Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Federal Reserve Board Governor Chris Waller on Monetary Policy and Payments | Hoover Institution
Transcript
- 0:00>> Jon Hartley: This is a live recording of an episode of the Capitalism and
- 0:05freedom of the 21st Century podcast, an official podcast of
- 0:10the Hoover Institution Economic Policy Working Group where I,
- 0:16Jon Harley, I'm your host.
- 0:18I'm also a policy fellow at the, at the Hoover Institution.
- 0:22It's so great to have Federal Reserve Board of Governor Chris Waller here as my
- 0:25guest for this live episode at the Economic Club of Miami,
- 0:28which is also being live-streamed on Bloomberg Box Business and C-SPAN.
- 0:32Chris, thanks so much for coming to Miami and for coming on the show.
- 0:35>> Christopher J. Waller: Thanks. This is my first podcast.
- 0:37I'm looking forward to it.
- 0:38>> Jon Hartley: All right, well, first question.
- 0:44>> Christopher J. Waller: And then. >> Jon Hartley: Let's get started and
- 0:45maybe address, I guess the, what some may say is the elephant in the room.
- 0:50Some of your colleagues at the Federal Reserve Board are on the news.
- 0:54For those who haven't been following the news,
- 0:57any comments on the status of this situation?
- 1:00I think there might have been a lawsuit dropped today or something like that.
- 1:03>> Christopher J. Waller: Yeah, when it comes to this, I,
- 1:05I really don't have any comment.
- 1:07Things now are in the hands of lawyers in the courts.
- 1:10Not, not a poor, simple policymaker like me.
- 1:13>> Jon Hartley: Okay.
- 1:13All right.
- 1:14Well, moving on to our first economic question really
- 1:18about the federal funds rate and where it's going to.
- 1:22I mean, you gave us a great economic outlook in your speech.
- 1:25CPI inflation now is both headline and cores are about 2.7% year over year.
- 1:31It's been below 3% for quite a while.
- 1:33Unemployment's been around 4.2% for a while.
- 1:37And there's still another non farm payroll report that still has to come up
- 1:42between now and the next FOMC meeting.
- 1:45That could change a little bit.
- 1:47But the fed funds rate is currently at 4.25%.
- 1:51You said earlier that you'd like to see maybe a 25 basis point cut at the next
- 1:55meeting.
- 1:57Would you like to see more cuts at further meetings down the road?
- 2:00I'm curious, what's your position on the trajectory of the fed funds rate?
- 2:05>> Christopher J. Waller: Yeah, that's what I said at the end of the speech was I
- 2:08fully expect more rates cuts as the labor market continues to soften.
- 2:13Growth is probably still going to be slow in the second half of the year.
- 2:16And the tariff effects, any tariff path through effects will probably peak by
- 2:20the end of this year, beginning in 26.
- 2:23So because monetary policy tends to work with these kind of long lags,
- 2:27you don't want to wait and then you're behind the curve.
- 2:31So my view is we should start getting ready,
- 2:33look through whatever price effects are happening right now.
- 2:37I don't believe they're going to be persistent.
- 2:39I know I'm a bit of an outlier in the FOMC because of that.
- 2:43But this is exactly what economic theory would tell you.
- 2:46Look through the tariffs.
- 2:47Inflation will flatten out once the tariff effects are passed through and
- 2:51then we can continue moving on cutting to protect the, the real side of the economy.
- 2:56But the pace and the speed.
- 2:58I like to give this example.
- 2:59I went to college in northern Minnesota.
- 3:01When I would drive home for Christmas, I knew exactly where I was going.
- 3:06But how fast I got to Minneapolis, depending on the weather and
- 3:09the weather's like your current data in determines whether you can go fast,
- 3:13whether you gotta go slow, how much you can.
- 3:16So that's the kind of way I think about the rate cuts.
- 3:19We know roughly where we're going towards neutral, but
- 3:22how fast we get there is going to depend on the data that comes in.
- 3:26>> Jon Hartley: So you prefer a pace of sort of success, of potentially success of
- 3:3025 basis point cuts, not a bigger 50 basis point cut or more at the beginning.
- 3:35>> Christopher J. Waller: Yeah. And it's not a set sequence,
- 3:36it's not 25, 25.
- 3:38That's what I mean by the data.
- 3:39The data will kind of determine how fast we go.
- 3:41It could be a sequence of cuts, it may be a couple,
- 3:44then you may want to pause if the data is coming in in an odd way.
- 3:48So that's, that's what I mean.
- 3:50How fast you know where you're going,
- 3:52that's the key thing we know we want to head towards neutral.
- 3:56It's just a question of how fast we get there.
- 3:58>> Jon Hartley: So I'm, I'm a nerdy economist like yourself.
- 4:01I want to ask you, I want to ask you about R Star.
- 4:05>> Christopher J. Waller: Does anybody know what R STAR is?
- 4:07No. >> Jon Hartley: See, for
- 4:08those who don't know R Star, it's really the level of the interest rate
- 4:13where inflation's either accelerating or decelerating.
- 4:17So it kind of tells you where are we at in terms of whether monetary
- 4:22policy is tight or accommodated.
- 4:25And so the fed funds rate's currently at 4.25%.
- 4:28So if you thought that the R was much lower,
- 4:30then you'd say it's a very tight stance of monetary policy right now.
- 4:34If you thought, well R STAR was at about 4.25%,
- 4:37you would think that we're at neutral.
- 4:39So I'm curious.
- 4:41One, there's a lot of different ways in which people assess R star.
- 4:45There's model driven estimates,
- 4:47there's a Luback Williams estimate that's about 2.75.
- 4:50There's the UBIG Matthews nominal R star, that's around 3.75.
- 4:55These are nominal numbers.
- 4:57I'm personally a fan of the survey based R STAR estimates.
- 5:00The New York Fed has this survey, it's called a survey for market expectations.
- 5:03They ask Wall street types or hedge fund or primary dealers, market participants,
- 5:08what the Fed likes to call them and ask them what their estimates of R STAR is.
- 5:13And you can take the median of that and that's about 3.25 right now.
- 5:16And that median pretty closely follows the FOMC median R estimates that are put in
- 5:21the summary of economic projections.
- 5:23We don't get to see or know who the dots are.
- 5:27And these, the famous dot plots, Chris is one of them.
- 5:30But I'm just curious, sort of big picture one, where do you think R STAR is?
- 5:34How do you think about R star?
- 5:36You're a monetary economist.
- 5:38How do you think about formulating that in your own mind and
- 5:41sort of creating your own dot?
- 5:43I mean, do you follow survey based estimates?
- 5:45Do you follow model based estimates?
- 5:46Do you follow market based estimates, say long run interest rates and so forth?
- 5:50How do you think about it as a monetary economist?
- 5:52>> Christopher J. Waller: Well, so just the way I think about our STAR is if
- 5:55the FOMC or the Fed, if we were hitting our inflation target at 2% and
- 5:59we were at maximum employment, where you're, that's your goals for
- 6:02the dual mandate and you're hitting them and you're sticking there and
- 6:06inflation expectations are anchored, what should the interest rate be?
- 6:11That's what we call our star.
- 6:13It's like what would it be if you were right on target and
- 6:15everybody's expectations were anchored?
- 6:19The interest rate is composed of two parts.
- 6:21Some expected inflation which should be hopefully 2% if you're on target, and
- 6:25some real rate of return.
- 6:28And the real rate of return used to be thought of as 2%.
- 6:31So if you had a 2% target for inflation and a 2% real return,
- 6:36the nominal rate at neutral would be 4%.
- 6:39That was kind of standard wisdom for a long time in central banking.
- 6:44What we noticed about 10 years ago was it's real, this real rate.
- 6:49Even though inflation was anchored pretty much around 2%,
- 6:54the real return on safe liquid government debt was falling from
- 6:59about four to two to close to zero about 10 years ago.
- 7:04So there was something going on that people were willing to pay more and more,
- 7:08a higher and higher price for safe liquid US government debt,
- 7:12which meant that the yield that they got was going down.
- 7:16So this is where this whole debate about Russia, it was falling, falling, falling.
- 7:22It's been very low.
- 7:23And now the debate is, is it going back up?
- 7:25Is it going to stay low?
- 7:27I know this is totally geeky.
- 7:29If I were sitting in the audience, I'd be shooting myself.
- 7:35But this is a serious problem for a policymaker and nerds like Jon.
- 7:41So that's kind of where we're at.
- 7:45When I was saying 3% was a median estimate, that's what I mean.
- 7:48Right now we think if he had a 2% inflate inflation target,
- 7:52the median FOMC member would think that the real interest,
- 7:56once you net out inflation effects, would be about 1%.
- 8:00Which is significantly lower than 2% and
- 8:03certainly lower than about 4% early in the, in the mid-80s.
- 8:08The question is, is it going to continue?
- 8:09Is it going to start rising?
- 8:10And it was close to zero, it's up to about one, is it gonna keep going or
- 8:14is it gonna stay there?
- 8:16And that's where a lot of energy research discussion has tried to
- 8:20figure out where do we think this is?
- 8:23And as Jon said, these numbers are kind of all over the map.
- 8:26If you even look at the FOMC survey of economic projections,
- 8:30they run from about two and a half to close to 4%.
- 8:34So even on our committee that's how big of the range is and
- 8:38how much uncertainty there is.
- 8:40So that's basically the way I kind of look at it is it's going to be
- 8:44a point estimate that moves around over time.
- 8:48And I gave a speech back in May of 24 at the Central bank of Iceland where I gave
- 8:52a whole speech on what does it mean about R Star, why has it been falling,
- 8:57what did I think caused it and what do I think could cause it to go back up?
- 9:01So if you're really bored some night, go find that speech and give it a read.
- 9:06>> Jon Hartley: That's very enlightening.
- 9:10As a nerd, as a nerd, very enlightening for me, selfishly.
- 9:15I do wanna talk a little bit about inflation, but inflation during the COVID
- 9:20pandemic and I think a lot of people here probably remember this and I'm
- 9:26sure some people may still be upset about it, we did get cumulative inflation or
- 9:31a price level increase of 20% that's permanent we haven't reversed any of that.
- 9:38I'm curious, what did teen transitory those at the Fed who thought that sort of
- 9:44inflation would come back down without Fed fed funds rate hikes at the time,
- 9:49what did they get wrong?
- 9:51And I'm curious,
- 9:52should the Fed have started raising interest rates earlier than March of 2022?
- 9:57I'm curious what your theory of the early 2000s inflation is.
- 10:02You know, was it supply induced inflation, demand induced inflation by say, you know,
- 10:06stimulus and so forth, supply induced by, you know, supply chains and so forth?
- 10:10Or was it a supply and demand induced inflation in your mind?
- 10:13>> Christopher J. Waller: Yeah, it clearly was both, I mean the whole Covid panic was
- 10:18a problem because it kinda hit the whole world.
- 10:22And then when everybody's working at home or sitting at home,
- 10:26you can't really produce stuff.
- 10:29So whatever's being available out there, the prices start being dead up because
- 10:32everybody's Sitting at home with nothing to buy the goods.
- 10:35So some of it was just the supply chains were restricted, we were all still buying.
- 10:40There was a lot of stimulus from the federal government and the Fed as well to
- 10:43try to support because we really thought this would turn out to be something like
- 10:47the great financial crisis where we have to step in and do a lock.
- 10:52So you had both the supply side from supply chains,
- 10:54demand from supportive policy.
- 10:57And then the economy just recovered faster than I think we thought.
- 11:03So I was on throw all the knives you want, but
- 11:06I was on team transitory in 2021 because I gave a speech in May of 21, I said,
- 11:12look, what are all the reasons people think inflation's going to go up?
- 11:17And I walked through every single one of them and said,
- 11:20these are just price level effects.
- 11:22They don't just cause prices to continue to go up and up and up and up and up.
- 11:27My economic reasoning just said it can't happen.
- 11:31So that was, I think, a general belief that we had.
- 11:33What happened is those price level effects turned out to be much bigger and much more
- 11:38persistent than, I know certainly I can't speak about any of my colleagues, but
- 11:43for me it was a surprise at how big and persistent these changes were.
- 11:47And I gave a speech in Korea back at the end of first week of June
- 11:52where I kinda laid out what caused this persistence,
- 11:56what was it that caused all these things?
- 12:01So I don't want to go through a big hullable about it, but
- 12:05those things which was like the COVID
- 12:07it wasn't just one wave of COVID it was wave after wave after wave.
- 12:12And they weren't synchronized around the world.
- 12:14So we would start reopening and somebody else would shut down.
- 12:17And every time somebody shut down, they broke the supply chains and
- 12:21we still had a lot of stimulus money pouring in.
- 12:23Fiscal policy was very accommodative, monetary policy was accommodated for
- 12:27too long.
- 12:28And that also just led to more persistence in inflation.
- 12:33Now why is this important?
- 12:35Because from that experience we should have all learned our lesson that you don't
- 12:39say the word transitory.
- 12:42And what am I doing?
- 12:44I am saying whatever tariff inflation you get will be transitory.
- 12:50That was a pretty bold thing to say about eight months ago because everybody
- 12:53immediately said, you're an idiot.
- 12:56But I think we're now starting to see that tariffs are a very different thing.
- 13:00It's not clear how much is going to get passed through.
- 13:02It's one thing causing it, it's not multiple broken chains,
- 13:06fiscal policy monitor.
- 13:09So it's to me very clear there's really one thing we gotta worry about,
- 13:12those prices if there's any pass through, there'll be some.
- 13:16Once they pass through, it's over and
- 13:19it won't continue to cause prices to go like that.
- 13:22So based on that long standing central bank wisdom is you just look through it.
- 13:27Just like if you increase the sales tax in every state,
- 13:31that would raise the price what everybody has to pay.
- 13:34But no one would say that's going to just cause inflation go taking off.
- 13:38And I doubt very much that workers would go to their bosses and say, hey,
- 13:42the city just raised my sales tax, I need a raise.
- 13:45I don't think your boss pay any attention to you.
- 13:48But it's weird with tariffs, that's immediately what people start saying,
- 13:51tariffs, prices will go up and it'll be more expensive.
- 13:54Like I asked for a raise.
- 13:55Well, you don't do it on the sales tax.
- 13:57You don't do it if your income tax goes up or any other taxes go up.
- 14:00What is it special about tariffs in which you wanna act differently?
- 14:05So that's kind of where I'm at.
- 14:07I'm back on team transitory.
- 14:10We'll see how it all works out.
- 14:12Some of my colleagues have some bets against me, but I'm sticking to it.
- 14:16That's my line.
- 14:17>> Jon Hartley: Very good.
- 14:18Well, I want to talk a little bit about Jackson Hole,
- 14:24where you were last weekend in Wyoming.
- 14:28And there was a lot of discussion about Chair Powell's speech,
- 14:32in particular on that framework review.
- 14:36So he, I think suggested last week that the Fed from a framework review
- 14:41standpoint was potentially returning to the sort of 2012 Bernanke
- 14:46symmetric 2% inflation target and kind of abandoning the so
- 14:50called flexible average inflation turn your fate regime.
- 14:54That was adopted in the last framework review, that was in 2020 and
- 14:58sort of a brainchild of Rich Clarita.
- 15:00Any thoughts on the 2025 framework review?
- 15:03What do you think it should go?
- 15:04Where do you think the Fed should go from a framework review perspective
- 15:07in your mind?
- 15:09>> Christopher J. Waller: So for those of you again who are central bank geeks,
- 15:12a framework, we have a goal.
- 15:14Our goal is 2% inflation, price stability, which is how we define it, and
- 15:18maximum employment.
- 15:21Those are great goals.
- 15:21How are you going to get there?
- 15:23What's your strategy?
- 15:24How are you going to act when the data isn't getting you there?
- 15:28So that's when, when Jon says our framework, that's what people,
- 15:31that's how we interpret the framework.
- 15:32It's our strategy for
- 15:34how we're going to respond to the data to get us to these goals.
- 15:38That's kind of the simplest way to explain what the framework is.
- 15:42Now, in our last framework,
- 15:44we had spent 10 years with inflation running well below our 2% target.
- 15:49And you'd say, what's wrong with that?
- 15:54Okay, maybe there's nothing wrong with it, but
- 15:56inflation expectations started drifting down away from.
- 15:59From 2%.
- 16:01And so what that implied is our promise of 2% is not,
- 16:05is losing credibility, whether you like it at 2 or 1 or 0.
- 16:10But if you pick 2 and its expectations are drifting down, you're losing credibility.
- 16:16So there's a lot of things that happened in the 2010s.
- 16:18We were at zero, lower bound.
- 16:20The economy was recovering from the financial crisis.
- 16:25The massive amounts of regulation went in after the financial,
- 16:28particularly in the financial sector, and all these things do nothing but
- 16:32slow down growth and put downward pressure on demand and prices.
- 16:37So we took the 2020 approach, was like, we gotta get inflation and get closer to two.
- 16:43So the expectations come back up, our policies are more credible.
- 16:47And so one thing that people thought was when you say 2%,
- 16:50is it a ceiling where you're happy if it's 2 or less or you really mean it's 2?
- 16:56So if it's been low, you let it run above.
- 16:58So on average you get to two.
- 17:01And that's what Jon was saying,
- 17:03that was called flexible average inflation targeting.
- 17:05Meaning if we had been running below target for a while,
- 17:08we were willing to let it run above target to get it back to two.
- 17:12That's as simple as I can explain it.
- 17:15The problem is as soon as we adopted this policy of saying we're gonna let inflation
- 17:18run above target, guess what happened?
- 17:21It went all above target, all by itself.
- 17:23We didn't have to do anything.
- 17:25So the whole framework kind of got blown out of the water right away.
- 17:31And so given that we've been above our inflation target for
- 17:34about five years now, it's like, why are we saying we'll let it run above target?
- 17:39Because it's been running low, it's not been running low.
- 17:42So we had to step back and say, look, that framework was too tied to the 2010s.
- 17:49It was, to my view, I'm speaking for myself, it was too backward looking,
- 17:54it was too specific, it was too cute in a way of how we were going to manage things.
- 18:00Too discretionary, too much fine tuning.
- 18:02And I think we've realized, look, we want to go back,
- 18:05talk about our strategy, but do it in a more robust,
- 18:08less detail, less complicated way in terms of how we approach that is.
- 18:12And that's in the end, that's kind of what the new framework does.
- 18:15It kind of goes back to where we were roughly in 2012.
- 18:19And we're trying to make sure that whatever happens going forward,
- 18:22this is a robust framework.
- 18:23>> Jon Hartley: Yeah, I think that sort of reflects, I think,
- 18:25a broad kind of consensus amongst economists.
- 18:28That flexible average inflation targeting was maybe a bit of a misadventure.
- 18:33I want to talk more about the balance sheet for a second.
- 18:35So think quantitative easing, quantitative tightening.
- 18:38This is the Federal Reserve going out buying say long term Treasuries and
- 18:42mortgage bonds and so
- 18:44forth that they started doing largely after the gold financial crisis in 2008.
- 18:50The Fed balance sheet's now at about $6.7 trillion.
- 18:53It was at 9 trillion in 2022.
- 18:57How does the balance sheet factor into your thinking?
- 19:00And is a big balance sheet something that you think we're going to have maybe
- 19:04forever?
- 19:04Do you think we could ever get back to reserve neutrality?
- 19:07And where do you think the balance sheet is going in the future?
- 19:10>> Christopher J. Waller: Yeah, so I just gave a speech on the balance sheet about
- 19:13six weeks ago trying to explain what our balance sheet is,
- 19:17what are our structure of it, how should we, how should we structure balance sheet?
- 19:22And I made the joke that most people would rather go to the dentist and
- 19:25talk about the Fed's balance sheet.
- 19:27I see people starting to walk out already.
- 19:29So your audience.
- 19:30[LAUGH] But the punchline is we have three major,
- 19:34I'll do this all in like a ChatGPT version of the speech.
- 19:38We have three major liabilities on our balance sheet.
- 19:41We have currency which is about 2.3 trillion.
- 19:44The Treasury's checking account is on our balance sheet.
- 19:48We're in the bank for the U.S. treasury.
- 19:49That's about, normally it's about $800 billion.
- 19:53So you're up to about 3.1 trillion.
- 19:55And then we have a policy that we want to make sure banks have enough liquidity and
- 20:00reserves that we never have a panic where everybody's chasing looking for
- 20:04loose coins in the cushions.
- 20:07The banks always have the liquidity that they need.
- 20:10What the right amount of liquidity that the banks need is an open question.
- 20:14And right now we're kind of staring at this and let's say it's somewhere between
- 20:192.7 and $3 trillion to make sure the entire banking system has the liquidity
- 20:23that they need so we never have to worry about running around chasing currency.
- 20:29That means your balance sheet is close to about 6.2 trillion,
- 20:356.0, anywhere from 5, whatever, to of that.
- 20:41That's a large number.
- 20:43It just sounds like a big balance sheet but.
- 20:47And it's certainly bigger than what we ever had pre global financial crisis.
- 20:52But the point is, even if we got rid of all the reserves,
- 20:54we went back to a scarce reserve, what we call the scarce reserve system.
- 20:58When you had maybe only 25 billion instead of $3 trillion of reserves,
- 21:02our balance sheet would still be well over $3 trillion just from currency
- 21:07in a treasury checking account.
- 21:09So about half of our balance sheet side is out of our control.
- 21:12Really.
- 21:13Currency we print on demand.
- 21:15And there's a good reason for that.
- 21:17We never want anybody to doubt when they go to their bank and they want to say,
- 21:21I want a dollar bill that the bank says, I don't know if I can give it to you because
- 21:25I don't know if the Fed will give it to me.
- 21:28The answer is we will always give you that dollar bill.
- 21:30Don't worry about it.
- 21:31Make sure your customers know they will never have a problem getting currency if
- 21:35they want it.
- 21:36So there's a good reason.
- 21:37We supply it on demand.
- 21:39And the Treasury's checking account, you know, that's gotta talk to Scott Best,
- 21:43that's his decision of how big they want to carry a balance.
- 21:46And just over time that thing has gone for maybe 25 billion 20 years ago,
- 21:51up to like 800.
- 21:53Part of it is just the fact that we have much bigger government spending and
- 21:56bills have to be paid in a larger amount.
- 21:59And that requires and generally have a bigger balance in your checking account.
- 22:03So in a nutshell, there you go.
- 22:05That's the balance sheet.
- 22:06Enjoy. I hope you sleep well, Tom.
- 22:08>> Jon Hartley: All right, very good.
- 22:09Tremaine will be sleeping safely at home knowing that we'll have a big balance
- 22:13sheet for quite some time at least.
- 22:16So, debt and deficits.
- 22:19I want to talk a little bit about this because it's something that gets
- 22:22talked about a lot.
- 22:24So one, I think the debt to GDP ratio in the US has now passed 100%.
- 22:29There's often criticism of continued deficits is more of a fiscal
- 22:33policy question than a monetary policy one.
- 22:36But in my mind, despite all the haranguing about debt and deficits,
- 22:40the 10 year yields maybe 4.2%, the 30 year yields about 4.9%.
- 22:45They've been much higher in decades past.
- 22:48Do you think the federal debt is something that the American people should
- 22:50be concerned about?
- 22:51What do you think about?
- 22:53>> Christopher J. Waller: Yeah, so I mean, typically the thing is, is with deficits,
- 22:56we're running about in the last few years and it looks like this year as well,
- 23:01we're going to be running deficits of about 6 to 7% of GDP.
- 23:05Typically that number should be closer to 3 to be what we would say as economists,
- 23:10as economists, what would be sustainable going forward.
- 23:15So if you're running 6% deficits as part of your total national income.
- 23:19When I say gdp, it's our national income as a group.
- 23:23You're incurring a lot of debt given what your income is.
- 23:26That's what the debt to GDP ratio means.
- 23:28Now, the thing with the debt is it's gonna be
- 23:32potentially paid off hundreds of years into the future.
- 23:37We can pay it off as a country.
- 23:39End of the life of the country in some sense.
- 23:43So you can spread out the repayment of that debt over decades,
- 23:48it doesn't have to be all at once.
- 23:51But you can't just continue to run these kind of deficits for 100 years, 200 years.
- 23:56It just doesn't quite work out.
- 23:58So while it's not of Problem per se.
- 24:01Today it's not on a sustainable path.
- 24:04And at some point they don't have to be reigned in.
- 24:06I don't tell Congress how to either rein it in by cutting spending or raising tax.
- 24:11That's not my job.
- 24:12And I don't, that's, I leave them to do that so
- 24:14they don't bother me on interest rates.
- 24:18But I mean that's just, this is just kind of arithmetic.
- 24:21If you don't get the spending deficit down, your debt's going to grow, grow,
- 24:25grow, grow as part of your income.
- 24:27And at some point markets are going to stare at it and say, look,
- 24:31I'm not financing that anymore, I'm going to, or I'll finance it, but
- 24:35at a very high interest rate.
- 24:37And that's what we've seen around the world when some countries get to very high
- 24:41debt limits.
- 24:41The exception always being Japan.
- 24:44Japan has a 250% debt to GDP ratio and they have interest rates close to zero.
- 24:52So obviously something either people believe Japan will pay this off over
- 24:56a thousand years.
- 24:57They've been around for a couple thousand years.
- 25:00Maybe that's their long civilizations are more tolerant of what they're willing
- 25:04to incur.
- 25:05So that's just been a position I've taken.
- 25:08We're not on a sustainable path.
- 25:10It doesn't mean we're in any kind of trouble now.
- 25:11But at some point we're gonna have to get some sort of fiscal discipline and
- 25:15I don't like Congress figure out how to do that.
- 25:18>> Jon Hartley: One question, also non-monetary policy related question,
- 25:22really just on payments and I guess finish regulation.
- 25:25So for those that aren't aware, on top of managing monetary policy,
- 25:29the Federal Reserve also focuses on regulating banks,
- 25:33also managing the payment system.
- 25:35Chris spends a lot of time in his own capacity managing sort of the payments
- 25:39part of the portfolio.
- 25:40I'm curious, can you tell us what's been going on in the payments space during your
- 25:44tenure and how things, how things have been changing?
- 25:47The Genius act was just passed.
- 25:48That changed a lot for stablecoins and that space.
- 25:53But there's a lot going on in this space.
- 25:55Could you explain to the layman here what's going on behind the scenes and
- 25:59what you've been working on in the Fed?
- 26:01>> Christopher J. Waller: Yeah, if you thought the balance sheet was boring,
- 26:03wait till you start talking about payments.
- 26:06So I'm the payments oversight governor.
- 26:08I oversee the U.S. payment system.
- 26:10And 25 years ago if you'd said payments and who's doing payments,
- 26:14you'd think of some guy in a green visor and a pad and a pencil.
- 26:18But it's actually become one of the hottest tech jobs in the world because all
- 26:23of this stuff is moving into more technology and
- 26:26it's being handled by non banks, fintechs, everything.
- 26:30Stablecoins is a new form of a payment instrument that's come about from
- 26:35the crypto world.
- 26:37Just cuz I said crypto, don't get scared, it's just a stablecoin,
- 26:41which is a promise.
- 26:42You give me a dollar, I'll give you this digital dollar, and if you bring it back,
- 26:45I'll give you your dollar back.
- 26:47It's really no different than a bank account at that point.
- 26:49I give a bank a dollar, I come back and ask for my dollar,
- 26:52they give me the dollar back.
- 26:54But what it does is it opens up a new set of payment rails in
- 26:59the US through the crypto world.
- 27:02They don't run on Visa, MasterCard, they don't run on the bank rails,
- 27:05they don't run on the Fed Rails.
- 27:08And that just, for me,
- 27:09that just introduces competition in the payments world.
- 27:11And what that means is this should drive down payment costs for
- 27:15all of us so that we can make payments across each other,
- 27:18cross borders, cross everything at a much lower cost.
- 27:22And my view is let everybody that wants to get in this business do it as long as they
- 27:27follow whatever regulatory structure we put in the Genius Act,
- 27:30Banks should be allowed, non banks should be allowed, but
- 27:33it all has to fit within the clear regime that we set up.
- 27:37The Genius act is a great start, but it's never going to be perfect.
- 27:41Right out of the gate.
- 27:42We're going to learn there's going to be some issues, some problems, but
- 27:45we'll fix them as we go.
- 27:47And that's, that's the critical thing.
- 27:48We're not going to just shut everything down because we're afraid somebody might
- 27:52lose a dollar or somebody might get scammed,
- 27:54somebody might lose money in their assets.
- 27:57You just have to take risk.
- 27:59And that's, that's what we're going to do.
- 28:00That's how economy grows and gets better as you take risk.
- 28:03If you don't want to take risk, you can become Europe.
- 28:06So sorry, my European friends.
- 28:12>> Jon Hartley: Well, I know Miami,
- 28:13I think in many respects thinks of itself as the capital of, of crypto.
- 28:17So I'm sure there's many in the crypto world who, who are very thrilled that
- 28:20you're here and talking about payments and, and stablecoin issues.
- 28:24My last question for you is, is related to college football this week.
- 28:29College football.
- 28:30Man, I'm getting.
- 28:32>> Christopher J. Waller: Is starting again this week.
- 28:34>> Jon Hartley: And it just so happens to be the case that Notre Dame is playing
- 28:38Miami University of Miami Hurricanes this week, actually here in Miami this weekend.
- 28:45I know, Chris.
- 28:46I know you're a big Notre Dame fan, as am I, actually.
- 28:49Any thoughts on this weekend's game?
- 28:51I mean, how many points do you think Notre Dame for him by?
- 28:54And keep in mind here, you've got many Miami Hurricane fans probably in
- 28:58the crowd here, but any thoughts here?
- 29:01>> Christopher J. Waller: All I ever say when I'm in enemy territory,
- 29:04I just hope for a good game.
- 29:06>> Jon Hartley: Very good.
- 29:06Very good.
- 29:08Well, Chris, I wanna thank you for coming to the Economic Club Miami and for
- 29:12appearing in the special live taping of the Capitalism Freedom of the 21st
- 29:16Century podcast.
- 29:17I hope that Notre Dame does better than they did in the the finals last year and
- 29:22in 2012 when they played Alabama actually here for
- 29:25the the championship then as well, which I think you were actually at.
- 29:30>> Christopher J. Waller: I was at.
- 29:31>> Jon Hartley: It's painful memories, but
- 29:32hopefully this weekend it'll be a good game.
- 29:34But Chris, thank you so much for coming.
- 29:35This has been an amazing conversation.
- 29:36Thank you everyone for coming.