00:00And yet on the committee, we have pushback. Almost immediately after that, Fed Governor Michael Barr had this to say, I'm concerned that we're seeing inflation still around 3%.
00:08Inflation is closer to 3% than it is to 2%. What do you make of that argument? How persuasive is it?
00:13It's not persuasive to me, and I'll tell you why. All of the inflation excess, sorry, almost all of the inflation excess is a mirage.
00:21It's not indicative of supply demand imbalances. And so, for example, if you look at the housing market, right, market rents have been running at about 1% for a couple years.
00:29Measured inflation in the index is actually much higher than that because it takes a really long time for the index to converge down to where market rents are.
00:36That's a statistical artifact, right? That's an artifact of the statistical measurement process.
00:40It's indicative of a supply demand imbalance that was there in 2022, 2023.
00:45Monitor policy works with lags. It has to be set now for 2027.
00:49So when you look at the housing data, right, you see market rents running about 1% for a couple of years.
00:54There's no supply demand imbalance there. We should not be setting policy for 2027.
00:59Based on a supply demand imbalance that existed in 2022 or 2023. That doesn't make any sense.
01:03There's other things, too, like portfolio management services, which confuse quantities for prices.
01:07This stuff is all well known. If you look at market-based measures of inflation, they're much closer to two than they are to three.
01:12So I think that the excess, the overage, is a mirage. And it's a mistake to ask people to lose their jobs because, of course, of the statistical measurement process.
01:20And you've got to put out new forecasts on December 10th as well, which is going to be complicated by the fact we've had limited data more recently.
01:25How relevant do you think the calendar actually is? Because I'll offer you the perspective on Wall Street at the moment.
01:30It goes something like this. The meeting's on the 10th. You don't get the data until the 16th.
01:34The Fed's kind of constrained by that. They can't do anything. What's your perspective on that?
01:38Yeah, so as I said a moment ago, monetary policy works with lags. It would be much easier if it hit the economy immediately, but it doesn't.
01:43It works with lags. So you have to set policy based on the forecast.
01:46So the data matter insofar as they affect your forecast. It doesn't make sense to be setting policy for where the economy was three or six months ago.
01:54We should be setting policy based for where the economy is going to be 12 to 18 months from now.
01:58And so if we have data, it gives us the ability to update our forecast.
02:02But the lack of data doesn't mean that we don't have a forecast. We did have a forecast.
02:06And all it gives us is opportunities to falsify our forecast.
02:09And there hasn't been anything in the data, in the news, in media stories, in private sector data, alternative data that's available to us,
02:15that would make us think that the forecast is somehow nullified and there's been a big shock to it.
02:20So if anything, all the information that we've got in the interim since September FOMC has inclined to the dovish side.
02:27You know, we got weaker inflation than people expected, and we got a higher unemployment rate than folks were expecting.
02:33So all of that information should push one in the dovish direction.
02:36But there are still Fed officials that are looking for more data, and they have said they're data dependent.
02:40They want that insurance that they're cutting right now and it's the right time.
02:43And potentially the unemployment rate might be moving up to 4.5% on December 16th.
02:48Would you be in favor of just moving the meeting if it meant others felt more reassured to cut interest rates in December?
02:55So, you know, I haven't really thought about that, and it's not a conversation that I've been part of.
03:01I mean, I agree the meeting dates seem kind of arbitrary, but at the same time, there's a lot of stuff that gets done as a result of those meeting dates.
03:10And, you know, people have investments and contracts and other decisions that are tied to the timing of the meeting date.
03:18And I don't know to what extent moving those dates would be disruptive for all that.
03:21So it's something that I'm not sure about.
03:25But this ultimately comes down to the question of data dependence is what you do when you don't have a forecast or when you don't have any confidence in your forecast, right?
03:33We should be forecast dependent, not data dependent.
03:36Being excessively data dependent is to be too backward looking.
03:39And if you're too backward looking, you necessarily are going to have the wrong policies.
03:42Neil Dutter writes in, he says, the only question that matters for you is, will you descend for 50 if you believe it means not being able to push through a 25 basis point cut?
03:51Yes, so absolutely not.
03:53I would absolutely vote for a 25 basis point cut if my vote were the marginal vote.
03:57There's no question about that.
03:59I, you know, to do otherwise would be to cause real harm to the economy for purposes of vanity, and that's not who I am.
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