00:00It's true, isn't it? The optics couldn't be better and the trickle effect in the markets and how this might play out and how might the Fed be looking at it?
00:09Absolutely. Well, I think it is important that the president went into this meeting with President Xi coming off several very positive meetings in Japan with South Korea in particular came in, I think, from a position of strength.
00:25Of course, now the questions are exactly what does this deal look like?
00:31But I think it was important for both leaders to have that sit down meeting.
00:36And that in itself was an accomplishment.
00:39We know that there's been a successful framework that came out of Malaysia between the two top negotiators.
00:46What's front and center right now is actually those black whale chips.
00:49It has national security concerns tied to that.
00:54What are your own thoughts on that?
00:56Look, I think that is an area of significant concern and controversy, especially for people who are focused on national security.
01:05It really goes to the U.S. ability to maintain its lead.
01:10And, of course, the one biggest area of advantage for the United States is advanced chips.
01:15It has not been the tradition to put national security export controls on the table as part of trade negotiations.
01:23And so for many, this raises some concerns.
01:27Are you then saying that black whale chips shouldn't be part of negotiations today?
01:32Well, I think export controls should not be part of trade negotiations.
01:36And so I don't know what the outcome there is.
01:40But certainly I think people who look to the U.S. lead on the AI and particularly the race for AGI will think of putting those export controls on the table as a real concern.
01:56If we see a deal today, what implications are there on the U.S. economy and inflation?
02:02So I think, generally speaking, getting some certainty around the level of tariffs on China is important for businesses to know how to adjust their supply chains.
02:14And taking those threats of very, very high tariffs off the table will help businesses make those adjustments.
02:21I think for the U.S. economy overall, the level of uncertainty had already diminished.
02:27And so you already see that the equity markets in particular are going gangbusters.
02:33And generally we saw an upgrade to growth in the second quarter.
02:38And expectations are that third quarter growth will be quite similar to second quarter.
02:43You can only imagine that Chair Powell is looking at developments in Korea very closely.
02:50He cut rates 25 basis points.
02:51He pushed back on a possibility of a December rate cut because it's wait and see, it's data dependent, and there's no clarity right now, especially given the government shutdown.
03:03Did he make the right move?
03:05Well, certainly he followed through on the rate cut in October that was essentially promised in September, but then held the line.
03:13And I think that was reflecting what he called a very big diversity of views in the room.
03:19Of course, we saw that in September with nine of 19 participants showing that they wanted to hold the line at two cuts or fewer.
03:28And so he alluded to the diversity of views around the table.
03:33We saw a dissent both on the hawkish side and the dovish side this time.
03:39And so going into December, he has a lot more challenges in terms of managing his committee if he does want to guide towards an additional cut in December.
03:49Dr. Brainard, is there a new inflation target now?
03:53I mean, they've been looking at 2% for a very long time.
03:56That is not even close to being achieved.
03:59Is 3% it?
04:00Well, it is true that inflation now has been running well above 2% for the past four years.
04:07It's at 3%.
04:08It is going in the wrong direction.
04:11And the projections the committee put out in September didn't have inflation returning to 2% until 2028.
04:19So that's, I think, why we're seeing the hawks on the committee digging in a little bit.
04:24The Fed has been committed to a 2% target, I think, for keeping inflation expectations anchored.
04:31It is absolutely critical that they show their resolve to get inflation back to 2%.
04:37Never mind that we're talking about those trade talks and a possibility of a trade deal today or tomorrow for that matter.
04:46Trajectory, when it comes to the trajectory of the tariffs, that's inflationary.
04:50Might that eventually play out in 2026?
04:53Might we see inflation at 4%?
04:55Is that a possibility at all?
04:56It seems very unlikely.
04:58It does seem that a lot of businesses have prepositioned.
05:02So they softened the impact of the tariffs.
05:04It gave them time to adjust supply chains.
05:07And it does seem that the impact of the tariffs is working its way into the price level gradually.
05:14So I do believe that we will see somewhat higher inflation than we would have otherwise.
05:21But I don't expect it to get to 4% or higher.
05:24Fed independence is the other thing that markets are focused on.
05:28When you take a look at the five shortlisted men to take over from Jerome Powell, are you still concerned about Fed independence?
05:36So I am concerned very much about Fed independence.
05:40And that is because this White House has done unprecedented things that really do undermine, potentially undermine the independence of the Federal Reserve.
05:49And in particular, while presidents always want lower rates, and always many presidents, not all, talk about wanting lower rates, nobody has ever announced that they're firing a board governor, unprecedented, without any due process.
06:05And also put a member on the board of governors who remains on the staff of the executive office of the president.
06:13Those are unprecedented.
06:15And I think everybody should be worried about Fed independence.
06:18So when you take a look at the five possible candidates, I mean, is there a sense that, you know, they could counter the pressure from the government?
06:27So I think all the people that I'm aware of that are on that list, highly qualified.
06:33But the real question is, how independent can they be of the president?
06:37And that will be very important for investor perceptions and public confidence in low inflation.
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