00:00There's reasons why the first half of the year was weaker, and then you sort of see reasons,
00:05I also see reasons why I'm a little bit more optimistic going forward.
00:09I do think, because that uncertainty has been resolved, I do think it's important to note a couple things.
00:16One is that if the economy does well as a result of policies that push out the supply side of the economy,
00:23it doesn't necessarily have strong implications for monetary policy because potential output and actual output can move out by similar amounts.
00:30If actual moves by more than potential, then you have an output gap.
00:34The economy can be producing above or below potential, or more so than it was previously.
00:38But if potential and actual output move out by similar amounts, then there's not a clear monetary policy implication for it.
00:44I do think, at the same time, and this is something that we'll probably get to,
00:50that one thing I've said in the past is that I think the neutral rate has recently come down relative to where it was a year ago.
00:59That makes monetary policy more restrictive than it was, say, a couple of quarters ago.
01:03And that additional restrictiveness of monetary policy poses some risks going forward,
01:08because if policy is tightened, then with some lags to policy, you would expect the economy to weaken.
01:15So in the near term, you know, I'm not very pessimistic at all about the economy is,
01:21but I do see some risks lurking there if we don't adjust policy.
01:24Okay, so risks potentially lurking if you don't adjust policy.
01:28What are the signals that you're looking at to, you know, establish whether or not policy needs to be, you know, changed?
01:36You mean sort of whether my view of where appropriate policies should be changed?
01:41Yes.
01:42So, well, I mean, I guess sort of let me make a couple comments, right?
01:46One is that, obviously, for the very short-term appropriate policy path,
01:53there was a pretty big gap between my views and the rest of the committee, right?
01:58I think on a lot of other items, there was smaller gaps.
02:02And so it basically comes down to an extent of how fast I want to get to neutral versus relative to some other members of the committee.
02:11You know, we sort of, like, look at where are all the different projections in the summary of economic projections.
02:17Part of that is because my view is that monetary policy should be forward-looking.
02:22Policy works in the economy with lags, right?
02:24It's not the case that you change the Fed funds rate and then immediately the next day there's a big shift in the economy.
02:31It takes time for changes in the Fed funds rate to filter through into broader financial conditions.
02:36It takes time for broader financial conditions to filter through into the economy.
02:41That leads to what economists, you know, famously call long and variable lags of monetary policy.
02:48You know, and there's discussions about how long those lags are.
02:52Traditionally, people interpret them as being about 12 to 18 months, sometimes two years.
02:57Recently, there's been people arguing that that lag time has shortened.
03:00But the result of those lags is that policy has to be forward-looking.
03:03You need to set policy not necessarily based on where the data were six months ago, but where you think they're going to be six months to two years from now, depending on your view of how long those lags are.
03:14So one reason for why my, you know, sort of dot for 2025 sticks out so much from everyone else's is because I'm more sanguine on the inflation outlook than a lot of other people are.
03:27A lot of my comfort on the inflation outlook comes from the disinflation I expect to occur from housing services.
03:38Housing is the biggest component of the way that we measure inflation.
03:42It's the biggest component of the way that a lot of people register the cost of living.
03:48And, you know, housing inflation has been running, I would say, above, in measured inflation, has been running above where new leases have been set for a long period of time.
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