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00:00You've been on Bloomberg's Odd Lots and you were on another network this morning. So we're going to stipulate that things are uncertain in the economy and you don't exactly know where policy is going to be. And let me ask you a couple of things in different areas. Monetary policy works through the markets. And I'm not talking about the judgment of market people. But do you think that market rates are essentially where they should be given where your rates are at this point?
00:30That's all. First of all, good to have you here. I'm really always happy to speak on Bloomberg. What I would say is this. The market is trying to process a lot at this point. And where our rates are, I think are mildly restrictive in the marketplace, trying to get inflation back to our two percent target because it's been too high for too long. I think the rest of it is really about perceptions of risk in the marketplace and uncertainty and the volatility that might be
00:59present in the market, I think leads to there being an extra premium on it. And so the market will decide what it what its price needs to be. But it doesn't surprise me very much that we see it at a higher level relative to the things that we've done with our rate in the last year.
01:14Well, we've got the downgrade now that pushed rates up early this morning and overnight, and then it started to fade back a bit. The same thing that sort of happened after Fitch and S&P did their downgrades. Does it worry you that they are not pricing in more of credit risk to the United States, given that we're no longer AAA?
01:37Well, you'll have to talk to the Raiders about sort of how they interpret these things. What I would say is this. So much of our economy is based on faith that we will deliver on the things that we say that we've promised for the future.
01:52When you start to see the markets waver a little bit, I think people are asking the question, do we still have that same level of faith? I think the sign that rates have started to come back down and the markets are sort of returning back to a normal stasis to guess that they think there is that likelihood moving forward.
02:11And we'll just have to see where it goes. I mean, I always want to make sure I understand what the price of credit and debt is. But, you know, the markets will make a determination of that on their own.
02:22Well, if they are higher and stay higher as they are right now, does that affect your calculation of what you have to do?
02:29Well, it depends. You know, one of the things that will be interesting to see is how businesses and consumers respond to the environment.
02:37What I'll say is, because of the word that you said at the very beginning, uncertainty, we know that many businesses and many families are really holding tight to see sort of how this all sorts out.
02:48And we'll just have to see how the changes in pricing in bond markets and other markets translates into different strategies moving forward.
02:58I do think the stasis that we have right now is one reason why I think it's appropriate for us to be waiting on our policy as well.
03:06And we'll just have to see how this all plays out. I'm hopeful that as we get through the summer, we start to get more more clarity on exactly where things are going to sell out in trade policy and other factors.
03:18Well, I know you've got your people working on this, but is it going to be hard, do you think, do they tell you, to separate out tariff effects from just secular movements in both sides of your mandate?
03:29Well, I'm not sure you can really do it so cleanly. What I would say is when we talk to businesses, what they tell us is they've got a plan based on a projection of where things would be.
03:42Tariffs have evolved over time and it looks like some of those levels are going to be higher and we have to just see what they decide needs to change in those plans.
03:53Today, they're telling us that if tariffs don't get too high, that they can sustain with the level of employment that they have, then they don't necessarily will have to turn to laying people off.
04:08But they say, you know, we don't know. And so we're going to wait and we're just going to watch on the inflationary side as well.
04:14All the models say that the level of inflation that we have is going to be upward, put upward pressure on prices.
04:22So we're just going to have to see what the negotiations turn out to be.
04:26And then at that point, we'll have a better sense of how much we're going to have to do on our side to keep both the employment mandate and the stable prices mandate close to our targets.
04:36You said this morning you thought it would be three to six months before you get clarity.
04:41Does that mean that any kind of Fed action is going to be off the table until at least September?
04:48Well, OK, there's an if and then a then. I would say, look, if it takes negotiations a longer time to settle things out,
04:57we have another 90 days on China, for example, that starts to push much further into the summer,
05:02in which case we won't actually know what the true effects are going to be for several months after that.
05:08If that's how it plays out, then that's then sure.
05:11I think and right now I would say in my SEP, I have one cut only for this year because I think this is going to take longer to resolve than it might have otherwise.
05:20But things could go faster. It could be the case that these negotiations bear a lot of fruit.
05:25We know what the numbers are and they perhaps come in lower than people are expecting.
05:30In that case, we may be able to pull forward some of our actions because there may not be as much that we need to do in terms of managing the price level.
05:38Well, I know it's a surprise that the president keeps changing his mind about tariffs.
05:43So what does clarity look like to you?
05:45So for me, I would say where clarity is where businesses feel like they know what the lay of the land is,
05:53what the rules of the road are likely to be, and are making plans and moving forward based on that.
05:59You know, when I talk to a lot of folks, when I do talk to chambers of commerce and the like,
06:03I always ask the question, how many people here think that the rules we have today are the rules we're going to have a month from now?
06:09And no hands go up. That to me says we don't have clarity.
06:13What I would look for is at some point all the hands to go up.
06:17And then I know and I'll have some confidence that when they tell me what they're going to do with their workforce,
06:22when they tell me what they're going to do with their pricing, that's actually what will turn out.
06:26And at that point, then I'll have a much better sense.
06:29I can come back with my team. We can figure out exactly what we think an appropriate path the policy would be.
06:35And then we'll move forward with that.
06:37Well, given that no hands are going up at this point, when we get an SEP from the Fed or a dot plot or your argument for one cut this year,
06:47should we take any of that seriously?
06:49Well, you take it as seriously as you want.
06:52I say like for most times, actually, whenever I do the SEP, it's a point in time.
06:58It has a narrative about where I think the economy is going to go.
07:02If the economy goes that way, and that's exactly what we'll do. If it doesn't, then I'll pivot to something else.
07:07I think that's really the way to look at it, but also recognize that in the SEP submissions,
07:14there's a whole narrative in the back that most people don't pay attention to,
07:17which tries to describe some of the things that are embedded in the narrative.
07:21And I think those narratives will be particularly important moving forward to determine how much to take on board
07:27as to an expectation about where our policy will go.
07:30Speaking of unemployment, the chairman put out a memo on Friday saying that the system was going to cut 10% of its workforce.
07:38How is that going to affect the Atlanta Fed and what kind of divisions are affected?
07:44Well, I would say we are always looking for ways to find efficiency.
07:47When I took this job, I was committed to making sure that we use our resources in the most efficient way possible.
07:54We don't have a formal plan right now. The chair just announced this on Friday.
07:57I'm talking with my colleagues across the system.
08:00We've always been thinking about ways to do efficiencies, and we'll come up with a plan moving forward.
08:05But this is something that, look, businesses come on Bloomberg all the time and tell us, and tell you where they're going to restructure.
08:14I would look at this not as anything different than that.
08:17Is this in any way a response to the doge cuts that are going through Washington?
08:22Well, this is the president. This is the chair's directive. You'll have to talk to him about that.
08:26I would say I've been having discussions about efficiencies in our bank and in the system for pretty much the whole time I've been here.
08:34And we'll just I'm looking forward to the discussions to figure out how we're going to do this.
08:39I would also say the 10 percent number is going to be moved on in a number of different ways.
08:46So our annual attrition rate is about 8 percent. So we're going to take our time.
08:51We want to do this in a strategic and intentional way so that we don't degrade our capabilities as we adjust our workforce level.
08:58Another subject, the framework review. The chair said last week at the conference in Washington
09:05that the shortfall idea maybe didn't work as well as you thought.
09:11Are you assuming that that's going to go away in the new framework?
09:15So I don't know about that. I think for me, one thing that I think would be quite positive,
09:20and the chair said this as well, is that our framework statement has to apply in a broad set of economic contexts.
09:28When we did the last one, there was a belief, I think, that was widely held that, in fact,
09:35inflation was going to be lower as a baseline and that we would be close to the zero effective zero bound for as our steady state.
09:45And it turned out that wasn't the case. So I would look for adjustments that allow us to allow actually everybody in the public
09:52to see the framework and be able to apply it in a way that works for whatever circumstance arises.
10:00One last question. And to steal a bit from a panel that's going to be here tomorrow.
10:05As you look at the framework, you're talking about the policy, the way you look at policy.
10:11But what about an operational change like to demand driven reserve levels as opposed to ample reserve, something broader for the Fed?
10:22Well, that's going to be a much larger discussion. And I think the chair has said pretty clearly he wanted to really focus on the things we're focusing on.
10:31How are we talking about our addressing both the inflation approach and the employment approach to make sure that there was clarity on that?
10:42I expect in the years to come, we'll have a lot more conversation about ample versus other types of reserve regimes to implement our policy.
10:51How are we talking about the future?
10:52How are we talking about the future?
10:53How are we talking about the future?
10:54How are we talking about the future?
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10:57How are we talking about the future?
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11:12How are we talking about the future?
11:13How are we talking about the future?
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