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00:00Turning to the economy, investors are watching for signals from policymakers heading into a key
00:04year for the Federal Reserve with the new chair expected to be announced soon. Cleveland Fed
00:08President Beth Hamek among those preferring to hold rates higher for longer, while our next
00:13guest is taking the other side, voting for a 50 basis point cut at the Fed's last meeting.
00:18Joining us now is Federal Reserve Governor Stephen Myron. Very good morning to you, Stephen. Thank
00:21you so much for joining us. Good morning. Thanks for having me back. So let's start with Beth
00:25Hamek. She came out over the weekend. Then we heard for Williams as well on Friday, saying that
00:30potentially where we are right now, rates should be steady. And they're looking at what's going on
00:34inflation. Even the Fed chair was talking about maybe you need to look at inflation, the data we
00:39had with some grain of salt because of the government shutdown. How are you viewing that
00:43side of the Fed's mandate right now? Yeah. So I gave a speech on the inflation outlook last week.
00:48And, you know, and I still believe everything I said last week in light of this week's print,
00:52last week's print. I mean, look, there were a couple of anomalies in last week's print related
00:56to consequences of the government shutdown, which have distorted and delayed economic data that we
01:01need to make policy. But, you know, those consequences, I think, are not huge. They're
01:07when you sort of get to when you get to sort of the ultimate PCE print, which is what the Fed,
01:11which is what the Fed targets. It's probably ultimately going to be in the neighborhood of two
01:15tenths of a point. Maybe a tenth of that is going to be shelter and a tenth of the other stuff is going to
01:19be, you know, calendar stuff like prices like data were collected in the second half of the month
01:23around Black Friday stuff. But we'll have to sort of see when we get the PCE data. But it is true
01:29that the shelter stuff was somewhat distorted by some of the quirks of the of recovering from the
01:33shutdown. But it's also true that the shelter data were distorted for most of the year because of
01:39really long lags with which shelter inflation is calculated. If you look at market rents, they've
01:44been running at about a one percent rate for about two years now. Right. That's not indicative of any
01:48price pressures in housing whatsoever. But it takes a really long time for measured shelter
01:53inflation to catch up to that just because of various quirks of the statistical measurement
01:56process that I got into my speech last week. So I do think there was maybe some downward bias in
02:00last week's print. But at the same time, there's been tons of upward bias in data for the entire
02:05year. And it's inappropriate to say, OK, well, we have to adjust for the downward bias, but we're
02:10going to accept the upward bias. That itself is a deeply biased position. We've got to be clear
02:13right about both. Well, do you feel like yourself included, but do you feel like members of the Fed
02:18are cherry picking what about inflation they like or dislike? Well, I mean, you know, I think that for
02:24the last few months, we've had data come out in accordance with, I think, my view of the world.
02:28The inflation data has steadily come in cooler than expectations. The unemployment rate has has poked
02:33up potentially above where people thought it was going to go. And so we've had data that should push
02:38people into a dovish direction. And I think it's somewhat problematic if you see those data coming
02:42out. And you don't adjust your policy prescriptions in a dovish direction. What does that say about the
02:46reactiveness of policy to the economy? You know, I think it looks very it reflects very poorly upon
02:50the institution. At the end of that speech at Columbia, you nodded to the fact that recessions
02:55are inevitable. Fed's job is to kind of forestall them as much as they can. Policymakers' jobs are
02:59that. I'm very curious when you look at the labor market in particular, the rise that we've seen in
03:03the unemployment rate, that's kind of rise we've seen customarily before recessions. How do you assess
03:09the risk of there being a recession here in the near term when you look at the labor market,
03:12for instance? So I don't see a recession in the near term, in part because we are adjusting our
03:17policy rate by lowering it, which is appropriate. You know, my view, as I've described, is that a
03:23variety of shocks that hit the economy, you know, including changes to the population growth rate
03:27due to changes in the border policy, have pushed what we call the neutral rate down and that policy
03:32needs to adjust downward to reflect that downward shift in neutral. If we don't adjust policy down,
03:37then I think that we do run risks of rising recessions. I don't think it's too late to
03:43prevent that. And so I think it's important that we keep on adjusting our policy rate down. But at
03:47the moment, it's not my base case, in part because I think that we ultimately will end up
03:51adjusting, continuing to adjust interest rates down. I want to ask you about the utility of the
03:54Myron dissent. So we had the Fed chair ask that press conference about the increasing
04:00kind of fractured nature of the Fed committee. We've talked about quiet dissents as well.
04:03What are you achieving? Or so what's the reaction been to you dissenting as you have been kind of
04:08in the conversation among the committee?
04:10Yeah. So look, I mean, there's not really any strategy here. I'm just transparent and say what
04:14I think and always have. And that gets me in a lot of trouble. And does it or is it a constructive?
04:19So when you when you descend in the way in which you do, does is it a constructive dissent? Do you find
04:22that others are willing to engage with you and your perspective on inflation, for instance?
04:27Yeah. Well, my perspective on inflation is, you know, look, in my first speech, I talked about
04:31inflation a little bit, but I mostly was focused on neutral. My speech last week, I really drew out
04:37a lot about my outlook for inflation that was sort of implicit in the first speech and sort of
04:41cursory, cursory, cursory, cursory treated. And I really drew that out. So my views and inflation
04:46haven't been out there fully fleshed out for the committee for so long. And now running into
04:50holiday season. But I have found that people are that people are constructive. They want to discuss
04:54these things. And I think that's important. And, you know, look, one positive benefit of me
04:58potentially dissenting like this is that it introduces a more a wider variety of views.
05:04I think it's really, really important to avoid groupthink. I think if you if you fall into
05:08groupthink, you stop questioning where you could be wrong. And then it just becomes much easier to
05:11be a complacent consensus that is in error. I think we've seen that over and over this year,
05:15for example, on tariffs. Let's talk potentially about tariffs. The president is pushing for
05:20this two thousand dollar tariff dividend. The Treasury secretary is talking about these tax
05:24refunds start of 2026. Is there potential that more money in consumers pockets could goose inflation?
05:31Yeah. So there is potential for some of these factors to boost economic growth with respect to
05:35sort of tax refunds. You know, I think that sorry with respect to tariff refunds, I think we need to
05:40sort of wait and see what the policy looks like before getting into analyzing its consequences.
05:45If there does end up being a policy with respect to tax refunds that are a result of the already
05:50legislated tax bill, the one big beautiful bill act from last year, those are already baked into
05:55the forecast and they will provide a little bit of demand stimulus. But there's so much other stuff
05:59going on as a result of policy in O triple B, in deregulation, in other things that are going on
06:05economic policy that ultimately push out the supply side of the economy, too. And my view is that if you
06:09push out the demand side while you're putting the brakes on the supply side, you get inflation.
06:13If you push out supply and demand at the same time, it doesn't really have an effect on prices.
06:17But do you think it was a mistake that when we had under the Biden administration,
06:20the American Rescue Plan Inflation Reduction Act, sending out checks to American consumers?
06:24Was that an error?
06:25Well, it's not appropriate for, you know, for a member of the Federal Reserve to be
06:29describing something as an error or not. But I do think that if you hit the gas on demand
06:33while you're hitting the brakes on supply at the same time, it will result in higher prices.
06:38That is an economic factor.
06:39Would $2,000 checks do a similar reaction as we saw by the other checks during the American
06:45Rescue Plan?
06:46Well, it depends on what's happening on the supply. So two things matter. One is the state
06:49of the demand, state of aggregate demand outside of those checks. And if you go back several years,
06:55the economy was recovering on its own from COVID, right? COVID was not like, you know, the
07:00financial crisis, which had lingering deleveraging effects for a decade plus, which meant the demand
07:05was persistently depressed. After COVID, you know, we started getting vaccines, we started
07:11getting antivirals, places started opening back up, the economy started returning to normal on its
07:15own. And so demand was growing quite healthily. And jobs numbers were beating every month. And so
07:20throwing more economic support on top of that wound up sort of pushing an already expanding demand
07:24side to expand even further. Right now, you see the unemployment rate is tilting up on its own,
07:29right? So demand is in a separate, is in a very different place than it was in 2021.
07:32But so is supply, right? And I think that if you're taking policy steps that are going to push
07:37out supply or supply is moving out for reasons other than policy, for instance, AI, which I find
07:42difficult to quantify, but a lot of people put a lot of put a lot of faith in, if supply is moving
07:46out for whatever reasons, it can accommodate increasing demand. And so the effect on prices
07:51could be very different. On higher goods inflation, there is a prevailing narrative that the
07:55tariffs policy has a lot to do with what's been pushing that up. And you kind of push back against
07:59that. You did that in the speech that you delivered at Columbia as well. At the same time,
08:03you talk a lot about humility, how much uncertainty there is. I think you nodded to Mervyn King in that
08:07speech and what he's written about uncertainty. What's it going to take for, do you feel like
08:11you have a grasp of the effects of the tariffs policy thus far? Or are you still waiting to
08:15figure out sort of what that's going to mean for the economy broadly? And yes, when it comes to
08:18goods inflation? Yeah. So look, in the speech, I did discuss how there's this consensus has emerged
08:23that tariffs are a significant driver of inflation. In the same way, a consensus emerged earlier in
08:28the year that tariffs are going to drive some sort of crazy recession. That was there. And I think
08:35that consensus is wrong. And I think it's complacent. I described counterfactuals, right? If
08:41you're describing a result in prices to tariffs, you need to say what the world would have been like
08:45without tariffs. Now, what most people do is they look at what we call the pre-trends. What were the
08:50trends of various items before tariffs, right? And most people select pre-trends from the two
08:56decades before the pandemic, right? When the world was very, very different. I don't think that that's
09:01really appropriate. Instead, the counterfactuals that I want to look at that I describe in the
09:05speech, and I include pictures for them, are two things. One, what are imported goods, imported core
09:11goods in the PCE index doing relative to overall core goods? And two, what's happening on
09:18international basis? And in both of those cases, I don't see anything that would indicate to me that
09:22tariffs are the driver of core goods inflation. When you look at imported goods versus overall
09:27core goods, they're inflating at similar rates. Imported goods don't stick out. When you look at
09:32U.S. core goods versus other countries, again, U.S. core goods are in the middle of the pack, and there
09:37hasn't been a change that would indicate to me that there's some sort of very significant tariff
09:40shock. So I think it's actually quite complacent for people to ascribe all this inflation to
09:45tariffs. And indeed, if you look at CPI, core goods and CPI bottomed out in the middle of last
09:49year, right? Seven or eight months before tariffs were implemented. I just want to get a sense before
09:54you leave us, how are you thinking about the next meeting? Because it could potentially be your last.
09:58Do you plan on dissenting in favor of 50 basis point cut again? Look, I plan on pushing for the
10:04policy that I think is appropriate at the time. I will say when I got to the Fed, we hadn't cut rates at
10:08all this year, and so it was very important for us to move rates down quickly. Since then,
10:14we've pushed rates down three times. 75 basis points of cuts to the policy rate. So the need for me to
10:20dissent for 50 becomes a little bit less as we come down. I haven't yet decided whether I'm going to
10:25push for 25 or 50 next meeting. I think it depends on a variety of factors. So I could see voting for
10:3125, but I do think it's important that we continue steadily reducing the policy rate. So basically,
10:36you'll vote for 25, but the rest of the committee's there. If they're not going to push through 25,
10:40you may alert everyone of your dissatisfaction with them by going for 50?
10:46Well, no, it depends. I think I want to see the data. We're still waiting on a lot of data because
10:52of the shutdown, right? So I want to see what the data do to my forecast going forward and how they
10:56change my forecast going forward. But the truth is that I think that it was really important to vote
10:59to, sorry, to cut in bigger clips when policy was very high. As we continue reducing policy,
11:05I think you sort of get into territory where you can start micromanaging instead of big cuts.
11:11And I don't know whether we're here yet or it would sort of still take a couple more cuts to
11:14get there. But at some point, you sort of start to become okay with sort of steady 25 basis point
11:18cuts instead of 50 basis point cuts. Do you think it's going to be your last meeting?
11:21Has the White House reached out about whether or not you're going to stay on at the Fed?
11:25I have no idea. I mean, look, you know, if nobody is confirmed in my seat by January 31st,
11:29I assume that I will stay in my seat. You know, you can stay in a seat until a successor is confirmed.
11:36And then beyond that, you know, it'll all depend on who the president ultimately nominates to be
11:41the next chairman of the Fed, because it'll depend on, you know, what seats are available
11:46and who the president wants to fill them.
11:47When it comes to the next chairman of the Federal Reserve, there are two individuals that you've
11:51worked closely with just this year alone. Kevin Hassett, of course, when you were at the White House,
11:56and also Christopher Waller, Governor Waller, of course, with you at the Fed. Can you just give
11:59us your evaluation of both those individuals, given the fact that you have a very good, I
12:04imagine, relationship with both of them?
12:06Yeah, look, they're both supremely talented economists and extremely effective individuals
12:10that I have the utmost respect for. And I think the country would be very lucky to have either of
12:14them.
12:15A quick question just about what you've witnessed in terms of the chairman's role at the Fed.
12:19You've been there for a few months. Is there anything that surprised you about the way that Fed
12:24Chair Powell is able to kind of go to get people to galvanize themselves around any kind of unanimity,
12:29the way that he runs the committee? I think we think about the Fed chair as this kind of
12:31principal position. The president kind of makes us think that way, that this is going to be a
12:35highly, a person who has a lot of determinism himself. But the Fed chair's responsibility is
12:38to try to get everybody on board with decisions. What have you witnessed about Fed Chair Powell's ability
12:42to do that? And what would you say to the president about that facet a Fed chair has to have to be
12:46effective?
12:47Look, you know, I think that there's obviously a lot of people on the committee who are not comfortable
12:52with rate cuts. And I think that's the wrong economic position at the moment, given the data
12:58that we have available to us and the forecast that we have available to us and the very well-known,
13:02very well-understood upward biases that are affecting inflation measurement at this moment in time.
13:07I think that's the wrong view. No question about it. Nevertheless, I think you have to give
13:12Chairman Powell a credit for having wrangled three cuts out of these guys in succession.
13:18And it's a cat-hurting task. And I think we have to give him a little credit for that.
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