Fed's Miran Might Amend Inflation View if Rents Increase

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00:00this idea of shelter as it relates to the inflationary view. What is his thesis?

00:06What is his theory that that part of inflation will start to ease?

00:12Well, the theory is that because they are removing so many undocumented aliens from the United

00:18States, it will reduce demand for housing. And that will bring down the price of housing because

00:24more houses will be available to those who are still here. It's based on a study that was done

00:29in 2003 about the Mariel boat lift in Miami, which found that there was sort of a one-to-one

00:35relationship there between removal and prices going down. A lot of economists say that's a tough

00:42thing to scale up nationwide and to say is a rule that will apply in the future. But that's his story

00:52and that's what his belief is in terms of bringing down service price inflation and therefore overall

00:58inflation. Well, shelter is such a tricky thing for the Fed to actually affect. And Fed Chair Jay

01:04Powell has talked about this for years, Mike. He said, given the tools that we have, we can only do

01:09so much when it comes to shelter prices. And in fact, he's talked about that being more of a policy

01:15issue in the past than it is about being part of the Fed's dual mandate. Well, most analysts of the

01:21housing industry say that the problem for housing is that there's not enough supply. And a lot of that

01:26has to do with zoning regulations in cities. You can always build out in the suburbs. Now you have

01:32to go to the exurbs and you start to get so far away from people's jobs that they don't want to move

01:37out there. They'd like housing in the more central areas, which means you need more density. And that's

01:44a big fight always. So that is a policy problem. The other problem is that the Fed controls short rates.

01:51And so if you are worried about mortgage rates, that they're going to be much more closely tied to

01:57long treasuries like the 10 year. And that's going to be priced by the markets in what they think of

02:04inflation is going to be. So it's another reason why people are dubious about Myron's view on

02:11bringing down inflation through housing. Three or four houses for sale on my block. So

02:16there's definitely some supply that I am seeing. And I remember actually a voice this week on

02:20surveillance with Tom and Paul that they talked in the morning about, no, there is plenty of supply

02:26out there. So I'm I'm a little confused. I want to move on to another Fed voice, Fed Reserve Vice

02:32Chair Philip Jefferson, making some comments and cautioning on risks to inflation's to inflation job

02:38goals. There are Fed voices that matter more than most. And we know Jay Powell is certainly one of

02:42them. What about Mr. Jefferson? Well, he matters in the sense that as vice chair, he's not going to

02:48dissent unless he has some horrible disagreement with Jay Powell. And so if that's where he is,

02:53that's where Powell is. And you get the same thing when you're talking about what John Williams thinks

02:57is the vice chair of the Open Market Committee. So it tells us that basically the Fed is on board with

03:06another rate cut because that's what Powell suggested at the last meeting. The question is,

03:10is it October or December? Most people in the markets think it'll be October. And without data,

03:16the general feeling seems to be, well, that doesn't give them a reason to change their mind.

03:21Now, it could give them a reason to wait and see what happens. But I think what we have to do is

03:28wait until we get closer to the end of the month, the meetings on the 29th of October, and then start

03:33judging what Fed people are saying. Speaking of changing one's mind, and I want to go, I do want to go back

03:38to Steve Myron for a moment. From the conversation that you had this morning with the team on Bloomberg

03:44TV and radio, is it fair to say he is kind of data dependent? Did he kind of come across that way?

03:50Well, he's data dependent to the extent that the data back up what he thinks is going to happen.

03:58He's saying that he is looking forward, which is basically being based more on forecasts than on

04:06past data. So it's going to be hard to say he's wrong in the short term because whatever he's

04:13predicting hasn't happened yet. But his view is that the economy is going to slow, that the labor

04:18market is going to slow, and that inflation is also going to come down. And therefore, you could

04:22cut rates and you should cut rates more quickly because you don't want the economy to weaken too much.

04:27But again, that's all based on forecasts as opposed to prior data.

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