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Fed's Kaplan on Rate Hike: We Can Afford To Be Patient (Audio) · Bloomberg Intelligence

• 0:00
  Speaker 1: You're listening to taking stock line from the Jackson Hole
• 0:05
  Speaker 1: Economic Symposium on Bloomberg Radio. Robert Kaplan as President and
• 0:12
  Speaker 1: CEO of the Fed to Reserve Bank of Dallas. He
• 0:15
  Speaker 1: was an investment banker at Goldman Sachs, Professor of Management
• 0:18
  Speaker 1: at Harvard and UH. In his new role just over
• 0:21
  Speaker 1: a year now, Rob Kaplan has definitely made his mark
• 0:24
  Speaker 1: at the Federal Reserve UH, covering the district of Dallas
• 0:28
  Speaker 1: here at Jackson Hall, Wyoming for the Kansas City FEDS
• 0:31
  Speaker 1: Annual Symposium. The theme this year designing Resilient Monetary policy
• 0:35
  Speaker 1: Frameworks for the future at a time uncertainty over the
• 0:38
  Speaker 1: course of rate hikes and policy. This is so important, Rob, Welcome,
• 0:41
  Speaker 1: Thank you, good to be here. Well, let's get right
• 0:43
  Speaker 1: into some things you have said about where you see
• 0:46
  Speaker 1: UH the FED going. Just recently UH Bloomberg Reporting, you
• 0:50
  Speaker 1: spoke UH and said that you thought, watching the data,
• 0:53
  Speaker 1: depending how it goes, especially the labor market, you could
• 0:55
  Speaker 1: see an interest rate increase next month September twenty one
• 0:58
  Speaker 1: odds of a hike as measured by the FED funds
• 1:01
  Speaker 1: features up to about now and and so let me
• 1:03
  Speaker 1: correct that a little bit. What I was asked, is
• 1:05
  Speaker 1: is September off the table? And I said, it's not
• 1:08
  Speaker 1: off the table, but we need to wait and see.
• 1:11
  Speaker 1: So I've been one of the FED presidents who has
• 1:13
  Speaker 1: been reluctant to speculate on individual meetings because I don't
• 1:16
  Speaker 1: think it's productive. But I do think the case for
• 1:20
  Speaker 1: removing accommodation is strengthening um and for a lot number
• 1:26
  Speaker 1: of reasons, which we can go into, but that's all
• 1:28
  Speaker 1: in the context of I think any removal of accommodation
• 1:32
  Speaker 1: should be patient, slow, gradual, because we've got a number
• 1:35
  Speaker 1: of persistent headwinds that we have to adjust to. But yes,
• 1:39
  Speaker 1: I think the strength the case for removing some amount
• 1:42
  Speaker 1: of accommodation it has strengthened. So when you say you
• 1:45
  Speaker 1: see the reasons, what's the number one? Is it the
• 1:47
  Speaker 1: fact that labor market is strengthened the number one pro reason? Yeah,
• 1:51
  Speaker 1: as we're making good progress on our on our employment objective,
• 1:55
  Speaker 1: we're making frustratingly slow but still some progress on UM
• 2:02
  Speaker 1: on our inflation target. And even though first half and
• 2:05
  Speaker 1: specifically second quarter GDP was disappointing, a lot of the
• 2:09
  Speaker 1: reason for it was a big inventory adjustment. Consumer is strong.
• 2:13
  Speaker 1: Final demand in the second quarter was strong, and we
• 2:15
  Speaker 1: think the consumer will be strong for this year, So
• 2:18
  Speaker 1: we think you're gonna see GDP growth rebound in the
• 2:20
  Speaker 1: second half. All right, Well, there's certainly from the fom
• 2:24
  Speaker 1: C minutes of the last meeting, we saw people said
• 2:27
  Speaker 1: a divided fed, some people more worried about low inflation,
• 2:29
  Speaker 1: some people saying, hey, no, things are picking up, but
• 2:32
  Speaker 1: there's a lot of uncertainty about the outlook, and many
• 2:34
  Speaker 1: people have spoken about that. So with uncertain outlook, a
• 2:38
  Speaker 1: labor market average job growth flowing about a hundred fifty
• 2:41
  Speaker 1: thousand a month from over two hundred thousand previously. Uh,
• 2:44
  Speaker 1: what's the rush? Why why do we even need to
• 2:47
  Speaker 1: have September on the table? In my own view, and
• 2:49
  Speaker 1: I've said this publicly, I don't think there is a rush.
• 2:52
  Speaker 1: We can afford to be patient. The reason we can
• 2:55
  Speaker 1: afford to be patient is to be a little wonky
• 2:58
  Speaker 1: than neutral rate. The neutral rate that we're neither accommodative
• 3:02
  Speaker 1: or restricted is lower, and it's certainly lower than is
• 3:05
  Speaker 1: widely understood. So while the fet is right now we're accommodative,
• 3:09
  Speaker 1: we're not as accommodative as people think. And because the
• 3:13
  Speaker 1: neutral rate is lower, and the primary reason for that
• 3:15
  Speaker 1: is slower growth and particularly because of aging demographics, I
• 3:19
  Speaker 1: think we can afford to be patient. But even within
• 3:22
  Speaker 1: that rates this low are not free. There's a cost
• 3:26
  Speaker 1: to savers. It creates distortions for investment, it can create
• 3:31
  Speaker 1: other distortions. And that's the reason why, uh, I think
• 3:34
  Speaker 1: we should be moving towards removing some amount of accommodation.
• 3:37
  Speaker 1: But we can do it in a patient manner, and
• 3:40
  Speaker 1: we've got the ability to do that, I think because
• 3:42
  Speaker 1: the reasons I just said. And we're speaking with Robert Kaplan,
• 3:45
  Speaker 1: he's president Federals sort of Bank of Dallas here at
• 3:47
  Speaker 1: the FED symposium in Jackson Hole, Wyoming. Pim Fox my
• 3:51
  Speaker 1: co host in New York. Mr Kaplan, you talked about
• 3:55
  Speaker 1: the distortion and the effect of savers because of the
• 3:59
  Speaker 1: low interest straits. Is there a point at which the
• 4:02
  Speaker 1: Federal Reserve will bluntly recognize and acknowledge the harm that
• 4:08
  Speaker 1: they have caused savers over this elongated period of time.
• 4:13
  Speaker 1: How do you respond to people that say they cannot
• 4:16
  Speaker 1: plan for their future and as a result, they will
• 4:19
  Speaker 1: not spend their money until interest rates increase. So you
• 4:24
  Speaker 1: asked if there's a point at which will acknowledge that
• 4:26
  Speaker 1: we're past that point. We've already if you've heard me
• 4:29
  Speaker 1: speak publicly, acknowledge it. In most times I speak, and
• 4:32
  Speaker 1: I and I I'm very well aware of it. And
• 4:35
  Speaker 1: in an aging population, uh where people rely more savings
• 4:41
  Speaker 1: and will increasingly rely on savings. If they can't earn
• 4:44
  Speaker 1: a reasonable return on savings, they will either take more
• 4:47
  Speaker 1: risk or they'll spend less. So I think there's a
• 4:50
  Speaker 1: cost to this, and I think we have to take
• 4:52
  Speaker 1: it into account. Well. A lot of talk now about
• 4:55
  Speaker 1: a rethink of FED policy. You just mentioned the fact
• 4:58
  Speaker 1: that the neutral rate is lower, probably than the FED
• 5:01
  Speaker 1: thought that's the rate that doesn't boost the economy or
• 5:04
  Speaker 1: slow it down. If it's lower, if it's not at
• 5:07
  Speaker 1: four percent or three percent, the FED doesn't have too
• 5:10
  Speaker 1: much room to raise interest rates. Now, what is your view?
• 5:13
  Speaker 1: Where do you come down on this big rethink? Where
• 5:15
  Speaker 1: is it impelling the Fed? Well as it relates to
• 5:18
  Speaker 1: the neutral we do a model in which I've talked
• 5:20
  Speaker 1: about publicly in Dallas. There's also the law back Williams models.
• 5:24
  Speaker 1: There's other model, but the long and short of it
• 5:26
  Speaker 1: for most people listening. The longer run neutral rate, according
• 5:30
  Speaker 1: to law back William is zero, and our own model
• 5:33
  Speaker 1: in Dallas, we think it's somewhat. It's actually even less
• 5:36
  Speaker 1: than that. It's negative, so it's not that and then
• 5:39
  Speaker 1: you add the inflation rate to that. Okay, so it's
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  Speaker 1: not that we're not accommodative, but we are less accommodative
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  Speaker 1: than is widely recognized. And that's the other reason that
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  Speaker 1: I've said it's very critical that monetary policy shouldn't be
• 5:53
  Speaker 1: the only economic tools on the table. We need structure
• 5:56
  Speaker 1: reforms fiscal policy because a lot of the reason for
• 6:00
  Speaker 1: the slower growth is structural aging. Demographics is a good
• 6:04
  Speaker 1: example of a structural issue where the the workforce participation
• 6:09
  Speaker 1: is declining and we think will continue to decline over
• 6:11
  Speaker 1: the next ten years because the population is aging out
• 6:14
  Speaker 1: of the workforce. Rob I've been covering the federal reserve
• 6:17
  Speaker 1: since the days of Paul Bulker mid eighties, and that's
• 6:20
  Speaker 1: when that's going to keep became so ingrained. Commy picks
• 6:23
  Speaker 1: up too much and read about inflation, your raised rates,
• 6:25
  Speaker 1: it starts blowing down. You cut them. The neutral rate
• 6:28
  Speaker 1: is at zero now or even lower. What does this mean,
• 6:31
  Speaker 1: have we come to the end of this decades long
• 6:35
  Speaker 1: mode of monetary policy as we know it is? Are
• 6:38
  Speaker 1: rnning a new age? And for your listeners, that's the
• 6:41
  Speaker 1: real neutral rate, so means the nominal neutral rate would
• 6:44
  Speaker 1: be say according to lawback Williams two and so, Yeah,
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  Speaker 1: I think we have to face a new reality. I
• 6:50
  Speaker 1: do believe that. I think for those that are hoping
• 6:53
  Speaker 1: or pining for days of your where UH we had
• 6:57
  Speaker 1: fiscal policy, we had other policy in the FED out
• 7:00
  Speaker 1: a lot more maneuvering room. I think it's important to
• 7:03
  Speaker 1: call out this is a new reality. It's a different world.
• 7:06
  Speaker 1: And in particular, what's so different than any time during
• 7:09
  Speaker 1: my lifetime is the aging workforce. And it's going on
• 7:12
  Speaker 1: in every advanced economy in the world, and it affects
• 7:15
  Speaker 1: potential growth, and it affects UH interest rates and the
• 7:19
  Speaker 1: neutral rate, and we've got to adjust to that. Rather
• 7:21
  Speaker 1: than hope it changes, we have to adjust the reality. Well,
• 7:25
  Speaker 1: you know, there is a lot more discussion now about
• 7:27
  Speaker 1: what happens in the next recession. I was UH at
• 7:31
  Speaker 1: at an event and recently where a money manager who's
• 7:34
  Speaker 1: worked around the world said, what about the next recession?
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  Speaker 1: I know how to price in a recession up until now,
• 7:40
  Speaker 1: because the FED had room to cut rates maybe by
• 7:42
  Speaker 1: about you know, five hundred basis points to get things going.
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  Speaker 1: That room no longer exists. What does this mean for
• 7:49
  Speaker 1: the next recession. So the trade off at the FED
• 7:51
  Speaker 1: is we'd like to have we already we have tools,
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  Speaker 1: even where we are now, we'd like to have more
• 7:57
  Speaker 1: more tools. If interest rates were higher, we would have
• 8:00
  Speaker 1: more tools. On the other hand, you don't want to
• 8:02
  Speaker 1: force interest rate increases because you might actually create the
• 8:06
  Speaker 1: recession that you're fearing. And so for me, monetary policy
• 8:12
  Speaker 1: will have a role to play if there's another downturn
• 8:16
  Speaker 1: or where we are now. But we for most of
• 8:18
  Speaker 1: my lifetime, except for the last seven years, we also
• 8:21
  Speaker 1: had structural policy. We had fiscal policy, and it gave
• 8:24
  Speaker 1: the FED much more operating room. We haven't had it
• 8:28
  Speaker 1: in seven years, and the period of so called paralysis
• 8:32
  Speaker 1: in fiscal policy probably needs to come to an end.
• 8:35
  Speaker 1: We need a broader range of policies in the United
• 8:39
  Speaker 1: States to face our challenges, and I've been saying that regularly.
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  Speaker 1: And the reason I'm saying it it's not that monetary
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  Speaker 1: policy doesn't have a role, but we need broader policies
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  Speaker 1: and we've had them in our history, just not for
• 8:51
  Speaker 1: the last seven years. Mr Kaplin, do you does the
• 8:54
  Speaker 1: Federal Reserve need greater consistency when it comes to its
• 8:57
  Speaker 1: public message and its public debate? Uh? I think that, UH,
• 9:05
  Speaker 1: improving FED communication is critical. UH. And what I'll just
• 9:11
  Speaker 1: I've been on I've now been on the FED, UH
• 9:13
  Speaker 1: involved with the FED for a year obviously, and I
• 9:15
  Speaker 1: read all the President's speeches, I read all the Governor's speeches.
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  Speaker 1: I'm in all the FOMC meetings. I think if you
• 9:21
  Speaker 1: read the speeches in their entirety and read the minutes
• 9:25
  Speaker 1: in their entirety, you get a fairly coherent message. But
• 9:29
  Speaker 1: that's not the way these things get filtered out almost
• 9:33
  Speaker 1: a quarter century, right, I mean, no one's going to
• 9:37
  Speaker 1: button and trade, right. Well, it also used to be
• 9:41
  Speaker 1: that the FED was much more muted and much less transparent.
• 9:45
  Speaker 1: So in the interest of transparency, the FED communicates more
• 9:48
  Speaker 1: than negative with that is, it can create confusion, and
• 9:51
  Speaker 1: I think this is an issue that FED needs to
• 9:53
  Speaker 1: continue to wrestle with. I want to ask you about
• 9:57
  Speaker 1: zero zero interest rate policy. We know to the consumer,
• 10:01
  Speaker 1: UH is really about the only big engine of growth
• 10:03
  Speaker 1: right now, because business investment has been has been pretty
• 10:06
  Speaker 1: weak for the past few quarters. I think a lot
• 10:09
  Speaker 1: of people are wondering, could the zero interest rate policy
• 10:12
  Speaker 1: and quantitative easy be part of the problem. Um, we
• 10:16
  Speaker 1: know borrowing costs are low, that could stimulate growth, but
• 10:19
  Speaker 1: the expect of returns are low now too. Would higher
• 10:23
  Speaker 1: rates would have switched from that policy? Maybe it's out there,
• 10:25
  Speaker 1: but would it incentifies companies to make bigger, longer term investments.
• 10:28
  Speaker 1: So I'll speak to this as a as a former
• 10:30
  Speaker 1: business person than somebody who who is my entire career
• 10:33
  Speaker 1: including now talks extensively to c e O S. I
• 10:36
  Speaker 1: think the reason capital spending is low is not because
• 10:41
  Speaker 1: interest rates are low. In fact, I think that that
• 10:44
  Speaker 1: lower interest rates makes it easier to make capital spending decisions.
• 10:48
  Speaker 1: Reason capex is has been sluggish is expected sluggish demand,
• 10:54
  Speaker 1: particularly globally. Number two, high rates of disruption in every
• 10:58
  Speaker 1: single industry, and we don't talk enough about that that
• 11:01
  Speaker 1: you go industry by industry, there are new threats, new competitors.
• 11:06
  Speaker 1: You've got the Internet, which reduces pricing power and reduces margins.
• 11:11
  Speaker 1: And so I think CEO uncertainty is driven more by
• 11:14
  Speaker 1: those issues, and their hesitancy is driven more by those
• 11:17
  Speaker 1: issues than monetary policy. I would argue these low rates
• 11:20
  Speaker 1: have made it easier UH to do cap capital spending.
• 11:24
  Speaker 1: I don't think those I don't think that's the reason.
• 11:28
  Speaker 1: Thinking globally, are you worried about and interest rate increase
• 11:31
  Speaker 1: potentially boosting the dollar? You know, and and and just
• 11:34
  Speaker 1: there's two sides of this. One. Pert's manufacturing the US
• 11:37
  Speaker 1: too makes a end stronger, and Japan's trying mighty hard
• 11:40
  Speaker 1: to get that y end weaker right now. Well, so
• 11:43
  Speaker 1: we have to be cognizant of it. And I've said
• 11:46
  Speaker 1: regularly one we need to watch the impact of our
• 11:49
  Speaker 1: actions on the dollar one you set it for exports.
• 11:52
  Speaker 1: The other thing I would say is I'd look more
• 11:54
  Speaker 1: significantly to China, where they've got massive overcapacity, high levels
• 11:59
  Speaker 1: of debt, the g d P, fear of capital flight,
• 12:03
  Speaker 1: and a lot of that comes out in a weaker currency,
• 12:06
  Speaker 1: which can be destabilizing, as we saw in January and February.
• 12:09
  Speaker 1: So we're the central banker to the United States. So
• 12:13
  Speaker 1: the way I would describe it, we have to be
• 12:14
  Speaker 1: aware of these external forces that could spill back over
• 12:18
  Speaker 1: in the United States and create a tightening. I wouldn't
• 12:21
  Speaker 1: overreact to those issues, but we need to be cognizant
• 12:24
  Speaker 1: of them. It wouldn't stop you. I mean, that's not
• 12:25
  Speaker 1: a big consideration strong at all. I think the next
• 12:28
  Speaker 1: step and if, if, and when we decide to remove accommodation,
• 12:32
  Speaker 1: that next step in and of itself, as long as
• 12:35
  Speaker 1: we communicate clearly it's in the context of slow, gradual
• 12:40
  Speaker 1: removal of accommodation. UM. I think it's manageable. I think
• 12:44
  Speaker 1: earlier in the year where the market thought we were
• 12:46
  Speaker 1: going to raise four to potentially four times in two
• 12:49
  Speaker 1: thousand and sixteen, I think, uh, we saw that did
• 12:52
  Speaker 1: not look like slow and gradual. It looked like two accelerated.
• 12:55
  Speaker 1: And I think there's a lesson to be learned from that.
• 12:58
  Speaker 1: Mr Caplin. To get your thoughts on negative interest rates
• 13:02
  Speaker 1: in Europe, Yeah, so, Uh. The issue on negative rates
• 13:08
  Speaker 1: in Europe as well as in Japan is UM my concern.
• 13:13
  Speaker 1: They do some negative They have some negative impact on
• 13:16
  Speaker 1: the financial system, on banking system, which is vital to
• 13:20
  Speaker 1: the health of a country or countries. Uh. And while
• 13:24
  Speaker 1: they might create incentives to take more risk and buy time.
• 13:29
  Speaker 1: They're not going to address fundamental structural issues, and those
• 13:33
  Speaker 1: include aging demographics, high levels of debt to GDP UH
• 13:39
  Speaker 1: in particular, and so I think there's not going to
• 13:42
  Speaker 1: be any getting around. Ultimately, governments in Europe Japan are
• 13:47
  Speaker 1: going to have to find ways to address aging demographics
• 13:51
  Speaker 1: by increasing the workforce UH and addition, deal with issues
• 13:55
  Speaker 1: of high levels of debt to GDP and bring to
• 13:58
  Speaker 1: bear fiscal policy to supplement monetary policy, because if you
• 14:02
  Speaker 1: go too far with monetary policy, I might argue that
• 14:06
  Speaker 1: negative rates might have side effects that may ultimately create
• 14:13
  Speaker 1: new challenges for these economies. Well, you know, we've already
• 14:15
  Speaker 1: seen in Japan, and you lived in Japan, rob Kaplan
• 14:18
  Speaker 1: President Dallas fed UH for five years. One of the
• 14:21
  Speaker 1: one of the many stories on Bloomberg was about people
• 14:24
  Speaker 1: buying safes to put cash in the safe because they
• 14:27
  Speaker 1: don't want to go to a bank and have to
• 14:28
  Speaker 1: pay ad bank to hold their money. Can you you know?
• 14:31
  Speaker 1: So Japan is a great example two big difficult problems.
• 14:36
  Speaker 1: Not only aging demographics, aging to the extent of the
• 14:39
  Speaker 1: population is shrinking. Okay, so the country will literally be
• 14:42
  Speaker 1: smaller twenty years from now. Than today if nothing is done.
• 14:46
  Speaker 1: And then the second issue is very high levels of
• 14:48
  Speaker 1: debt to GDP. So how do you solve that? Not easy,
• 14:51
  Speaker 1: especially in a country that's not culturally open to immigration.
• 14:56
  Speaker 1: So they've tried to get more women into the workforce
• 14:58
  Speaker 1: and other things, but there's no getting around Monetary policy
• 15:01
  Speaker 1: won't address these issues. They'll ultimately need to deal with
• 15:05
  Speaker 1: and you saw this recently by their recent actions, a
• 15:07
  Speaker 1: recognition they need fiscal policy and other structural reforms. Monetary
• 15:12
  Speaker 1: policy by itself won't address these and I think that's
• 15:16
  Speaker 1: a lesson that we should probably learn here and throughout
• 15:19
  Speaker 1: the world, and it's important lesson China. The FOMC minutes again,
• 15:23
  Speaker 1: they singled out the high debt GDP ratio and a
• 15:27
  Speaker 1: certain exchange rate policy. Again, you were just there, you
• 15:31
  Speaker 1: were in Shanghai. Why is China such a concern to
• 15:34
  Speaker 1: the Federal reservant? To you, Rob Kaplan, Well, the reason
• 15:37
  Speaker 1: I went there and the reason I'll continue to go there.
• 15:40
  Speaker 1: Number one, I've been going there for thirty years. It
• 15:43
  Speaker 1: is it is actually a very significant portion of the
• 15:45
  Speaker 1: world economy today. So what goes on there will affect
• 15:49
  Speaker 1: the rest of the world. But Number two, they're going
• 15:52
  Speaker 1: through an adjustment process where they're trying to wean off
• 15:56
  Speaker 1: high levels of government spending on state owned enterprises. Is
• 16:00
  Speaker 1: infrastructure real estate that basically they where they use leverage,
• 16:05
  Speaker 1: and so they target a GDP number of six and
• 16:07
  Speaker 1: a half percent and then they create debt to meet it.
• 16:11
  Speaker 1: They can't keep doing that, and so the pressure valve
• 16:15
  Speaker 1: for all this is the exchange rate. So we're just
• 16:18
  Speaker 1: sensitive at the FED. But I think again we shouldn't
• 16:20
  Speaker 1: go too far with this that if there's a stronger
• 16:24
  Speaker 1: the stronger the dollar is. If there's a suddening strengthening
• 16:27
  Speaker 1: the dollar, as we saw again in January and February,
• 16:30
  Speaker 1: where there's a sudden weakening of the end of the
• 16:32
  Speaker 1: Chinese currency, it's going to create global instability, potentially tightening
• 16:37
  Speaker 1: financial conditions. I again, I think this is an issue
• 16:41
  Speaker 1: that's not going to get resolved in the next few quarters.
• 16:43
  Speaker 1: Is going to be with us for the next ten
• 16:44
  Speaker 1: fifteen years. It will take that long or longer for
• 16:47
  Speaker 1: China to work through this transition, and so I just
• 16:50
  Speaker 1: think it's something we need to watch over the next
• 16:53
  Speaker 1: number of years. Did China's Chinese officials you spoke to
• 16:57
  Speaker 1: expressionate concern about the US. Did you anything you share
• 17:00
  Speaker 1: with us that they when they look at US and
• 17:02
  Speaker 1: the FED what they're saying, Uh, they are very conscious
• 17:06
  Speaker 1: there of the transition that they're going through in the
• 17:10
  Speaker 1: fragility of it and the big and you notice they've
• 17:13
  Speaker 1: they've apply very substantial capital controls in the last six
• 17:18
  Speaker 1: months because the thing they are concerned about, they're concerned
• 17:21
  Speaker 1: about domestic instability, and they're concerned about capital flight and
• 17:26
  Speaker 1: they're trying to staunch it. And so the one thing
• 17:30
  Speaker 1: they keep their eye on is the currency. And they
• 17:34
  Speaker 1: understand that domestic players would like to take more money
• 17:37
  Speaker 1: out than they currently can because they worry that Chinese
• 17:40
  Speaker 1: GDP growth is going to need to decline and the
• 17:43
  Speaker 1: government cannot continue to leverage up or increase their leverage
• 17:48
  Speaker 1: in order to support GDP, and that means a weaker currency.
• 17:51
  Speaker 1: So that's what they're cognizant enough. Mr Kaplan, Note, what
• 17:54
  Speaker 1: do you ask yourself when you look in the mirror?
• 17:57
  Speaker 1: And the reason I put it that way is because
• 17:59
  Speaker 1: of course you're book what to ask the person in
• 18:02
  Speaker 1: the mirror, And I wonder if you could just answer
• 18:04
  Speaker 1: that in the context of many critics of the Federal
• 18:07
  Speaker 1: Reserve who say the FED missed the housing crisis and
• 18:11
  Speaker 1: they've managed to keep interest rates too low for too long,
• 18:14
  Speaker 1: and now we're addicted to low rates. Yeah. So I
• 18:18
  Speaker 1: have a little bit of an intellectual benefit that I've
• 18:21
  Speaker 1: only been involved with the FED for years, so I can,
• 18:23
  Speaker 1: probably as much as anyone who's at the FED look
• 18:26
  Speaker 1: at this with an objective point of view. And I
• 18:29
  Speaker 1: would say the biggest thing I try to ask when
• 18:31
  Speaker 1: I look in the mirror is whether I like it
• 18:34
  Speaker 1: or not? What I see? Am I facing? Are we
• 18:36
  Speaker 1: facing reality? Let's do the analysis on economic conditions. Let's
• 18:41
  Speaker 1: understand what the neutral rate is, even though it's a
• 18:44
  Speaker 1: it's a judgment. You're not going to see it on
• 18:46
  Speaker 1: a Bloomberg screen. Uh. And what should we be doing
• 18:50
  Speaker 1: on monetary policy? And and That's what I'm asking every day.
• 18:54
  Speaker 1: And I actually think the reason that rates are lower today,
• 18:59
  Speaker 1: a part of it is the FED. But honestly, I
• 19:01
  Speaker 1: think the bigger part is slowing global growth, aging demographics,
• 19:05
  Speaker 1: demand for safe assets around the world. The neutral rate
• 19:09
  Speaker 1: would be is in decline. Uh and uh. And I
• 19:13
  Speaker 1: think a part of it's the FED. That people may
• 19:15
  Speaker 1: over attribute that decline to the FED. I think a
• 19:18
  Speaker 1: lot of it is market determined. Uh well, len's let's
• 19:22
  Speaker 1: continue on that vein and circle back to something we're
• 19:24
  Speaker 1: just talking to the beginning this conversation. If we have
• 19:26
  Speaker 1: a recession in the next several years and rates are
• 19:28
  Speaker 1: still low in the US, what is the strategy more quantity,
• 19:32
  Speaker 1: dative easing, forward guidance, negative rates, so that we have
• 19:37
  Speaker 1: all those tools at our disposal. On the one hand,
• 19:40
  Speaker 1: On the other hand, I feel strongly that we need
• 19:45
  Speaker 1: soon and I've said this again, I'll keep saying, it's
• 19:48
  Speaker 1: truck shure reform. That means, uh, policies that grow the workforce,
• 19:53
  Speaker 1: vocational training, the skills mismatch we have in this country. Uh.
• 19:57
  Speaker 1: We need to review our regulatory policy at this state, local,
• 20:01
  Speaker 1: and national level. We need infrastructure. We need to look
• 20:03
  Speaker 1: at our infrastructure which is aging and decaying and is
• 20:06
  Speaker 1: a source of negative productivity, and we need to look
• 20:09
  Speaker 1: at ways to bolster that. I think we need to
• 20:12
  Speaker 1: do those things, and we need to do them soon
• 20:15
  Speaker 1: because we need a broader rate of policy tools. And
• 20:18
  Speaker 1: so that's that's my answer that if we don't get
• 20:21
  Speaker 1: any of those actions, then I think the FED will
• 20:24
  Speaker 1: be in a position will have to use its own tools,
• 20:26
  Speaker 1: and I think it will be suboptimal for what, uh
• 20:30
  Speaker 1: for for addressing the challenges the US faces, and I
• 20:34
  Speaker 1: think that would be unfortunate, and that's why I'm calling
• 20:37
  Speaker 1: this out now. Mr Kavin. You may be calling it out,
• 20:40
  Speaker 1: but as you've also described, that's out of the remit
• 20:43
  Speaker 1: really of the Federal Reserve. Um, what do you foresee
• 20:48
  Speaker 1: in terms of interest rates? Is it possibly United States
• 20:51
  Speaker 1: could have negative interest rates? It is now I'd make
• 20:55
  Speaker 1: one point back. I actually think calling out publicly without
• 21:01
  Speaker 1: regard to the implications what I see in economic conditions
• 21:04
  Speaker 1: and what I think needs to happen is part of
• 21:06
  Speaker 1: my job, and I think I'm not doing my job
• 21:09
  Speaker 1: if I don't do it. So I think that's a
• 21:10
  Speaker 1: big part of our remit, and maybe we haven't done
• 21:13
  Speaker 1: it enough. We need to do it more. Actually, But
• 21:16
  Speaker 1: back to your point, uh, Well, if you've got to
• 21:20
  Speaker 1: face reality, if we get in a future situation, my
• 21:22
  Speaker 1: concern is negative rates, for example in the United States,
• 21:26
  Speaker 1: will hurt the financial system obviously further penalized savers, and
• 21:29
  Speaker 1: my bigger fear a lot of companies in this country
• 21:32
  Speaker 1: use the commercial paper market. The money is healthy. Money
• 21:34
  Speaker 1: market industry is very critical, and negative rates will uh
• 21:39
  Speaker 1: will be negative for all those sources. So we're getting
• 21:43
  Speaker 1: to the point where I wouldn't say we're pushing on
• 21:45
  Speaker 1: a string, but I think there's real trade offs to
• 21:48
  Speaker 1: negative rates that we have to face. Robert Caplin, thank
• 21:52
  Speaker 1: you so very much kicking off our special coverage here
• 21:56
  Speaker 1: in Jackson Hole, Wyoming the fit of Reserve Can't City's Symposium.
• 22:01
  Speaker 1: He's president of the Federal Reserve Bank of Dallas, and
• 22:03
  Speaker 1: we thank him so much for taking time for us
• 22:05
  Speaker 1: on taking stop and Kathleen Hayes along with Pim Fox
• 22:08
  Speaker 1: and this is Bloomberg. Yeah,