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A Bloomberg Surveillance Jackson Hole Special · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
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  Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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  Speaker 2: the Bloomberg Terminal and the Bloomberg Business app from Wyoming.
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  Speaker 2: From Jackson Hole, Wyoming for our audience worldwide, Bloomberg Surveillance
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  Speaker 2: on television, on radio.
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  Speaker 3: And it is a perfect, perfect.
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  Speaker 2: August Friday here in Jackson Hall with a back to
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  Speaker 2: up with the political miles from the Democratic Convention. I
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  Speaker 2: know you stayed up Lisa time and watch the entire
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  Speaker 2: every minute of it as well.
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  Speaker 4: But now we turn to the Powell speech.
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  Speaker 1: The key question here is how much can this fed
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  Speaker 1: share ratify what we're seeing in markets, which is the
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  Speaker 1: expectation for a rate cutting cycle after one of the
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  Speaker 1: longest periods without any move whatsoever after a rate hiking
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  Speaker 1: cycle by a federal reserve and modern history.
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  Speaker 5: A question here, can they stick this.
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  Speaker 1: Soft landing and will think give any guidance whatsoever to
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  Speaker 1: a lot of people think.
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  Speaker 3: That it's not.
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  Speaker 2: I'm data dependent of at fourteen cups of coffee this morning.
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  Speaker 4: They're data dependent.
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  Speaker 2: They're going to get out to the speech today and
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  Speaker 2: then on to the September sixth employment report, and maybe
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  Speaker 2: we staggered to the believe it's September twenty.
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  Speaker 1: One, meeting September eighteen. They're going to give us ense
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  Speaker 1: whether they of whether they actually are.
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  Speaker 5: Going to cut rates or not.
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  Speaker 1: A key question that I have is how far have
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  Speaker 1: we already come. Take a look at We are seeing
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  Speaker 1: a rally right now in markets after yesterday's sell off,
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  Speaker 1: which is the biggest.
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  Speaker 5: In two weeks. But what I find fascinating is just.
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  Speaker 1: That we've seen the two year yield to move so
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  Speaker 1: much more than anything else. It is down more than
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  Speaker 1: a percentage point from the last time that we were
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  Speaker 1: here in Jackson Hole August twenty sixth, and.
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  Speaker 5: You see that move.
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  Speaker 1: We're up more than twenty five percent since that day
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  Speaker 1: on the s and P five.
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  Speaker 2: I'm going to get out front with an essay that
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  Speaker 2: I only discovered. Thank you Peter or zagat Lazard for
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  Speaker 2: this and that. What we're battling with here in the
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  Speaker 2: years and years i've come here is we're still coming
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  Speaker 2: off the pandemic. Peter or Zag with Robin Brooks at
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  Speaker 2: Brookings writing a beautiful essay about do we really know
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  Speaker 2: where we are off the pandemic? And that's an overlain
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  Speaker 2: not being discussed here is where are we in that
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  Speaker 2: continuum and.
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  Speaker 1: Just sort of accentuating that overlay where the jobs or
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  Speaker 1: visions that we had just earlier this week the idea
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  Speaker 1: of eight hundred and eighteen thousand jobs fewer that were
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  Speaker 1: added in the year ended in March versus the initially
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  Speaker 1: reported we've got an incredible lineup today. We do have
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  Speaker 1: about a six ten percent gain in the SMP. I
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  Speaker 1: want to just get set up with Michael McHugh sitting
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  Speaker 1: on set with us not wearing his hat. He's been
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  Speaker 1: told not to by HMRT. Why because I think your
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  Speaker 1: ten gallon hat looks absolutely fabulous when you head to
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  Speaker 1: the rodeo, Mike, what are you expecting today?
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  Speaker 3: Smaller hat this year? Maybe only five six gallons.
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  Speaker 6: We're expecting kind of what you laid out with Tom,
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  Speaker 6: the idea that the FED is fed chairman is going
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  Speaker 6: to ratify the idea that rate cuts are coming without
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  Speaker 6: absolutely promising it or giving any kind of amount, And
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  Speaker 6: I think the markets have basically priced that in. The
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  Speaker 6: rate cuts are coming is what's got the two year
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  Speaker 6: yield lower. But going beyond that, the question then becomes
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  Speaker 6: where do they stop? How far do they go and
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  Speaker 6: how fast do they get there? And that's something else
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  Speaker 6: we probably won't hear today.
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  Speaker 2: What's so important? Mike McKee's the expert on this, much
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  Speaker 2: less so me. The number one question I get here
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  Speaker 2: at Jackson Hole, particularly by media, why hasn't there been
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  Speaker 2: a recession?
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  Speaker 4: Mike McKee? Why haven't we had the recession?
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  Speaker 2: Everyone except Rafaelbostis predicted since time began we sent at
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  Speaker 2: least out shopping.
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  Speaker 6: We've had a number of reasons. Two things in particular,
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  Speaker 6: well three things in particular. One is the pandemic savings.
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  Speaker 6: The people got extra checks during the pandemic and they
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  Speaker 6: had extra money to spend. We've also had some government
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  Speaker 6: fiscal spending with the IRA and the other acts that
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  Speaker 6: the Biden administration got passed. Most of that money hasn't
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  Speaker 6: gone out yet, but some has and businesses have started
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  Speaker 6: committing based on the idea that it's going to come in.
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  Speaker 6: And then, of course, because unemployment was low, wages were rising,
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  Speaker 6: and on the political side, wages have been rising faster
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  Speaker 6: than inflation. But nobody really gets that. But people have
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  Speaker 6: had enough money to spend well.
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  Speaker 1: I will say that when I went shopping, I went
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  Speaker 1: shopping in the Atlanta Airport because we were laid over
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  Speaker 1: there for about.
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  Speaker 5: Three and a half hours.
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  Speaker 1: So that really is the key place that we want
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  Speaker 1: to focus right now, and we are so glad to
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  Speaker 1: have shopping expert in the Atlanta Airport.
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  Speaker 5: Atlanta fed price is it at.
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  Speaker 1: Raphael Bostik, who is with us here on site, really
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  Speaker 1: appreciate you being with us. President bos Tak, I want
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  Speaker 1: to start with a change in tone that we have
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  Speaker 1: heard from you over the past couple of weeks. It
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  Speaker 1: seems like three months ago you were not that urgent,
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  Speaker 1: urgently feeling like we needed to see lower rates. You've
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  Speaker 1: kind of changed recently and really seen the need for it.
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  Speaker 7: What's caused that change, Well, I think two things have
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  Speaker 7: really happened to lead to that change.
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  Speaker 8: First of all, good morning.
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  Speaker 7: It's good to see Y'all's good to see, really good
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  Speaker 7: to be here. The one change is that inflation has
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  Speaker 7: moved a lot faster than I had anticipated. We've for
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  Speaker 7: the last two years have really been in a mission
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  Speaker 7: of getting inflation back to our two percent goal. We
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  Speaker 7: had seen a lot of progress early this year, it
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  Speaker 7: seemed like it may have been stalling out.
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  Speaker 8: I'm really gratified.
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  Speaker 7: To see that it's continuing back on that pace, and
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  Speaker 7: that's a very good thing. And then the second part
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  Speaker 7: is the employment side. So we know that unemployment rates
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  Speaker 7: have gone from about three point four percent to four
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  Speaker 7: point three percent. That's a big change. Now it's from
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  Speaker 7: super hot to solid, right. So I don't want to
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  Speaker 7: make it seem like labor markets are a week, but
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  Speaker 7: it really starts to tell me that things are much
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  Speaker 7: more in balance than they have been for quite some time.
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  Speaker 7: And that's really a sign that our policy has done
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  Speaker 7: his job, and now we need to start the path
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  Speaker 7: back to our more neutral stance.
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  Speaker 2: More than anyone at the FED, you've got a more
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  Speaker 2: holistic view with John Show and at Stanford, with all
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  Speaker 2: the academics you've done in southern California about racism, about
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  Speaker 2: society and all. We're in the maelstream of a political election.
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  Speaker 2: Greg Ypp, writing in the Wall Street Journal in the
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  Speaker 2: last twenty four hours, says, the politicians are not practicing economics.
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  Speaker 4: How does the FED get to the.
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  Speaker 2: September meeting, get to the November meeting and avoid the
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  Speaker 2: first Tuesday of November. How do you maintain FED independence
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  Speaker 2: with this crazy economic dialogue?
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  Speaker 7: We're here so I actually don't think it's that hard
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  Speaker 7: to remain independent. I think for us us the job
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  Speaker 7: is to keep our heads down, do our work, read
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  Speaker 7: the data, study it, get input from businesses and people
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  Speaker 7: all over this country to get a good handle about
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  Speaker 7: where the economy is, how it's moving, and how people
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  Speaker 7: feel is going to move forward, and then use that
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  Speaker 7: information to figure out what the most appropriate policy is.
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  Speaker 7: The worst thing that we can do is not do
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  Speaker 7: the right thing for reasons other than this not being
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  Speaker 7: the right thing right and to me, I think we
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  Speaker 7: must at all times be true to Our job is
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  Speaker 7: to set up a long run environment for this economy
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  Speaker 7: so that it's got a firm foundation, and that means
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  Speaker 7: we can't be focused and pulled into the shorter run issues.
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  Speaker 8: So I'm just gonna keep my head down.
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  Speaker 7: The FED has a long history of doing whatever it takes,
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  Speaker 7: whenever it takes, and that's what I expect we'll do too.
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  Speaker 6: You've been criticized. The Fed's been criticized by a lot
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  Speaker 6: of people on Wall Street who say you're too data dependent,
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  Speaker 6: you're looking backwards too much. I don't think they realize
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  Speaker 6: that you're constantly talking to people in your district to
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  Speaker 6: get the current lay of the land.
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  Speaker 3: So what is that lay of the lane?
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  Speaker 6: What are CEOs telling you about their plans and their
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  Speaker 6: view of demand and business going forward?
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  Speaker 7: Well, you should tell people more often. We spend a
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  Speaker 7: lot of time looking forward. That's actually a really important thing.
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  Speaker 7: We do surveys. Our bank has a lot of surveys
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  Speaker 7: that we do, asking what's your outlook for the next
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  Speaker 7: six months, for the next twelve months.
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  Speaker 8: In the light we hear a couple things.
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  Speaker 7: So one we hear the demand for product is weakening.
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  Speaker 8: But it's still quite solid.
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  Speaker 7: We hear that businesses are not expecting to expand their
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  Speaker 7: workforces in a very significant way, but they're also not
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  Speaker 7: expecting to light people off that that is not the mode.
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  Speaker 7: That they're really in a steady state where they can
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  Speaker 7: handle where things are, and their outlook for the next
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  Speaker 7: six to twelve months is by and large positive. Maybe
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  Speaker 7: a little lower in terms of revenues and profits from
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  Speaker 7: where we've been last two or three years, but last
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  Speaker 7: two or three years have been record breaking pretty much
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  Speaker 7: in every sector, every industry. So it's a solid picture,
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  Speaker 7: and it's one of the reasons why I do think
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  Speaker 7: that we've had some space to be patient with our
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  Speaker 7: policy moves, and we'll just have to see.
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  Speaker 8: Whether their outlook plays out. I'm hopeful that it does.
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  Speaker 6: Given the problems least we talked about earlier with the
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  Speaker 6: data and coming out of the pandemic and everything. How
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  Speaker 6: certain are you that your data is correct enough that
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  Speaker 6: you're not behind the curve?
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  Speaker 7: Well, I mean, we try really hard to get our
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  Speaker 7: view based on the pulse that business leaders are showing
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  Speaker 7: at every moment. We talked to folks day to day,
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  Speaker 7: week to week, and we ask two questions all the time. One,
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  Speaker 7: what's your outlooked for the next six months, and how
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  Speaker 7: has that changed relative to where you were two weeks
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  Speaker 7: ago or three weeks ago. We are trying really hard
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  Speaker 7: to notice those inflection points so that we can speak
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  Speaker 7: to that, we can bring that to our policy table
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  Speaker 7: and make sure that we're not behind the curve. But
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  Speaker 7: this is a turbulent as you know. I mean, you'll
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  Speaker 7: recover the economy. Things are happening in unexpected ways, in
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  Speaker 7: many different venues and many different parts of the economy,
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  Speaker 7: and so there is a natural trend. There's always some uncertainty,
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  Speaker 7: and we've just got to sort of navigate our way
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  Speaker 7: through and do the best that we can to get
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  Speaker 7: as much information so we can make good policy. What
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  Speaker 7: does gradual means, Well, that's a very good question. So
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  Speaker 7: to me, I think it is taking one step at
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  Speaker 7: a time and after each step, looking around to see
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  Speaker 7: how the economy is evolved.
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  Speaker 1: Okay, what everyone's asking is really is that step twenty
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  Speaker 1: five basis points?
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  Speaker 5: Is it fifty basis points? Does one mean gradual? And whatnot?
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  Speaker 7: So I would say this the first step. It will
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  Speaker 7: depend on what the next couple of data points come in.
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  Speaker 7: The next couple of data points come in, and inflation
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  Speaker 7: is moving and unemployment is staying pretty stable, I think
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  Speaker 7: a move would be on.
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  Speaker 8: The lower side.
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  Speaker 7: But there's a there's a narrative that says inflation comes
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  Speaker 7: in super hot and maybe we don't move at all,
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  Speaker 7: or that unemployment spikes in an unexpected way and we
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  Speaker 7: have to move bigger.
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  Speaker 8: I don't want to really.
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  Speaker 7: Be sitting on any one action as my modal expectation today.
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  Speaker 7: I'm really gonna let things play out. And you know,
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  Speaker 7: one of the things I've learned very much in the
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  Speaker 7: last four years is that getting too far out ahead
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  Speaker 7: of what actually happens just causes me. There's been a
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  Speaker 7: lot of extra energy that I wind up having to
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  Speaker 7: sort of undo and then get to where the reality is.
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  Speaker 7: So I really am trying as much as possible to
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  Speaker 7: be in the moment and of the moment.
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  Speaker 6: Well, markets are forward looking, they're not in the moment.
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  Speaker 6: So everybody wants to know where do you end up?
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  Speaker 6: Where do you think neutral is going to end up
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  Speaker 6: when you finish your cutting cycle.
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  Speaker 7: So I'll say two things on this one. In the
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  Speaker 7: SEPs and the dot plus, we have to put a
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  Speaker 7: long run number for me. Right now, that long run
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  Speaker 7: number is three percent. I think it's a little higher
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  Speaker 7: than where it was that the depths of the pandemic,
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  Speaker 7: But where that is precisely is unclear. The second thing
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  Speaker 7: I would say, though, is I've really been focused much
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  Speaker 7: more on making sure that inflation gets to two percent
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  Speaker 7: than what a long run number is, and now that
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  Speaker 7: we're close to moving on that way, that's a question
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  Speaker 7: that I will spend a lot more time with my
• 12:21
  Speaker 7: team trying to figure out. In my building, we started
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  Speaker 7: to have discussion slash arguments about this, and in my book,
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  Speaker 7: I get views ranging from two and a half to
• 12:32
  Speaker 7: four and a quarter. Right, that's a large range, and
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  Speaker 7: we're going to have to narrow that down, and so
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  Speaker 7: I'm really looking forward to a robust discussion that will
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  Speaker 7: help me get a sense of where I think it is.
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  Speaker 1: Two years ago, J. Powell's speech was eight minutes long.
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  Speaker 1: How long do you think this speech.
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  Speaker 4: Is going to be?
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  Speaker 7: So you know, I don't get any insights on that.
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  Speaker 7: Eight is historically a record breaking short. I'm not expecting
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  Speaker 7: a break records today, but we'll have to see what happens.
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  Speaker 1: President of the Atlanta Fed, thank you so much for
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  Speaker 1: being with us. She is former Cleveland FED president Loretta Mester.
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  Speaker 1: This is the first time that she's joining us as
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  Speaker 1: a non FED member in ten years. At this Jackson
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  Speaker 1: Hole meeting, Lorettamester, President Master, I will still call you
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  Speaker 1: that You've always been a thought leader. How much do
• 13:29
  Speaker 1: you hear more dissent than usual among members at a
• 13:33
  Speaker 1: time where we really are at a pivot.
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  Speaker 9: I'm not hearing that much to send Frankly, I think
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  Speaker 9: we're in a good place in terms of where the
• 13:41
  Speaker 9: economy is. If you think about inflation, look how much
• 13:44
  Speaker 9: it's come down. You know, we're in two and a
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  Speaker 9: half percent range, and the labor market is moderating. There's
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  Speaker 9: definite signs of that, but it's not weak, right, It
• 13:54
  Speaker 9: hasn't turned into a strong you know, weakness coming into it.
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  Speaker 9: So we're in a good spot. And now what the
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  Speaker 9: Fed needs to do is make sure that it can
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  Speaker 9: maintain the momentum of inflation going all the way back
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  Speaker 9: down to two percent while keeping the labor market healthy.
• 14:10
  Speaker 9: And I think that's where the focus is gonna be.
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  Speaker 9: If you remember at the start of the tightening cycle,
• 14:16
  Speaker 9: you know, we had to go very aggressively because policy
• 14:19
  Speaker 9: wasn't well calibrated to where the economy is and where
• 14:23
  Speaker 9: it was going, uh or was and where it was going.
• 14:26
  Speaker 9: And now we wanna make sure that you know, the
• 14:28
  Speaker 9: FED wants to make sure that policy stays well calibrated
• 14:32
  Speaker 9: to the economy. So the discussion now, I think, is
• 14:34
  Speaker 9: about we have a dual mandate. We have to focus
• 14:37
  Speaker 9: on both parts of that. We have to be forward looking.
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  Speaker 9: You know, it's where the economy is going, not necessarily
• 14:43
  Speaker 9: where it death is here today, but where it's going.
• 14:46
  Speaker 9: And that's why I think now it's it's actually appropriate
• 14:49
  Speaker 9: to really be thinking about, Okay, it's time now to
• 14:53
  Speaker 9: enter this new phase where we can start normalizing the
• 14:56
  Speaker 9: policy rate.
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  Speaker 2: Wall Street and the financial media want specificity, they want certitude,
• 15:02
  Speaker 2: they want single point statements.
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  Speaker 4: About exactly where we are.
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  Speaker 2: The reality is just a look at productivity is a
• 15:09
  Speaker 2: capital analysis, a labor analysis, and an all in analysis,
• 15:13
  Speaker 2: call it total factor productivity. The noise in there, to me,
• 15:17
  Speaker 2: with the overlay of technology is highly uncertain. Do you
• 15:22
  Speaker 2: have any handle of the overlay of productivity and technologies
• 15:26
  Speaker 2: effect on the Cleveland and American economy.
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  Speaker 9: Well, I mean we've seen over history, right, that technology
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  Speaker 9: can be very additive to productivity growth, right, I mean,
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  Speaker 9: that's kind of the engine of an economy that's increasing
• 15:41
  Speaker 9: and having potential growth rise. But in any point in time.
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  Speaker 9: It's very hard to measure productivity growth.
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  Speaker 5: Even if we.
• 15:49
  Speaker 9: Didn't have this big technological innovation of AI, it's very
• 15:53
  Speaker 9: difficult to measure it. So you have to take into
• 15:56
  Speaker 9: account that there's uncertainty around productivity growth. I mean, some
• 15:59
  Speaker 9: estimates saying that we're still in a low productivity regime.
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  Speaker 9: Other restamates are saying, well, let's look forward and maybe
• 16:06
  Speaker 9: we're going to be in a higher But for the
• 16:08
  Speaker 9: FED right now, right that's not sort.
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  Speaker 5: Of the focus.
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  Speaker 9: The focus is, you know, are we calibrated well, it's
• 16:15
  Speaker 9: policy calibrating well.
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  Speaker 2: To the court, you've been great on this. She just
• 16:19
  Speaker 2: said they're not focused on productivity. We have to be
• 16:23
  Speaker 2: because business leaders every day are focused on those outcomes
• 16:28
  Speaker 2: and they're invested.
• 16:29
  Speaker 6: Well, they've sort of been forced to by inflation and
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  Speaker 6: a lack of workers, and they've been forced to put
• 16:34
  Speaker 6: investment into productivity and.
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  Speaker 3: We'll see if it starts to pay off.
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  Speaker 6: But Loretta is right, at the moment, you know, you don't,
• 16:41
  Speaker 6: you're not seeing it. But that's not the key for them.
• 16:44
  Speaker 6: But I do want to know how you respond to
• 16:47
  Speaker 6: the criticism that the FED has not communicated well what
• 16:52
  Speaker 6: it's thinking and what it's planning, or if not planning,
• 16:56
  Speaker 6: you know, what are the potential outcomes because we've seen
• 16:59
  Speaker 6: some very wild in the markets as data comes around.
• 17:02
  Speaker 3: Have you said data dependent too much?
• 17:05
  Speaker 9: I think there's a misunderstanding what data dependant means, and
• 17:08
  Speaker 9: that means that I think Chairpal today will be explaining
• 17:13
  Speaker 9: where he sees policy going, not necessarily at the next meeting,
• 17:17
  Speaker 9: whether fifteen to twenty five, which in some sense is
• 17:20
  Speaker 9: really not the big issue. I know for financial markets
• 17:23
  Speaker 9: it is, but not in terms of monetary policy. It's
• 17:26
  Speaker 9: really what's the path forward? Are we beginning now to
• 17:29
  Speaker 9: bring policy down? And the pace, of course, and the
• 17:34
  Speaker 9: magnitude eventually of how far our indust rates go down,
• 17:37
  Speaker 9: that's going to depend on how the economy evolves, right,
• 17:40
  Speaker 9: But we're going to enter this new phase, I think,
• 17:43
  Speaker 9: and appropriately so in July. I probably wouldn't have supported
• 17:47
  Speaker 9: actually moving the rate down in July, and of course
• 17:49
  Speaker 9: the committee didn't, but I could have made a case
• 17:52
  Speaker 9: for it. And that's a change, right, That's the economy
• 17:55
  Speaker 9: has changed enough, Inflation has come down quite a bit.
• 17:58
  Speaker 9: It's on a path I think where we can be
• 18:00
  Speaker 9: pretty confident it'll get back to two percent, and now
• 18:03
  Speaker 9: we really have to balance both sides of the mandate.
• 18:05
  Speaker 9: So it's basically keep the momentum going on inflation at
• 18:09
  Speaker 9: the same time making sure that labor markets remain healthy.
• 18:13
  Speaker 6: What do you think it would take for the committee
• 18:15
  Speaker 6: to decide you needed to do more than the standard
• 18:17
  Speaker 6: twenty five basis point cut?
• 18:20
  Speaker 9: So I think it would have to be that, you know,
• 18:23
  Speaker 9: somehow they thought they were a little behind and they
• 18:26
  Speaker 9: needed to catch up, and frankly, I don't see that
• 18:28
  Speaker 9: in the data. I think they're actually in a very
• 18:30
  Speaker 9: good place now. If it turns out that, you know,
• 18:34
  Speaker 9: the forecasts are saying, wow, you know, we may be
• 18:36
  Speaker 9: seeing the moderation in labor markets being more than moderation
• 18:42
  Speaker 9: and we actually see a weakening, they may have to
• 18:45
  Speaker 9: adjust that and then do more. But I think there's
• 18:48
  Speaker 9: sort of a record if you think about when we
• 18:51
  Speaker 9: started to raise rates, right, we started at a twenty
• 18:54
  Speaker 9: five and then a fifty. Then we did our seventy five,
• 18:56
  Speaker 9: and that's sort of the preferred path because that means you're, no,
• 19:00
  Speaker 9: you're not doing too much too ahead of time, And
• 19:03
  Speaker 9: the other thing I think I would be worried about
• 19:05
  Speaker 9: is if you do a fifty to start with the
• 19:08
  Speaker 9: market send you know, building even more. And I think
• 19:11
  Speaker 9: that's a calibration that you have to think about when
• 19:13
  Speaker 9: you're doing this. So I think being steady right, thinking
• 19:17
  Speaker 9: about what the right pace is gear to how the
• 19:21
  Speaker 9: economy is working and evolving, it's the right way to go.
• 19:24
  Speaker 5: You said that you expect j.
• 19:25
  Speaker 1: Powell to come out and give a sense of where
• 19:27
  Speaker 1: we're going. And I think that's actually the frustration for
• 19:29
  Speaker 1: a lot of people in markets. We don't know where
• 19:31
  Speaker 1: we're going. We don't have a sense of what the
• 19:33
  Speaker 1: neutral rate is. Right now, the market has about two
• 19:36
  Speaker 1: hundred basis points of rate cuts priced in by the
• 19:38
  Speaker 1: end of next year.
• 19:39
  Speaker 3: Is that appropriate?
• 19:40
  Speaker 5: What is neutral?
• 19:41
  Speaker 9: Well, remember what the markets are doing is and appropriately
• 19:44
  Speaker 9: so looking at different scenarios, right and they're waiting and
• 19:47
  Speaker 9: then when they when you get those kind of things
• 19:49
  Speaker 9: out of the financial markets about how many rate cuts,
• 19:51
  Speaker 9: it's balancing different scenarios. When the fence talking about you
• 19:55
  Speaker 9: know where they're seeing is they're talking about, here's what
• 19:57
  Speaker 9: we think if the economy evolves as we expect, wouldn't
• 20:01
  Speaker 9: be appropriate policy path. But they also have to think
• 20:04
  Speaker 9: through alternative scenarios too, So it's kind of a different
• 20:08
  Speaker 9: answer or different question answer to a question, and that's
• 20:12
  Speaker 9: I think the frustration is that the FED is trying
• 20:16
  Speaker 9: to answer a different question is here's where we see
• 20:19
  Speaker 9: policy going. But of course they don't want to commit
• 20:22
  Speaker 9: themselves to something because the economy could evolve differently, and
• 20:25
  Speaker 9: that's been hard to communicate.
• 20:27
  Speaker 6: You founded an inflation lab at the Cleveland FED.
• 20:33
  Speaker 3: What do you think inflation dynamics are now?
• 20:36
  Speaker 6: Is this a completely different kind of situation post pandemic
• 20:40
  Speaker 6: than models coming out of other recessions have worked with.
• 20:46
  Speaker 9: Well, I think one thing that we saw during the
• 20:49
  Speaker 9: pandemic and the aftermath, who sent the supply side right
• 20:53
  Speaker 9: had a lot to do with inflation dynamics. But the
• 20:56
  Speaker 9: key thing to remember is that those supply shocks would
• 21:00
  Speaker 9: not have necessarily resulted in higher inflation if we hadn't
• 21:04
  Speaker 9: had a very strong demand side of the economy. So
• 21:07
  Speaker 9: it's this balance between supply and demand. Typically right in
• 21:10
  Speaker 9: the past, right, it was all about demand. Supply you
• 21:13
  Speaker 9: could sort of say it was sort of stable, and
• 21:16
  Speaker 9: it was all about how demand was moving around. In
• 21:19
  Speaker 9: this event, right, it was both supply and demand, and
• 21:22
  Speaker 9: that made it more challenging. And so in that sense,
• 21:25
  Speaker 9: I think there's a renewed understanding that dynamics on inflation.
• 21:30
  Speaker 9: It's both sides, that's supply and demand, and understanding both
• 21:33
  Speaker 9: I think is going to be a focus going forward.
• 21:36
  Speaker 6: Well as if it goes into its review process for
• 21:38
  Speaker 6: its Monetary policy framework, does what happened change the way
• 21:43
  Speaker 6: you think the committee should look at policy? In other words,
• 21:47
  Speaker 6: maybe you want to be a little bit more preemptive
• 21:49
  Speaker 6: than you were.
• 21:50
  Speaker 9: So I know a lot of people characterized the FED
• 21:54
  Speaker 9: in the framework that came out in twenty twenty as
• 21:57
  Speaker 9: walking away from being preemptive, but if you actually look
• 22:00
  Speaker 9: at the language in there, still says preemptive. I agree
• 22:03
  Speaker 9: with you that it sounded like we were just being
• 22:06
  Speaker 9: data dependent in the moment. But we've always were focused
• 22:09
  Speaker 9: on where is the economy going? So it's data coming in,
• 22:13
  Speaker 9: assess that data relative to your outlook. If it's materially
• 22:17
  Speaker 9: different than you expect, you might have to change your outlook,
• 22:19
  Speaker 9: and therefore you might have to change policy, your policy
• 22:23
  Speaker 9: expected policy paths. So I think we've always been forward looking.
• 22:27
  Speaker 9: I expect the FED to remain forward looking. They may
• 22:30
  Speaker 9: change the language in the statement so that that's a
• 22:33
  Speaker 9: little bit more transparent, if you will, so that people
• 22:36
  Speaker 9: actually understand that the policy has to look forward.
• 22:40
  Speaker 2: I would never ask you this question if you're on
• 22:41
  Speaker 2: the watch, But now that you're gainfully retired and in
• 22:44
  Speaker 2: the real world, I'm going to ask you this question.
• 22:46
  Speaker 2: Cleveland has reasonable real estate, but Shaker Heights as a
• 22:50
  Speaker 2: boom real estate economy. And part of that asset success
• 22:55
  Speaker 2: of Shaker Heights and the Shaker Heights of America is
• 22:58
  Speaker 2: the gains thats are getting from this financial system. How
• 23:03
  Speaker 2: does the FED distribute the benefit more across America rather
• 23:08
  Speaker 2: than this illusion than only the have nots that own
• 23:11
  Speaker 2: the havelves that own Nvidia are making way?
• 23:13
  Speaker 9: Yeah, I mean the FED always focuses on the macro economy, right,
• 23:18
  Speaker 9: It doesn't have tools that can really do much about
• 23:22
  Speaker 9: red distributing or fairness or making sure that everyone gains.
• 23:27
  Speaker 9: But what we can do in the FED, and what
• 23:29
  Speaker 9: the new committee will be doing at the FED, is
• 23:32
  Speaker 9: making sure that we maintain healthy labor markets, which again
• 23:36
  Speaker 9: helps distribute and brings inflation and you know, the inflation
• 23:42
  Speaker 9: rate down and getting back to price stability is also
• 23:45
  Speaker 9: very key to having a strong economy so that everyone
• 23:48
  Speaker 9: can prosper from the economy. The FED really can't do
• 23:51
  Speaker 9: the other part of what you're talking about, and that's
• 23:53
  Speaker 9: what the federal government policies are about, and the fiscal
• 23:56
  Speaker 9: policy is about.
• 23:57
  Speaker 1: We thought that you were going to retire and build
• 23:59
  Speaker 1: homes to offset some of the supply issues. Lurida, there
• 24:03
  Speaker 1: is this question Mike was talking about how the Queen
• 24:06
  Speaker 1: of Inflation studies and how the Cleveland Fed really does
• 24:09
  Speaker 1: have an incredible metric for that. Do you have a
• 24:11
  Speaker 1: sense of how much more inflationary this post pandemic economy
• 24:15
  Speaker 1: is and that really speaks.
• 24:16
  Speaker 5: To what is the new neutral?
• 24:20
  Speaker 9: Well, there are certain factors that really affect inflation, right,
• 24:24
  Speaker 9: but the basics are similar to what we saw before.
• 24:27
  Speaker 8: Right.
• 24:27
  Speaker 9: Inflation expectations are still an important driver of inflation. Making
• 24:31
  Speaker 9: sure they remain stable is helping to keep inflation moving down,
• 24:35
  Speaker 9: which is important. Supply side conditions matter, and the labor
• 24:39
  Speaker 9: market tightness matters. We're going to hear a paper at
• 24:41
  Speaker 9: Jackson Home that's really addressing that how much tightness in
• 24:45
  Speaker 9: the labor market affects what you want to see when
• 24:48
  Speaker 9: demand gets out of lap with supply, so again it's
• 24:52
  Speaker 9: the same basic factors, but of course the supply side
• 24:55
  Speaker 9: during the pandemic changed quite a bit, and those factors
• 24:58
  Speaker 9: are going to become I think, more signal and going
• 25:00
  Speaker 9: forward than perhaps they were in the past.
• 25:02
  Speaker 1: Are you having more fun now that you're not on
• 25:05
  Speaker 1: the committee?
• 25:05
  Speaker 9: I'm having fun.
• 25:07
  Speaker 1: Well, hopefully you can go hiking or enjoy the beautiful
• 25:11
  Speaker 1: Wyoming Lord Semester, formerly of the Cleveland Federal Reserve. Just
• 25:15
  Speaker 1: going back to the end of June, when you step
• 25:17
  Speaker 1: down and she is here for the first time in
• 25:19
  Speaker 1: it ten years, Joining us now is someone who has
• 25:33
  Speaker 1: been in that room, who has seen the decision making
• 25:36
  Speaker 1: in the speech crafting former Saint Louis FED President Jim
• 25:38
  Speaker 1: Bullard Joining us now. Jim, I would love your take
• 25:42
  Speaker 1: on this speech. What did you think of it?
• 25:46
  Speaker 10: I thought this was a good speech. I thought it
• 25:49
  Speaker 10: was not quite a victory lap, but certainly emphasizing that
• 25:55
  Speaker 10: this policy since twenty twenty two has been extremely effective
• 25:59
  Speaker 10: in inflation down substantially putting us on a path to
• 26:02
  Speaker 10: two percent inflation without substantial weakening in the labor market.
• 26:08
  Speaker 10: That labor market was super hot. It has cooled, but
• 26:11
  Speaker 10: it's only cool to a sort of normal labor market,
• 26:15
  Speaker 10: and so that's why everyone's talking about the soft landing.
• 26:17
  Speaker 10: So I think to the extent there are critics out there,
• 26:20
  Speaker 10: which is great, they have to contend with the fact
• 26:24
  Speaker 10: that this policy worked very, very well over the last
• 26:27
  Speaker 10: two years.
• 26:28
  Speaker 2: Appropriate Jim Bowler to your acclaimed speech years ago on
• 26:34
  Speaker 2: regimes of a FED staggering from regime to regime or
• 26:38
  Speaker 2: planning from regime to regime. Does this speech signal a
• 26:43
  Speaker 2: new post pandemic regime?
• 26:48
  Speaker 10: You know this is going to be studied for years.
• 26:50
  Speaker 10: In this episode about disinflation without recession will be studied
• 26:57
  Speaker 10: for many years, and exactly how it works is a
• 27:02
  Speaker 10: good question. But Chair Powell said in the speech, I
• 27:05
  Speaker 10: think basically lined out the argument. If you can keep
• 27:09
  Speaker 10: inflation expectations on target, and even when the world seems
• 27:15
  Speaker 10: to be exploding with inflation, then you can get the
• 27:20
  Speaker 10: disinflation to occur relatively rapidly and relatively pain mostly. So
• 27:24
  Speaker 10: I think that's a new mode for many people and
• 27:28
  Speaker 10: thinking about how monetary policy works.
• 27:32
  Speaker 2: I've been asking his question, Jim Bollard of many and
• 27:35
  Speaker 2: with great respect to your public service, out of Saint Louis.
• 27:39
  Speaker 2: Where is the unemployment rate that begins to hurt for
• 27:42
  Speaker 2: Jim Bullard. I think a lot of America wants to
• 27:45
  Speaker 2: know what's a statistic and unemployment rate where it says
• 27:49
  Speaker 2: some pain? Is it five percent? Is it four point
• 27:53
  Speaker 2: x percent? Where's that number for Jim Bullard?
• 27:56
  Speaker 5: Go?
• 27:58
  Speaker 10: You know, estimates of the natural rate for most people
• 28:01
  Speaker 10: are in the mid four percent range somewhere. And so
• 28:06
  Speaker 10: I think it's true that unemployment has come up, but
• 28:09
  Speaker 10: it has come up from this, you know, a three
• 28:11
  Speaker 10: handle that it was apt for several years. I think
• 28:14
  Speaker 10: what you should think about is if the three handles
• 28:17
  Speaker 10: the thing that's unusual for the US economy, four handle
• 28:21
  Speaker 10: would be a very normal market turn. And now we're
• 28:26
  Speaker 10: at that level.
• 28:27
  Speaker 2: Now.
• 28:27
  Speaker 10: If it goes up from here, it goes up substantially
• 28:30
  Speaker 10: from here, you know that's going to be a substantial weakening.
• 28:33
  Speaker 10: That's why I think Cherpel didn't want to get any
• 28:38
  Speaker 10: anything further to happen in the labor market.
• 28:40
  Speaker 11: I think he said, further cooling is unwelcome.
• 28:43
  Speaker 2: Yeah, Jim, I said Jim Bullard here easily a decade
• 28:48
  Speaker 2: ago with Alan Meltzer of Carnegie Mellon, and he lectured
• 28:52
  Speaker 2: me on the silliness of a fifty basis point move.
• 28:57
  Speaker 2: If we discuss a fifty basis point, are we defeating
• 29:02
  Speaker 2: all the history of measured and all the value of
• 29:05
  Speaker 2: a gradual approach.
• 29:08
  Speaker 11: Yeah, I just think right now, they just probably don't
• 29:11
  Speaker 11: need to go fifty basis points. I think that would
• 29:15
  Speaker 11: you know, trigger expectations about a really rapid pace of
• 29:21
  Speaker 11: rate decline.
• 29:22
  Speaker 4: They probably don't need to do that.
• 29:24
  Speaker 10: They would like to ask them toe the have the
• 29:27
  Speaker 10: inflation come, ask them tote down to two percent. Also,
• 29:32
  Speaker 10: you know, basically with this speech and certainly with the
• 29:35
  Speaker 10: July meeting as well, they've been heavily signaling that they're
• 29:39
  Speaker 10: going to make this move in September and subsequent moves.
• 29:42
  Speaker 10: So that's already been pricing in the market. So they'll
• 29:45
  Speaker 10: just be confirming at a September meeting of what's pretty
• 29:49
  Speaker 10: much already happened as far as market price.
• 29:54
  Speaker 1: Jim Bullerd, the former Saint Louis fed President, thank you
• 29:56
  Speaker 1: so much for.
• 29:57
  Speaker 5: Being with us.
• 30:07
  Speaker 2: But the real issue is this is a German Paul
• 30:10
  Speaker 2: who at the back end of the speech said, now
• 30:12
  Speaker 2: is the time for humility. Yeah, I think that's an
• 30:15
  Speaker 2: allusion to the election and the incredibly intense economic policies
• 30:20
  Speaker 2: we're getting both from Trump and Harris.
• 30:22
  Speaker 4: You're just trying to roll up.
• 30:26
  Speaker 5: Is here he is. Let's go to him right now.
• 30:28
  Speaker 1: Former Kansas City Fed Thomas Ahoning. I'm very curious to
• 30:32
  Speaker 1: see why you actually think maybe it is too soon
• 30:37
  Speaker 1: to sort of sound the all clear and the victory
• 30:39
  Speaker 1: signal that we seem to hear from Federal Reserve Chair
• 30:42
  Speaker 1: Jerome Powell.
• 30:44
  Speaker 12: Well, I understand where he's coming from, first of all.
• 30:46
  Speaker 12: And you know, first of all, we have an economy
• 30:49
  Speaker 12: that is strong but slowing, which is what you want.
• 30:52
  Speaker 12: You have a labor market that has been strong but
• 30:56
  Speaker 12: slowing as you would expect and want, and you've had
• 31:01
  Speaker 12: a relatively tight interest rate environment. If you think about it,
• 31:06
  Speaker 12: interest rates, real interest rates are between two and a
• 31:09
  Speaker 12: quarter and two and three quarter percent. If the equilibrium
• 31:12
  Speaker 12: raise around two, you're modestly tight. So you would expect
• 31:14
  Speaker 12: a continuation, and that's what he said. We expect to
• 31:17
  Speaker 12: see a continuation and the decline of inflation. So with
• 31:21
  Speaker 12: that in mind, we are getting close to where we
• 31:24
  Speaker 12: can make a cut. So that's the statement. But the
• 31:26
  Speaker 12: fact of the matter is, and here's the catch, inflation
• 31:30
  Speaker 12: is between two and a half and three percent. I
• 31:32
  Speaker 12: know they like to use the PCEE, but there is
• 31:34
  Speaker 12: a CPI two and this CPI is three percent, and
• 31:37
  Speaker 12: that's what people index to and that's what people look at.
• 31:40
  Speaker 12: So inflation is still if you say three percent, it's
• 31:43
  Speaker 12: fifty percent above target. So why are you in such
• 31:46
  Speaker 12: a rush? So that's that's the counter argument to that.
• 31:49
  Speaker 12: But I think based on what he said was, you know,
• 31:52
  Speaker 12: we were very close. The next move is down, and
• 31:56
  Speaker 12: that's what they've been saying for nine months, and that
• 31:59
  Speaker 12: gives the markets kind of a let's say we're gonna speculate.
• 32:03
  Speaker 12: Let's speculate long because rates are going to go down.
• 32:05
  Speaker 2: The heritage of this discussion out of your Iowa State
• 32:09
  Speaker 2: economics and all you did in building Kansas City, is
• 32:12
  Speaker 2: a distrust of those people over in the east coast
• 32:15
  Speaker 2: and maybe the left coast about the debt and the deficit.
• 32:20
  Speaker 4: Tom Hanig, right.
• 32:21
  Speaker 2: Now, on what you got, you got every every Trump supporter,
• 32:24
  Speaker 2: every Hair supporter is looking at the debt and the
• 32:26
  Speaker 2: deficit and saying, you've got to be kidding me. How
• 32:30
  Speaker 2: afraid of you are the fiscal realities of America folded
• 32:34
  Speaker 2: into our monetary policy.
• 32:36
  Speaker 4: Oh, it's very much folded in.
• 32:38
  Speaker 12: For example, regardless of what they do, the deficit is
• 32:43
  Speaker 12: only going to grow. We know the interest on the
• 32:45
  Speaker 12: debt is exploding. We have a huge UH deficit of
• 32:48
  Speaker 12: two trillion. It's going to continue to be well above
• 32:51
  Speaker 12: the train for some time. So here's the question, who's
• 32:54
  Speaker 12: gonna who's gonna learn the money. There's gonna be the
• 32:57
  Speaker 12: foreign interest and they're pulling away from the dollars somewhat,
• 33:00
  Speaker 12: it's going to be domestic. How much do you want
• 33:01
  Speaker 12: to take away from the private sector to fund the
• 33:03
  Speaker 12: debt right and then maybe redo it in some kind
• 33:06
  Speaker 12: of fiscal stimulus it's less efficient. Or are you going
• 33:09
  Speaker 12: to turn to the Federal Reserve? And I call it.
• 33:12
  Speaker 12: I call it knocking on the central Bank's door, because
• 33:15
  Speaker 12: when you're the only source, if you're going to keep
• 33:17
  Speaker 12: integration from exploding, the Fed's going to happen.
• 33:19
  Speaker 2: Well reported, you've got kruger Ins and your your addresser
• 33:22
  Speaker 2: in your bedroom. Gold at twenty five hundred. I mean
• 33:25
  Speaker 2: we go back to Wayne Angel. We can go back
• 33:27
  Speaker 2: further than that. The primal Midwest economist has got to
• 33:31
  Speaker 2: be screaming about the combination of the debt and the
• 33:34
  Speaker 2: deficit in gold at twenty five hundred.
• 33:37
  Speaker 12: Well, I hope it's more than the Midwest because it
• 33:39
  Speaker 12: affects the whole nation, and it is. It is a
• 33:42
  Speaker 12: very significant problem. You know, the dollar used to be
• 33:45
  Speaker 12: a stable coin, right.
• 33:47
  Speaker 2: Tied to the gold because first somebody take a note
• 33:51
  Speaker 2: ut stable coin.
• 33:54
  Speaker 4: Really look at it.
• 33:55
  Speaker 12: It was backed by the goal and therefore you had
• 33:58
  Speaker 12: you had discipline around.
• 33:59
  Speaker 4: It's all fiat, right, which is fine. If your policy is.
• 34:03
  Speaker 2: Can we extend an hour?
• 34:04
  Speaker 4: He's just getting fired up. Look, well, think about it.
• 34:08
  Speaker 4: That's all I'm asking you to do.
• 34:10
  Speaker 12: Think about what is the discipline to the value of
• 34:15
  Speaker 12: our currency. It's the FMC with more and more pressure
• 34:18
  Speaker 12: coming from the size of the death that we have
• 34:20
  Speaker 12: to fund.
• 34:22
  Speaker 4: Someone has to fund that not to go.
• 34:23
  Speaker 1: Too far afield. When we're talking about the gold standard.
• 34:27
  Speaker 1: This goes back to the question of inflation and just
• 34:30
  Speaker 1: how pegged inflation is in this economy that does look
• 34:34
  Speaker 1: different than it did pre pandemic. Do you have any
• 34:38
  Speaker 1: concerns about the fact that we don't understand neutral and
• 34:42
  Speaker 1: we talk about normalizing policy without a sense of where
• 34:45
  Speaker 1: we're going.
• 34:47
  Speaker 12: Well, I think people know where we're going, and you know,
• 34:49
  Speaker 12: the estimates are neutral, are like every other estimate. It's
• 34:53
  Speaker 12: not certain, but many researchers now are saying neutrals around
• 34:57
  Speaker 12: two percent. So if neutrals two percent and the rate
• 35:02
  Speaker 12: the Fed Funds rate is real rate is two to
• 35:04
  Speaker 12: quarter two to three quarters percent, you have a type
• 35:07
  Speaker 12: policy and the other part of it isn't And I
• 35:09
  Speaker 12: will say Chairman Power emphasizes is inflationary expectations. So if
• 35:14
  Speaker 12: they can stay firm in terms of we're not gonna
• 35:18
  Speaker 12: ease so much that we reignite inflation. We don't know
• 35:21
  Speaker 12: what that is, but we know we are somewhere around
• 35:24
  Speaker 12: real rate of two percent, we'll get our rate down
• 35:27
  Speaker 12: to two percent as inflation comes down. And if they
• 35:30
  Speaker 12: move in September, the main thing will be how they
• 35:33
  Speaker 12: message it, because if they don't message your right, the
• 35:35
  Speaker 12: markets will immediately start saying, well, what's the next quarter
• 35:38
  Speaker 12: or a half or some point, and then you will
• 35:40
  Speaker 12: lose that anchor.
• 35:41
  Speaker 1: I like what you said because it hints to where
• 35:43
  Speaker 1: I was going to go next. Is this a fetter
• 35:45
  Speaker 1: reserve that wants to see a market rally, because ultimately
• 35:48
  Speaker 1: that's more supportive of no further deterioration in the label market.
• 35:54
  Speaker 12: I think this is a FED that not necessarily want
• 35:56
  Speaker 12: to see a market rally, but it does not want
• 35:59
  Speaker 12: to see inflation night, nor does it want to see
• 36:03
  Speaker 12: unemployment struct a rise. So they're in that tight spot
• 36:07
  Speaker 12: and that's why they're being very careful as they go
• 36:09
  Speaker 12: forward from here.
• 36:09
  Speaker 4: But they have a lot on their shoulders.
• 36:11
  Speaker 2: There's a state in the vicinity of tom Honing. It's
• 36:14
  Speaker 2: called Missouri. McChesney Martin came out of Missouri, and he
• 36:18
  Speaker 2: and Truman of Missouri had a pitched battle in the
• 36:21
  Speaker 2: early nineteen fifties. Are we going to reduct fed independence
• 36:25
  Speaker 2: battle into twenty twenty five? Well, it's yes, as possible
• 36:30
  Speaker 2: because of the pressure to print money to buy the
• 36:33
  Speaker 2: debt of the US government. And that's when the FED,
• 36:36
  Speaker 2: I think it's hard decisions are ahead of them, because
• 36:39
  Speaker 2: I think the FED is going to have to say
• 36:42
  Speaker 2: behind the doors, I don't care how they do it, Congress,
• 36:45
  Speaker 2: get your house in order. We cannot carry these kinds
• 36:47
  Speaker 2: of debt forward and retain ourselves as the strongest, most
• 36:53
  Speaker 2: reliable currency in the world.
• 36:55
  Speaker 4: We're at a time.
• 36:56
  Speaker 2: Can you get beefun toasts back on the menu at
• 36:59
  Speaker 2: the Pioneer Grip? With all your power, can you get
• 37:02
  Speaker 2: the menu back to what it was?
• 37:04
  Speaker 12: I don't I'm not hosting this anymore, so my power
• 37:06
  Speaker 12: is kind of limited, so I can't probably.
• 37:10
  Speaker 4: Give you my opinion.
• 37:11
  Speaker 3: Give you a toast to Jackson Hole.
• 37:14
  Speaker 1: I'm a fan former Kansas City FED President Thomas Honeg
• 37:17
  Speaker 1: joining us here in.
• 37:18
  Speaker 5: Jackson Hall.
• 37:30
  Speaker 3: From Jackson Hole.
• 37:31
  Speaker 6: For our radio and television audiences worldwide. This is a
• 37:34
  Speaker 6: Bloomberg special interview following up on the J. Powell Fed
• 37:39
  Speaker 6: Chairman's speech. Here in Jackson Hole, we have Philadelphia FED
• 37:43
  Speaker 6: President Patrick Harker joining me, Lisa Bradwitz and Tom Keene,
• 37:47
  Speaker 6: and we'd like to thank you very much, Pat for
• 37:49
  Speaker 6: coming out, uh, interrupting your your seminar rumor?
• 37:54
  Speaker 13: Has it you're going to cut rates?
• 37:58
  Speaker 5: Was it you?
• 37:59
  Speaker 3: You've been some what reluctant? Are you on board?
• 38:02
  Speaker 8: No?
• 38:02
  Speaker 13: I said the last couple of days that it's time
• 38:06
  Speaker 13: to start a process. And I think it's a process.
• 38:08
  Speaker 13: It's not about a particular number. The process needs to
• 38:12
  Speaker 13: be dictated by the data we see but we need
• 38:16
  Speaker 13: to start moving rates down, no question about it.
• 38:19
  Speaker 6: Well, if you start moving rates down. The one thing
• 38:22
  Speaker 6: that didn't come through in the speech is by how much?
• 38:25
  Speaker 13: Yeah, And again I think we need to let the
• 38:27
  Speaker 13: data dictate this. I think what matters more than a
• 38:29
  Speaker 13: particular number. Now, I've been out and about in my
• 38:31
  Speaker 13: district all summer talking to contacts, and one thing I
• 38:35
  Speaker 13: heard is twenty five point fifty. That doesn't matter so
• 38:38
  Speaker 13: much as commit to a process. Be methodical about the
• 38:42
  Speaker 13: process in particular, because what I've heard, particularly from the bankers,
• 38:46
  Speaker 13: is they need time to absorb the changes. So don't
• 38:50
  Speaker 13: just stop and start. Don't just do a large decrease
• 38:55
  Speaker 13: and then stop and then starting it. Just start a
• 38:57
  Speaker 13: process and keep it moving.
• 38:58
  Speaker 1: This to me, really underscores what LORDA Master was saying
• 39:02
  Speaker 1: formerly of the Cleveland Fed Reserve, where it makes sense
• 39:05
  Speaker 1: for the Fetch Reserve to go by twenty five basis
• 39:07
  Speaker 1: points to begin with and then potentially cut more significantly
• 39:11
  Speaker 1: later on, because then you're not signaling to markets that
• 39:14
  Speaker 1: you're going to go much further.
• 39:15
  Speaker 5: Isn't what you agree?
• 39:15
  Speaker 13: And we'll see how things. You know, there are a
• 39:18
  Speaker 13: lot of risks are out there in the economy and
• 39:20
  Speaker 13: the global economy. So we start with twenty five and
• 39:23
  Speaker 13: we just let it run and keep moving that and
• 39:26
  Speaker 13: we're already seeing it, right, We're seeing the long end
• 39:28
  Speaker 13: of the curve start to come down. That's been good.
• 39:31
  Speaker 13: The mortgage business is back. You talk to bankers, they're
• 39:34
  Speaker 13: starting to write mortgages again. That's all good news for
• 39:37
  Speaker 13: the economy.
• 39:38
  Speaker 2: I've got to ask the engineer the question. Susan Collins
• 39:41
  Speaker 2: was channeling Patrick Kreker here the other day. She says,
• 39:44
  Speaker 2: we need to lose a pessimism. We need to be
• 39:47
  Speaker 2: more optimistic about where we are right now. You, more
• 39:51
  Speaker 2: than anyone I know, listens to business. What are you
• 39:54
  Speaker 2: hearing from business about investment next year?
• 39:57
  Speaker 4: About their confidence forward?
• 40:00
  Speaker 13: They're cautiously optimistic, I would say, right now, I think
• 40:02
  Speaker 13: they are optimistic. But depends on the industry and depends
• 40:07
  Speaker 13: on where they are in their own business cycle, right.
• 40:11
  Speaker 13: But yeah, generally we're seeing take housing for example, Housing
• 40:15
  Speaker 13: is a good example. We know that a lot of
• 40:17
  Speaker 13: developers are sitting on their hands waiting for rates to
• 40:19
  Speaker 13: come down for this process to start. I think that's
• 40:23
  Speaker 13: a good thing because we need them to build affordable houses,
• 40:27
  Speaker 13: loan moderate income houses, and I think they will do
• 40:30
  Speaker 13: that as we start this process.
• 40:33
  Speaker 6: When the Chairman's book today, he suggested that the balance
• 40:36
  Speaker 6: of risks has changed. Inflation is coming down and it's
• 40:39
  Speaker 6: probably not going to shoot up again because of the
• 40:42
  Speaker 6: rising unemployment rate. But the rising unemployment rate in turn
• 40:46
  Speaker 6: is a bigger risk. At this point, how much of
• 40:48
  Speaker 6: a risk do you see of downturn from unemployment?
• 40:52
  Speaker 13: So I don't see a large outside risk. The employment
• 40:55
  Speaker 13: unemployment can go up some right, and it probably will
• 40:57
  Speaker 13: go off a little bit. It will definitely, in our view,
• 41:01
  Speaker 13: not peak above say five percent. I mean it will
• 41:04
  Speaker 13: be below that for sure. Well not for sure. We
• 41:07
  Speaker 13: never nothing for sure. But you got to look at
• 41:11
  Speaker 13: the totality of the data too. It's not just about
• 41:12
  Speaker 13: that number, right, It's about what we're hearing from our contacts,
• 41:17
  Speaker 13: the claims data, the job to job transition data. There's
• 41:20
  Speaker 13: a host of data. You have to look at it.
• 41:23
  Speaker 6: Well, this is a confidence question. Recessions are always a
• 41:26
  Speaker 6: confidence question. You're talking about confidence CEOs that the business
• 41:30
  Speaker 6: is going to be okay. But what do you hear
• 41:32
  Speaker 6: from the average person who could pull back if.
• 41:35
  Speaker 3: They see the unemployment rate going up.
• 41:38
  Speaker 13: It really is a tale of two consumers. To simplify things.
• 41:42
  Speaker 13: Those who have the money are spending the money. They're
• 41:45
  Speaker 13: not that concern. Low moderate income households are really still
• 41:50
  Speaker 13: feeling the pain. They're feeling the pain of housing prices,
• 41:53
  Speaker 13: food prices, you name it. So they are very concerned.
• 41:56
  Speaker 13: So it really depends. It's not one size fits all.
• 41:59
  Speaker 13: There's not the average consumer. That person doesn't exist in
• 42:02
  Speaker 13: our economy.
• 42:03
  Speaker 1: So everyone's talking about this process, right, You talked about
• 42:06
  Speaker 1: that too.
• 42:07
  Speaker 5: This is the beginning of a process.
• 42:08
  Speaker 1: One thing that Neil dot noticed was missing was the
• 42:11
  Speaker 1: word gradual from Jpalas, which we can get to that
• 42:14
  Speaker 1: in a second.
• 42:15
  Speaker 5: Do you have a sense of where we're heading?
• 42:17
  Speaker 13: Yeah, so I like the word methodical. That's what I'm
• 42:19
  Speaker 13: hearing from my contacts. Please just make it so that
• 42:23
  Speaker 13: we know where you're going in a very clear way,
• 42:27
  Speaker 13: and then you start that process and don't just stop
• 42:30
  Speaker 13: and start.
• 42:30
  Speaker 1: As I said earlier, So where are you going.
• 42:33
  Speaker 13: Well, we're going to go back to whatever that new.
• 42:35
  Speaker 8: Neutral rate is.
• 42:36
  Speaker 5: We have an idea of what that could be.
• 42:38
  Speaker 13: Yeah, I mean we don't know exactly what it is.
• 42:40
  Speaker 13: We'll know it when we get there. Let's be honest,
• 42:42
  Speaker 13: you can't know it out priori, but you know it's
• 42:45
  Speaker 13: probably around something around three percent, is sure, you know,
• 42:49
  Speaker 13: or somewhere around that, But we don't know that for sure.
• 42:51
  Speaker 2: One of the new things that social media is wonderful people.
• 42:54
  Speaker 2: There's a guy named Triple Net Investor that's out there
• 42:57
  Speaker 2: revealing empty office buildings for next to nothing.
• 43:01
  Speaker 4: We got good news.
• 43:02
  Speaker 2: Philadelphia is not on the latest list of this city,
• 43:05
  Speaker 2: that city and the other city. From where you stand
• 43:08
  Speaker 2: and from all your contexts, and Philadelphia's let on this.
• 43:12
  Speaker 2: Where are we on the washout and clean up of
• 43:15
  Speaker 2: commercial real estate?
• 43:16
  Speaker 8: Again?
• 43:17
  Speaker 13: Let's commercial real estate isn't one size fits all thing.
• 43:21
  Speaker 13: So downtown office is what we're talking about. The dentist
• 43:24
  Speaker 13: in the suburban office mall is doing just fine. Right,
• 43:27
  Speaker 13: it's that downtown office space. We are starting to see
• 43:30
  Speaker 13: that clean out some again, it's going to take some time,
• 43:34
  Speaker 13: whether it's new businesses moving into that space at much
• 43:37
  Speaker 13: lower rents or conversion. We're seeing a lot of conversion
• 43:41
  Speaker 13: activity as well.
• 43:42
  Speaker 2: Do you have a confidence that the banking industry is
• 43:45
  Speaker 2: resilient to that conversion that's so far?
• 43:48
  Speaker 13: Yes, I do, but it's something we clearly need to
• 43:51
  Speaker 13: keep our eye on.
• 43:52
  Speaker 6: Let's sticky with real estate. Let's talk about the residential side.
• 43:55
  Speaker 6: You were populistic at the start of the interview here
• 43:58
  Speaker 6: talking about mortgages coming back. There's been a lot of
• 44:01
  Speaker 6: criticism of a FED maybe breaking the mortgage market because
• 44:05
  Speaker 6: interest rates rose above what the majority of people had
• 44:08
  Speaker 6: for their mortgage rate.
• 44:10
  Speaker 3: Do you have an.
• 44:11
  Speaker 6: Idea of what level housing it takes for housing to
• 44:16
  Speaker 6: come back and is that figured into your calculations of
• 44:19
  Speaker 6: where neutral should be.
• 44:20
  Speaker 13: Yeah, so we had to do what we did to
• 44:24
  Speaker 13: get inflation under control. So I don't know apologies that
• 44:27
  Speaker 13: we took rates up quickly. I think about my generation,
• 44:32
  Speaker 13: the Baby Boomers, the largest generation to go into retirement.
• 44:35
  Speaker 13: We're sitting on these low mortgages. We want to move,
• 44:39
  Speaker 13: We don't want that big house anymore. That lock in effect,
• 44:42
  Speaker 13: it will start to ease as rates come down, and
• 44:45
  Speaker 13: we're already starting to see a little bit of that again.
• 44:47
  Speaker 13: I talked to the bankers. They're writing mortgages again, not
• 44:50
  Speaker 13: just refise, but they're writing new mortgages again. That combined
• 44:54
  Speaker 13: with the new supply that'll come on the market I'm
• 44:57
  Speaker 13: pretty optimistic we can get this.
• 44:59
  Speaker 2: This is a critical statement from mister Harker, the idea
• 45:02
  Speaker 2: of like, when the rate comes down, where does the
• 45:04
  Speaker 2: fevers step in?
• 45:05
  Speaker 4: Again, are you.
• 45:06
  Speaker 3: Looking in Jackson? It would take a lot, a lot.
• 45:11
  Speaker 3: It would take a lot for that to happen.
• 45:13
  Speaker 6: Another question that comes up now that you're essentially starting
• 45:16
  Speaker 6: the path to rate cuts is what do you do
• 45:18
  Speaker 6: about the balance sheet? Because in theory they work in
• 45:21
  Speaker 6: opposition to each other, and it had been sort of
• 45:25
  Speaker 6: the fence policy that we wouldn't do them simultaneously.
• 45:28
  Speaker 3: But it looks like you're going to be doing that.
• 45:30
  Speaker 8: Yeah, that's okay.
• 45:30
  Speaker 13: I think again we I've always been in the camp
• 45:33
  Speaker 13: of putting the balance sheet on autopilot, essentially starting the process,
• 45:37
  Speaker 13: letting it run until we get and get there. We
• 45:40
  Speaker 13: definitely don't know exactly where that's going to end. The
• 45:43
  Speaker 13: data will dictate when we end that process. I'm okay
• 45:46
  Speaker 13: with doing that because it's in the background, it's running.
• 45:49
  Speaker 13: We need to get back to ample it reserves. We
• 45:52
  Speaker 13: don't know what that number is, but we'll know what won't.
• 45:54
  Speaker 3: You get an estimate about when that might be?
• 45:57
  Speaker 13: I do, but I'm not gonna. It's so uncertain. We
• 46:02
  Speaker 13: had an estimate last time we did this, right, we're off,
• 46:05
  Speaker 13: So I'm cautious about that.
• 46:07
  Speaker 5: If he told you, you'd have to kill you.
• 46:08
  Speaker 1: I think that there's this question right now about heading
• 46:12
  Speaker 1: into your end. And Adam Posen was really highlighting this earlier.
• 46:15
  Speaker 1: There's this anxiety about what the fiscal backdrop will do
• 46:19
  Speaker 1: to derail some of the calm, the methodical aspects of
• 46:24
  Speaker 1: FED policy. I don't know that you can or want
• 46:27
  Speaker 1: to comment on basically what that policy could be. But
• 46:31
  Speaker 1: how much does that keep FED officials up at night?
• 46:34
  Speaker 1: How much is that part of the discussion what you
• 46:36
  Speaker 1: have to do to respond to any potential expansion of
• 46:40
  Speaker 1: the deficit that could be inflationary next year.
• 46:44
  Speaker 13: So I stay out of fiscal policy. Honestly, you have
• 46:46
  Speaker 13: to respond, We have to respond to it exactly. And
• 46:48
  Speaker 13: so I can't speak for the FED either, but for myself,
• 46:51
  Speaker 13: what keeps me up are many risks. That's one of them, right.
• 46:55
  Speaker 13: There's also if we see what we're seeing around the world,
• 46:59
  Speaker 13: content licks get worse. I mean that would be tragic
• 47:03
  Speaker 13: to humanitarian tragedy alone, but the tragedy also to the economy,
• 47:07
  Speaker 13: the hurt to the economy.
• 47:09
  Speaker 4: So there are a lot of risks that keep me
• 47:10
  Speaker 4: up at night.
• 47:11
  Speaker 8: That's just one of them.
• 47:12
  Speaker 1: Well, tariffs, were you more or the deficit depends.
• 47:17
  Speaker 13: It depends the devil's in the detail, Like what's specific
• 47:20
  Speaker 13: about the tires, what specifically we're investing in in terms
• 47:24
  Speaker 13: of deficit. You know, I'm a simple guy. I think
• 47:28
  Speaker 13: if we're investing in something that's improving the productivity of
• 47:32
  Speaker 13: the American economy, that's a good thing. If we're spending
• 47:35
  Speaker 13: money that doesn't do that, that worries me more. So, Again,
• 47:38
  Speaker 13: it's not just one one thing. It really depends on
• 47:41
  Speaker 13: what we're doing.
• 47:42
  Speaker 6: So you mentioned productivity. We had the big revision to
• 47:45
  Speaker 6: the non farm payrolls right this week, but that should
• 47:48
  Speaker 6: raise productivity. You view that as good news offsetting the
• 47:52
  Speaker 6: bad news of Lord John.
• 47:53
  Speaker 13: That's an interesting that's an interesting way of thinking about it.
• 47:56
  Speaker 13: We were expecting this adjustment and we looked at in
• 48:01
  Speaker 13: Philly FED. We've been looking at this the payroll adjustments,
• 48:04
  Speaker 13: and we knew this was coming. It's a little larger
• 48:06
  Speaker 13: than we expected, but we knew it was coming, so
• 48:07
  Speaker 13: that wasn't a surprise. And it's still a good number overall,
• 48:10
  Speaker 13: if you average out over twelve months, we're still doing
• 48:12
  Speaker 13: just fine in the American economy. But there's risk there.
• 48:15
  Speaker 13: That's why we need to start to take action now.
• 48:18
  Speaker 3: Well, we'll see you on September eighteenth.
• 48:19
  Speaker 6: Patrick Harker, President of the Philadelphia Fed, thank you very
• 48:23
  Speaker 6: much for joining us on Bloomberg Radio and television.
• 48:26
  Speaker 2: This is a Bloomberg Surveillance podcast, bringing you the best
• 48:29
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• 48:34
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• 48:38
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• 49:01
  Speaker 4: Really