00:00Keep us at five minutes.
00:01H, Senator Kennedy.
00:04Thank you, Mr. Chairman.
00:05Thank you, Mr. Chairman.
00:08Mr. Chairman, did I understand you to say that the reconciliation bill is the most extraordinary legislation you've ever seen?
00:19Did I hear that correctly?
00:21There may have been some lost in translation there.
00:23I was a little late.
00:25Tell me what the bond market's telling you.
00:32Bond market's fine now.
00:34Functioning well.
00:35It's pricing.
00:35It's reacting to economic news.
00:38There's adequate liquidity.
00:39Rates have come down pretty significantly from where they were a couple months ago.
00:45So I think inflation expectations have come down a bit from April.
00:51And in general, the bond market is functioning well.
00:55Okay.
00:56Explain to me why we have seen in the last few months weakness in the dollar.
01:05That's a great question.
01:06Of course, the Treasury Department has the job of is responsible for the role of the dollar.
01:11So I just, I don't know.
01:14I think I would go back to the thought that markets have been digesting an unusually challenging set of circumstances and, you know, have reacted the way they've reacted.
01:29The dollar is kind of stabilized now.
01:31In fact, it's moved back up here in the last couple of weeks a bit.
01:35And, you know, there are plenty of people who are still writing that the dollar is still overvalued.
01:39We don't have a view on that, of course.
01:41But I wouldn't really have an opinion on exactly why it is where it is.
01:46Well, you know, clearly there's a lot of geopolitical risk right now, which would lead one to conclude, all things being equal, that people would be flocking to the dollar.
01:59And it would be stronger.
02:01Well, you have seen some of that here in the last few days.
02:04But, again, I don't really have an official view I'd like to share on that.
02:12I think there are possible explanations, multiple possible explanations.
02:16Again, one of which is that people still, some people still feel the dollar is highly valued.
02:21Yeah.
02:21But we'll see.
02:24I want to talk for a few minutes about tariffs and inflation.
02:30What does history tell us about tariffs and its impact on inflation or deflation?
02:39So the thing is, we've been through a long period in which tariffs were going down.
02:44Remember, since World War II, really, it's been a process of lowering tariffs globally.
02:49So there just isn't a lot of modern learning on that.
02:53I think people look at the incidence of tariffs during the president's first term, but those were like one-sixth the size of what people are estimating now.
03:04And they do find some effects on inflation.
03:06But remember, in 2019, when those tariffs were put into place, the economy was slowing.
03:12We actually cut rates three times.
03:14Inflation was running at one and a half percent.
03:16So it was a very different time.
03:17This is different, I think.
03:19One of the reasons why it's so challenging is that there really isn't a modern precedent.
03:23And I think we have to be humble about our estimates.
03:26And we are very open to the possibility that transmission through into inflation will be less than we think or maybe more than we think,
03:33which is why we're in a position of wanting to take our time and make a smart decision as we see how this unfolds.
03:40Well, obviously, the size of the tariffs makes a difference, does it not?
03:43It does.
03:44And we don't know yet the size of the tariffs.
03:49We don't.
03:49And we don't have a view on any of the merits at all.
03:52That's not our job.
03:53Our job is inflation, as you know, and maximum employment.
03:57Does it also matter, let's assume, that there is upward price pressure?
04:03Would it matter how much businesses decide to pass on versus just eat?
04:13Does that make sense?
04:14Yes, that matters.
04:15That is what matters.
04:16You know, the question is, who's going to pay for the tariffs?
04:19Originally, it's the importer, but it gets passed along through the distribution change to some extent to the consumer.
04:24The ultimate question of it is how much of it does show up in inflation, and honestly, it's very hard to predict that in advance.
04:33So we're watching to see, you know, what shows up in measured inflation.
04:37If the president's trade negotiators pursue reciprocity, which I define as both sides reducing, in a quid pro quo, reducing tariffs and trade barriers as much as possible,
04:55ideally, in a perfect world, we would end up with two sides with zero tariffs and zero trade barriers.
05:03Would that be inflationary?
05:05No, not at all.
05:07That would cause the economy to roar, wouldn't it?
05:11I think it would be.
05:13Okay, thank you, Mr. Chairman.
05:15I appreciate your endorsement, Mr. Chairman, of the reconciliation bill.
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