00:00Do you think they arrived at the right conclusion for the action that they did, which was the quarter-point cut?
00:06I absolutely do. In fact, I think a quarter-point cut was warranted in July.
00:10So I'm glad that they're starting the cutting cycle.
00:13I'm also glad that they are putting the emphasis on the employment side of the mandate.
00:19They are facing this very difficult situation, as we heard Gary say,
00:23where the economy is going away from them, both on the inflation side and the employment side.
00:28So they are deep in the world of second-best, and they have to decide which of the risk is larger,
00:34and I think the employment risk is larger.
00:36So I like what they've produced.
00:39I just hate the fact that we don't get clarity and we don't get an anchor from the central bank.
00:47We need some anchor in this economy, because otherwise it's going to get really complicated going forward.
00:53What does that anchor need to look like?
00:54When you say anchor, what do you mean exactly?
00:57And what should they be changing?
01:00So in the past, the central bank has always given us a vision of the future, where things are going.
01:06This central bank, after its big policy mistake in 2021, where it called inflation transitory,
01:12and as I said, we're going to end up at a minimum with seven years above target, has become highly data-dependent.
01:19So it's looking backwards.
01:20And as it looks backward, it doesn't give guidance to the marketplace, to businesses.
01:28And the problem with not having guidance from a central policymaker is that uncertainty goes up,
01:36and uncertainty discourages business from investing, and could also discourage households from spending.
01:42In their defense, isn't it a really difficult time to give that guidance?
01:48I mean, you know, you're in the economics profession.
01:50I've talked to so many economists over the past couple of years who have a new sort of source of humility,
01:56because it's been very, very challenging to forecast what the economy is going to do.
02:01That said, of course, the Fed's supposed to be the best at this, right?
02:04They're supposed to know.
02:05So, but how do you, how can they possibly be forecasting in this kind of environment?
02:10So we need them and others to have a transparent discussion on two things that really matter for all of us.
02:18One is, what should we expect for productivity?
02:23Will AI, life sciences, robotics, where we're seeing incredible innovation,
02:28will we get the diffusion through the economy that allows a significant increase in productivity?
02:33I believe so.
02:34Okay, but we need to hear.
02:35And then the second thing, you heard that, the first thing wasn't even mentioned.
02:40The second thing, and we heard that in the press conference, is what's really happening in the labor market?
02:46Is it a supply issue or is it a demand issue?
02:48Or both.
02:49Or both.
02:50And how much of it is both and how much it would last?
02:52That's really important.
02:55Chair Powell started saying it's this and then said, well, no, it's a bit of this.
02:58They need clarity on this.
03:00And I think that clarity is possible on this.
03:04But again, they're shying away.
03:05Now, I understand that on the enormous political attack, I understand that Chair Powell is coming to the end of his term.
03:11But if you don't have a policy anchor to this economy, the risk of volatility goes up, economic volatility, not market volatility.
03:20The market is happy to bet on the corporate side.
03:22The market is this very strange world where it says, I know the sovereign is messy.
03:26We have tariffs, we have central bank independence, we have high fiscal deficits.
03:31I know that's messy, but I'm happy to bet on the corporate side.
03:35But is the Fed the real source of volatility on the corporate side or is fiscal really?
03:42You know, our tariffs, our policies that, you know, sort of are very volatile themselves.
03:47Is that the real source of volatility for corporations?
03:50So that's why we need the Fed even more, because on the administration side, they are attempting a major rewiring of the domestic economy and a major rewiring of the global economy.
04:02You need some anchor.
04:04I remember, I'm old enough to remember, the early 80s when President Reagan came in and he undertook a major rewiring of the domestic economy.
04:13The Fed was there providing a very clear anchor as to where it was going, and you cannot have a situation where you have major uncertainty on the two greatest influences on the economy.
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