAUDIBLE].
53:58
I think it has to do with just different views of the way the economy's
54:02
gonna evolve.
54:03
If you're skeptical about the soft landing story,
54:09
then the question is going to be come whether it's resolute [INAUDIBLE].
54:17
>> Jon Hartley: I love the whole inflation experiences discussion, too.
54:21
It's fascinating economics literature just about how people's sort of behavioral
54:26
economics think about how people's childhood experiences, things like
54:31
recessions or inflation, certainly impact their beliefs for the rest of their lives.
54:36
So yeah, I guess folks my age were running [INAUDIBLE] or
54:41
they have sort of a different forecast about things.
54:45
Well, before opening for questions, I just wanted,
54:48
if we can get a round of applause for Dave, I think that would be [INAUDIBLE].
54:52
>> Audience: [APPLAUSE].
54:53
>> Jon Hartley: And how we're gonna do this is, first,
54:57
you're gonna put up your hand, I'm gonna point to you, and
55:02
then what's gonna happen is you're going to actually go to the microphone here.
55:09
>> Speaker 2: Guys can just line up.
55:10
>> Jon Hartley: Yeah, actually, you guys, even better,
55:12
you guys can just line up in front of the microphone.
55:14
>> Speaker 3: And by the way, for those of you that use Twitter,
55:17
feel free to tweet about the event using the hashtag EconClubMiami for
55:21
any questions or comments you wanna put, so thanks.
55:25
>> Jon Hartley: And while people-.
55:25
Also, keep the questions very brief so we can get to as many of them as possible.
55:30
If it's a question, not a comment, and while people line up here, for those that
55:35
are interested in learning more about the Economic Club of Miami, you can go to
55:40
our website, economicclubofmiami.org, and learn about our future events.
55:45
Along with if you're interested in becoming a member,
55:48
you can fill out an application form and submit it to us, which we will review.
55:54
There's benefits of being a member of the Economic Club of Miami,
55:58
including you get to attend events like this for free,
56:02
you also get access to additional member retreats and VIP events with our speakers.
56:09
And without any further ado, I will let Radolf start with our first question.
56:13
>> Radolf: I was just wondering if you would agree with me that
56:18
the orgy of government spending which passed last year
56:23
that was named the Inflation Reduction Act, to me,
56:27
that was brazen, even by Washington DC's low standards for
56:33
honesty, I wonder if you would agree with me on that.
56:38
>> David Altig: Good Lord.
56:39
>> Audience: [LAUGH] >> Jon Hartley: I've never been
56:44
at a Federal Reserve event before, >> Audience: [LAUGH]
56:47
>> Jon Hartley: Where the words orgy and
56:48
confession were both uttered, so I think we're breaking new ground here.
56:52
>> David Altig: Look, I'm gonna put it this way.
56:55
So it's not only an interesting,
56:59
it's a very important question to say,
57:03
how do we get this sort of inflation kinda outcome that we got?
57:10
I do think there are three elements of the story, and
57:14
I don't know exactly how to weigh each of those elements.
57:17
But one was clearly the supply disruptions in the economy,
57:23
which persisted much longer than what we really thought.
57:28
One is clearly the fact that there was a lot of demand stimulus
57:32
that came out of the reaction to the pandemic, and especially after
57:37
the pandemic had sort of played itself out for the most part [INAUDIBLE].
57:42
You can think however you want to think about that, but
57:46
I think that that's kind of an environmental fact.
57:50
And then there's Fed policy, which was very accommodative for quite a while.
57:55
The rapid reaction of rates last year, over the past year has been a reflection
58:01
of the fact that, yeah, we were stuck in a very accommodative kind of place and
58:06
the committee decided it needed to get out of it.
58:10
All three of those kinda are in play.
58:13
And as we kinda get to the other side of all of this,
58:18
there will be lots of dissertations written on how you
58:23
apportion the influence of each of those elements.
58:28
But I think you have to say, [INAUDIBLE] fiscal policy was part of the story.
58:35
>> Jon Hartley: I like that dissertation idea [INAUDIBLE]
58:38
>> Audience: [LAUGH]
58:39
>> Jon Hartley: The dominant idea.
58:40
>> Anthony Popascio: Yes, hi, I'm Anthony Popascio, I'm here as an Institute for
58:45
Wealth Management student.
58:47
It's a pleasure to have you here, thank you so much for [INAUDIBLE].
58:50
I'm very excited, so I'm gonna throw a few things at you [INAUDIBLE] and I apologize.
58:56
So with obviously a lot of everything going on,
58:59
you talked about this soft landing, which I truly want to believe you,
59:04
but I mean, when you look at the economy, there's not much room to go out,
59:09
if you look at political demands on both sides.
59:12
McCarthy's proposed another bill for a debt ceiling [INAUDIBLE] and
59:17
it's still going to come up.
59:19
What are some, I guess, positive things like that that give
59:24
you this notion that it's still possible for [INAUDIBLE], and
59:29
how does doing your job with all of these other factors, how does it work?
59:35
>> David Altig: Yeah, so I think the best case
59:40
to be optimistic rests on how
59:45
unusual this whole event has been.
59:51
Typically, you get late into the cycle
59:56
of Late to the business cycle, and
1:00:00
what you find is there is, a ton of leverage
1:00:06
that people have gotten themselves.
1:00:11
Kind of out over their skis in terms of the balance sheets of households,
1:00:15
the balance sheets of businesses.
1:00:18
The financial condition of the private sector is precarious for
1:00:23
lots of different reasons,
1:00:25
that just absolutely is not characteristic of this time around.
1:00:30
I've never, really kind of seeing the degree
1:00:36
of mismatch between the amount of workers that firms want to hire and
1:00:44
the amount of workers available to do the work.
1:00:50
Particularly given the kind of demographics of the labor market,
1:00:56
this is a problem that's not gonna resolve itself.
1:01:00
And I think we have a sense that businesses are going
1:01:06
to be less inclined to rapidly shed workers,
1:01:11
particularly if the slowdown is modest and mild.
1:01:16
So look I mean I will again, this is Dave confession thing,
1:01:22
history is not on our side on this.
1:01:25
There's no doubt about it, and
1:01:28
I don't think any fed speaker has said anything different.
1:01:32
Usually these sorts of tightening cycles end up with a downturn in the economy,
1:01:38
but this doesn't look normal history, and it doesn't feel normal history.
1:01:44
And, I mean I guess I would even maybe point to sort of the government
1:01:49
support which helps shore up household balance sheets.
1:01:53
That just sort of put us into a much steadier place by which to,
1:01:59
from which to kind of deal with the hit that's maybe coming to the economy,
1:02:06
and maybe that hit, that reason won't be so bad.
1:02:10
>> Jon Hartley: Good confession, Greg, with our next question.
1:02:15
>> Greg Ferrero: Greg Ferrero, thank you for being here this afternoon, by the way,
1:02:19
speaking of 70s and 80s, this week in Miami, we've served up 70s,
1:02:23
five gas lines for you.
1:02:24
>> Audience: [LAUGH] >> Greg Ferrero: Anyway,
1:02:27
the question relates to the real estate market, so I've been hearing for a little
1:02:32
while now, particularly in the office space and some of the northern cities.
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As the loans on real estate roll over somewhere in
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the neighborhood of $2 billion in the next three years.
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Let's say that the terms are gonna be much different,
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much higher interest rates, and it makes some of the deals that were
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made by the owners of those buildings non economic at this point.
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And the story goes that the keys and the banks are gonna to get stuck with
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these buildings that are not worth nearly as much as they used to be and
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potentially grow holes in their balance sheet may create or
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add to another banking crisis.
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I was curious if this is something that keep your radar screen yet, and
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if you guys are looking at that.
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>> David Altig: The answer is yeah, I mean, different question,
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whether we've drawn a conclusion about it.
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But that, I mean even before kind of the SVB event,
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I mean, that was clearly on our mind.
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Was the one place where we saw a real effect in the interest
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rate increase was residential housing, of course,
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and the CRE that basically moving out there.
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We knew it, we know it so,
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Sherry and many of our efforts,
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obviously, all the time,
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I mean that is one of the kind of key
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data points to how this is gonna go.
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Some of the things you mentioned,
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there's obviously a lot of geographic kind of differences.
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Northeast says whenever I come down here and
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I'm collecting information from our business contacts.
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I always remind myself, I've got a flight in south Florida, discount rate,
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because this is not a representative place in many ways, and so.
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But several places are doing great, I was even in Chicago last week, and
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I was talking to someone who was kind of moving into a new office space,
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and he said, I'm taking his work for it.
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But he told me that office occupancy is in Duluth,
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I mean, in downtown Chicago, it was 90%.
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So that, we're not seeing is all I can say, the work home from home
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phenomenon is really kind of interesting because I mean it is a fact.
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I see it on Mondays and Fridays and Friday [INAUDIBLE] it's real.
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I'm here to stay my friend Nick Blue spend a lot of time thinking about this.
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But what it means for something kind of the physical
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space [INAUDIBLE] is really kind of an interesting question because.
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[INAUDIBLE] At the bank, we have in the research department,
1:05:50
through most of the bank, we have a three day in person requirement.
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And so most people come in Tuesday, Wednesday, Thursday, and then they work
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remotely, well look, that everyone's in on Tuesday, Wednesday, Thursday.
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We need the same amount of space to do our work, even though we're not kind
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of completely occupying using it to its maximum capacity all the time.
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So there's a lot of moving pieces in all of this,
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and as I said, as of yet, the warning signs of kind of
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impending real severe distress is not there.
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But that doesn't mean it's not going to be there, particularly
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we do the same thing as reset, I begin to kind of come into full bloom.
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We'll see how that plays out but,
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of the many things we watch, that's nearly.
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>> Jon Hartley: Next question.
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>> Speaker 4: [INAUDIBLE] My question was regarding bank reserve requirements.
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It's back in
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March of 2020
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[INAUDIBLE] >> David Altig: Yeah, I don't know,
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I mean, the short answer to that is I don't know any reserve requirements and
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not very often been used as a active policy tool.
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I don't wanna say anything too definitive about that because,
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once I do something without writing papers, but I know [INAUDIBLE].
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>> Jon Hartley: Under construction.
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>> Speaker 5: Hey, John, how are you?
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It's good to see you, Dave, thanks for this,
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thanks to Miami Dade College here.
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So a question for eBay, one of the things that Chair Powell's been citing is
1:07:50
in terms of inflation metrics, CPI services, less shelter.
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Now to that point, my question is, but
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I'm happy to keep it open ended and hear your thoughts on this.
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It seems the only time we've ever had that deescalate fairly quickly has been when
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we've been dwelling into a recession.
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So does it essentially imply, and
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this kind of goes back to the conversation earlier about filter, instability and
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strength today and how it's somewhat Wimbledon.
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Essentially meaning that we use job losses because that's the only
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other time being able to get that measure at least down in a failure fashion.
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>> David Altig: Yeah so, I mean, there the reason chair Powell has kind of
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focused on it, of course, is that we do,
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we're already seeing pretty significant disinflation in goods.
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So and for every reason to believe, I was talking earlier about the PPI,
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there's every reason to believe that we'll continue on and
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we'll get back to the level of goods.
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Basically, deflation characterized most of the pre pandemic period,
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we know the housing elements change with a lag, and
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the dynamics of that are in some ways it's taking much
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longer than the panel technically we thought it would,
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but so we'll see relieve pressure on that.
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So what's left is this kind of services x housing and
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the other element that makes that important,
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of course, is that's most sensitive to wages,
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labor is a major part of that kind of sector of the economy.
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It does not have to go back down to 2%,
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it just has to moderate because it's all going to average
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out the world does the 2% was never 2% uniformity,
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so the reason that's being emphasized is because it feels
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like it may be a stickier part of the inflation picture.
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And it's a part that is mostly kind of Philip's question, really,
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if you think about it, because of the wage component and
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it's sticking up there and not changing.
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So seeing moderation in that segment of the price market basket is kind of,
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I think the key signal that we are entering we are in a period of
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dynamics that are truly moving us in the right direction.
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We were going to get disinflation as a result of these other elements,
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we'll continue to get some disinflation result of these some elements
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the question is, where do we get stuck?
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If we do get stuck, and that's probably gonna show up,
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show up there, I wish I could give you a forecast of kind
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of whether that can be successful without job the story
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about how it can be successful without job loss is twofold.
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I mentioned one of them earlier if wage pressures persist in that sector,
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the adjustment need not be a crisis to consumers
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the adjustment may come in margins for businesses.
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The second element of it, I forgot >> Audience: [LAUGH]
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>> Speaker 5: So for background,
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center post, [INAUDIBLE] [LAUGH] >> David Altig: So
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look, here's how we measure these
1:11:47
gaps between labor demand and supply.
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There's a lot of open job vacancies relative to the supply of workers so
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you can close the gap between labor demand and
1:12:03
labor supply by destroying jobs, by just having some destroy jobs.
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But you can also close the gap by having jobs step back on their plans for
1:12:15
expansion, so it means growth slowing,
1:12:18
moving employment grows slower than it otherwise would have been.
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But it doesn't need to be an outright contraction of size, so
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that's kind of logical some of this is an adjustment in planned expansion,
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some of it is an adjustment in margin.
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And that really is the essence of software.
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>> Speaker 5: I guess this introduces job openings and
1:12:47
how that's >> David Altig: Of course yeah.
1:12:50
>> Speaker 5: Good that's tribute to also appreciate it thank you.
1:12:56
>> Jon Hartley: Jose.
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>> Jose: Hi, Dave thanks a lot curious on your thoughts on residential real
1:13:01
estate coming out of the pandemic, we saw a lot of investors talents
1:13:06
multifamily asset class rents have been softening,
1:13:10
residential real estate single family hands has been quite robust.
1:13:15
Haven't been many transactions, but prices have stayed elevated
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I think based on affordability, you see some softness in price.
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Here is your advice.
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>> David Altig: Yeah, I mean, the fact is we have kind of a structural problem with
1:13:30
housing, right and we kind of structurally have access to may the fact
1:13:35
that the cost of construction are high and were high before, I'm not even sure.
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Interest rates are prime culprit on the supply side, but
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almost certainly not alcohol feeding demand in the short run the cost of land,
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I mean, look, I mean, you're in a place.
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What's the issue?
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The issue is cost of land and
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the material cost of building there is not really
1:14:07
a dynamic in place that kind of sets us up for
1:14:12
softness in the labor market for an extended period of time.
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You can see it through a cycle, of course, and we may, but
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at the end of I say at the end of all of this, we're going to be faced
1:14:29
with the same problems that we were faced with before the pandemic only works,
1:14:35
and that is we don't have enough workers.
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We don't have workers with the right combination of skills,
1:14:43
we don't have enough housing affordability, we have kind of an urgent
1:14:48
mean labor market and infrastructure to support that labor market.
1:14:54
I mean, these are huge challenges and they're not going away
1:14:59
maybe part of the good news is it kind of puts a floor kind of on how,
1:15:04
you know, soft things will get and for how long, but
1:15:09
it also makes the inflation issue that much more difficult.
1:15:14
As I said, I mean, we're a little bit surprised that
1:15:19
the housing elements of prices have not softened more than they have, and
1:15:26
we're still seeing kind of the influence from that sector inflation measures.
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I think it's probably a technical problem, but I would not dismiss
1:15:39
entirely the fact that there are a lot of structural issues in that
1:15:44
market in particular that just simply are going to stick with us.
1:15:49
>> Jon Hartley: Next question.
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>> Speaker 6: I am, I understand that it's difficult for
1:15:57
any central bank to control inflation
1:16:02
when the inflation factor that are affecting
1:16:08
inflation come from the supply chain.
1:16:13
In this case, we have three supply shops,
1:16:20
three bits of workshops, and
1:16:25
then the oil shop, and then the work is,
1:16:31
and obviously that has increased in lectures for
1:16:39
HCM because I think that maybe before or
1:16:45
the Fed was expected,
1:16:48
that the shock would be a temporary shock.
1:16:55
This is my shock, noise shock, to be temporarily shocked and
1:17:01
they think that the United States,
1:17:04
that the inflation rate persists at the levels that we have now for
1:17:10
the next year or next two years for Messi Pacific.
1:17:15
And I understand that we said that we, for example,
1:17:21
change the inflation tariff is not on the table,
1:17:26
but what will happen in that situation?
1:17:30
The national expertise and the expectation are already affected,
1:17:37
and maybe we have supply chops, what could happen?
1:17:42
>> David Altig: Well, I mean I could only kind of repeat
1:17:48
the position that has been taken by.