Fed's Miran Doesn't Think the Neutral Rate Is Zero

Bloomberg

Watch Fed's Miran Doesn't Think the Neutral Rate Is Zero - Bloomberg on Dailymotion

Transcript

00:00Thank you for joining us on this non-jobs day, jobs day. We get no government primary economic

00:07data because of the shutdown right now. So let me start by asking, if that continues,

00:13as a member of the Open Market Committee, would you feel comfortable voting for a significant

00:17cut in interest rates if you don't have data on employment and on inflation?

00:24Good morning, and thanks for having me. Look, I think it's important to recognize,

00:27first of all, that as you're pointing out, access to high quality data is of utmost importance when

00:33making monetary policy decisions. However, it's also the case that we don't make monetary policy

00:38decisions every day, right? The FOMC meets to vote once every six weeks or so. Now, I think that's

00:44a bit longer than most shutdowns have historically lasted. So I'm hopeful that we'll get the data

00:48by the time we actually have to make the decision. Well, despite what the president says, as you well

00:53know, inflation is rising. Food prices are up. Gasoline prices higher than when he took office.

01:00Those are the prices that Americans notice and hate. So isn't it a risk to cut rates significantly

01:06in a regime where inflation is rising?

01:11So my view is that policy should be forward-looking, right? I don't necessarily have a forecast that those

01:16items are going to continue rising. In fact, I'd think that a lot of them will actually reverse

01:20somewhat. But for my process, what matters most of all is the cost of housing because that is the

01:25single largest component of the inflation process. And it's also one of the things that people notice

01:30the most. They notice when their rent surges. They notice when the cost of shelter increases. And that's

01:35why it gets the largest weight in the inflation indices. And my expectation is that we've just

01:39experienced, you know, the biggest population shocks to both the upside and the downside in my lifetime

01:45and I think in most people's lifetimes. And to me, it would be very surprising if that left no lingering

01:49trace on the price of shelter. And so I am expecting a significant disinflation to the services

01:54component of the inflation indices driven by shelter, which is affected to an extent by changes

01:59in population growth. Well, we were talking before we came on about your view of our start,

02:04the neutral rate. We've got inflation running at basically 3 percent. You've got unemployment at 4.3

02:10percent, which is historically very low. The Atlanta Fed says we're growing 3.8 percent or grew 3.8

02:16percent in the third quarter. There's no economic model that I know of that would get you to a near

02:24zero neutral rate with those kind of conditions. Yeah. So first of all, I have seen some folks argue

02:31that they think that my conception of the neutral rate is zero. That's not the case. I think that's

02:36a misreading of the speech. If you read the speech carefully, you'll notice that I do a weighted average

02:40of a model-implied ex-ante and a market-implied ex-ante rate, and it gets to about a half. And

02:45that's consistent with the dot that I put down on the summary of economic projections. And so I

02:51basically thought, you know, sort of going into things last year, there were all these policies

02:55that were pushing R-star higher, like the highest population growth we'd seen in decades, the largest

03:00fiscal, you know, sustainable fiscal deficits we'd seen, sustained fiscal deficits we'd seen in a

03:05really long time. Those are pushing R-star higher. So last year, I really thought it was at the top

03:08of the range of where everyone else on the committee thought it was. And I think it's now come down

03:12this year to the bottom end of the range of where everyone else thinks it is. But you can't model that.

03:17What do you mean I can't model that? The models, if you put in the numbers that we have right now,

03:21it wouldn't spit out near zero or half a percent. Oh, real rate. Well, no, but what I've done

03:29is modeled my expectations for inflation based on the changes that I see happening from housing,

03:35as we talked about a moment ago. I've modeled out changes to the output gap that I expect to see

03:39from policies that expand the supply side of the economy and therefore expand potential output

03:42faster than they would expand actual output. And some policies that we've seen enacted over the

03:47course of this year would push out potential and actual by the same amount or bring in potential

03:50and actual by the same amount. Other policies would push out one more than the other. And so for

03:55an example of one that would push out one more than the other would be deregulation, right? I think

03:59that the regulatory state has been being peeled back over the course of this year and all

04:03indications are that will accelerate, particularly as the pace of confirmations of appointees has

04:10just picked up as well. That in my mind will accelerate the pace of deregulation too. And when

04:14you remove regulations, you expand the potential output of the economy faster than actual output.

04:19And so that creates a positive output gap.

Category

Transcript

Be the first to comment

Recommended