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00:00Good morning. I'm Michael McKee, the international economics and policy correspondent for Bloomberg, and we are here in Atlanta.
00:07Welcome to all of our viewers and listeners around the world on Bloomberg television and radio.
00:12We're speaking with the Atlanta Fed president, Rafael Bostic, who is retiring at the end of this month.
00:18So this is sort of your H.R. exit exit interview.
00:23Mike, it's always good to see you.
00:24I want to ask you, as you travel around your district for the past year, what's the mood like among companies and consumers?
00:34We've seen the surveys show that people are getting very, very pessimistic.
00:39Well, I'd say it runs in two ways.
00:41So first of all, what has been true throughout the last year is a tremendous amount of resilience on the part of both businesses and consumers.
00:49You know, when April 2nd, when the tariffs were announced at very high levels, that put everyone back on their heels and there was a lot of uncertainty.
00:58And what's happened through the year is people have figured out ways to deal with that uncertainty.
01:02So as for today, I think most businesses and most households are not thinking that the worst of the possible outcomes are going to happen.
01:11They're not sure they can get to the best ones, but everyone's trying to find a steady state where they can get through.
01:15So I think the sentiment is one of cautious optimism, but I'd put emphasis on the cautious as opposed to the optimism.
01:24I think people are really trying to wait and see what happens.
01:26Well, what do you think that means for the economy?
01:28Well, I think it means that the things that we've seen for the second half of 2025, we will continue to see through 2026.
01:34And, you know, I've talked to a lot of folks for the last six weeks or so, and they said,
01:38we think our experiences in October, November, December are likely to move on.
01:43And then there are some reasons why they think it might actually get stronger.
01:46You know, the tariffs, people have gotten used to those.
01:49And so those effects will have run through by the middle of the year.
01:53We see some of the stimulative aspects of the tax bill last summer.
01:59Those will be coming on board.
02:00And if consumers start to feel like there's more certainty, then I think businesses think there's some upside potential in the economy.
02:08Well, this last week, we've gotten a lot of bad news on the employment front with ADP and Challenger and the other numbers that have come out.
02:16Does any of that, you don't have another meeting to vote at, but does any of that give you pause about the Fed pausing at this point?
02:23For me, no.
02:24So, you know, I think we've been in a situation where inflation has been too high for too long.
02:31And by many readings, it's been kind of marking time.
02:35It's been at a plateau well above our target for the better part of two years.
02:39That's not acceptable.
02:41And for me, I think we can't lose sight of the inflationary concerns.
02:46The labor market is very turbulent right now, and some of it is because there are some big structural things that are happening in the economy.
02:54When I talk to businesses, they're reluctant to hire entry-level people the same ways that they did before because they think things like AI can replace that and they can deploy resources for other things.
03:05And I'm hearing that kind of reticence.
03:07There's also the reality that during the pandemic, a lot of companies ramped up because the demand ramped up, and they've been slower to right-size.
03:16We see a bunch of that right-sizing happening as well.
03:19And then we have issues around the labor supply and whether the immigration shifts are going to be temporary or permanent.
03:27And if they're permanent, then we're going to have a lower steady-state job creation.
03:31So for all those reasons, I think it's very hard to make a clear statement.
03:36And then, of course, we don't have a jobs number today, right?
03:39So we're not getting the data on a timely basis.
03:42My team tells me it'll be April or May before we start to be able to draw clear signals from the data to really understand what's going on.
03:52Yeah, we wanted to wish you a happy non-jobs day today.
03:56You started a long and varied career at the Fed in 1995.
04:00Since then, what have you learned about the economy and about inflation?
04:06Well, I think for the economy, one thing that is true is that it is a very complex economy.
04:11It's very large.
04:12And to understand it, you really have to get out and see all parts of it.
04:16And one of the things that's been great in my role here is I've had a chance to do that.
04:19I think it's given me a deeper understanding of just how people engage and experience the economy and how they make decisions to move it forward.
04:28In terms of inflation, what I've learned is that we really don't want to have inflation.
04:33Once inflation gets entranced in people's minds, it changes how the economy evolves.
04:38And it's one of the reasons why I think that we need to keep our policy in a restrictive posture so that we get inflation back to 2%.
04:44That's paramount.
04:45High prices and the prospect of rising prices really do have a lot of families on the edge.
04:51And you all have reported a lot about the K-shaped economy.
04:55There are lots of families that are feeling very precarious right now, and that's a source of concern.
04:59Do you think the economy is becoming more K-shaped?
05:03I don't know more.
05:04I mean, it's been that way for a while.
05:06Just before the pandemic, I had been talking about this, and we were trying to find some metrics to really detail how there's a split.
05:13I used to call it the barbell economy, where either you're at the high end or at the low end.
05:18The K-shape is the same thing.
05:20What I know is that there are a lot of families that are precarious and are feeling very uncertain about their prospects for the future and the prospects for their children, for that matter.
05:28And that concern, I think, does underlie a bit of the lower and the low consumer confidence that we continue to see being reported.
05:39And what we'll need to do is really give people reasons to be optimistic, show them where the new jobs are coming from, and show them how they get the skills to compete for it.
05:48Well, this week, Treasury Secretary Besant said the Fed has lost the confidence of the American people.
05:54Do you think you have lost the confidence of the American people in your district?
05:58Do you hear people raising questions about that?
06:01That's not been my experience.
06:03As I go around the 6th District, people tell me, we're grateful for what you're doing.
06:07You have a very hard job, and we want you to be as data dependent and as open to information so you can make the best judgment that you can.
06:16Look, the world is very complicated.
06:17It's actually more complicated today than it has been my whole time here.
06:21So I think most people understand that, and they know that we're doing the best job that we can under very difficult circumstances.
06:28Well, you have a unique perspective because when you took office at the Atlanta Fed in 2017, you were the first black president of a regional Fed bank.
06:38Looking back now and hearing the criticism that we get from Washington, do you think the Fed was too woke and perhaps the inclusive employment idea was a mistake?
06:49I don't think so.
06:50Look, what we have is an economy that needs to work for everyone.
06:57And if we're not mindful about the ways that the economy is not working for people, then our maximum employment outcome is going to be lower than it can be, and it doesn't serve the American people as well as it could.
07:09So I think the focus on every American and every American's experience is exactly the thing that the Federal Reserve needs to be doing.
07:17That's different than saying that that is unduly influencing our policy decisions.
07:23And I will say through this whole episode, the whole time I've been here, you can look at the market predictors and the market projections.
07:32They, in many instances, were more extreme than ours, right?
07:36And so I actually think we've been doing the best that we can.
07:39And we've been data dependent the way we've been for a hundred and some odd years.
07:44So I don't take on board those arguments.
07:47Well, the new chair-designate, Kevin Warsh, says the Fed needs regime change.
07:51What does that mean to you?
07:52I have no idea.
07:54You're going to have to ask him what that means.
07:55Look, I think we definitely need to be data dependent.
08:00Our bank has really taken on board the notion that we need to go out and engage and talk to business leaders, find out how they're engaging with the business, how they're making decisions.
08:10And that combination we have found to give us the best perspective on how the economy is performing.
08:16I don't think that we should change from that.
08:18I think we might need to even lean in more to those non-official data sources as the economy is changing so rapidly because those are all looking backwards and we need to be looking forward.
08:30Well, he's been very critical of what he calls the Fed's mission creep.
08:34Does he have a point?
08:36I actually don't even see the mission creep argument.
08:38Like for me, on the banking side, for example, our job is to make sure that every bank that's alive today is alive tomorrow.
08:46And so we need to make sure that banks are thinking about the risks that could cause them to need to deploy capital in ways other than in loans.
08:53And so having conversations about those things, I think, is fully appropriate.
08:57And we should be doing that.
08:59We don't tell banks where to land.
09:01I've never told the bank don't do a loan or don't do that sort of thing.
09:03And my examiners don't as well.
09:05I think we're asking prudent questions to make sure that financial sector business leaders are aware of trends that could be introducing risk.
09:16Warsh also says that he wants to shelve QE and significantly shrink the balance sheet and perhaps go back to a scarce reserves regime for managing the interest rates of the country.
09:29Could he do that?
09:31Would that be a good idea?
09:32Or how hard would that be?
09:34So I think it's doable.
09:36To me, I was not at the Fed when the decision was made to go from the scarce reserves to an abundant reserves regime.
09:45I do know there were tensions and a lot of volatility that happened in the scarce reserve environment.
09:51And so if you were going to move back to that, I would hope that there would be a discussion about how to mitigate that volatility because so much of what we've done is just to make sure there's liquidity in the marketplace.
10:01And that liquidity is actually important to make sure that consumers and businesses are not worrying or can just worry about is this a good decision as opposed to whether I can execute on the good decision.
10:13That leads to a different kind of allocation of capital is not helpful.
10:16Tell me about Jay Powell and what he means to the Fed.
10:20Jay has been great.
10:21He's a colleague.
10:22I consider him a friend.
10:24Very open and very transparent.
10:26And he's led the institution.
10:28He's been at the institution for a long time through a lot of significant periods.
10:33I think his legacy will be quite positive.
10:35And, you know, I'd be sad to see him leave the board if that's what he chooses to do.
10:40But but it's been a great relationship for me with him.
10:44And I've had been my pleasure to serve under him.
10:46Do you agree with his the sentiments he showed when he made his video a couple of weeks ago?
10:52So I'm not going to talk about the specifics of the of the the legal action from the Justice Department.
10:57What I would say is this.
10:58It is essential that the Fed performance duty mindful to his charge, which is stable price and maximum employment to really focus and create long term stability and predictability in the U.S. economy.
11:14And if you want to call it independence or whatever you want to call it, you can do that.
11:19But that's the charge.
11:21And we need to stay true to that, even when people with different horizons and different objectives have their views about what we want to do.
11:30There were questions about the Fed and its ethics rules.
11:35You ran into some problems, as did others with those.
11:38Was that the rules or was that the individuals who created the problems?
11:42Well, you know, individuals make the rules.
11:44I will say for me, I thought I was doing the right thing and I found out that I wasn't.
11:51So once I discovered that I didn't, I wasn't doing that in the reporting side, then I changed them and I changed our rules.
11:57I want to make sure that no one goes through that at all.
12:01And I've been grateful that the IT report validated that I wasn't using insider information.
12:07And so to me, I think we need to make sure the rules are clear and they draw bright lines so that lay people can come in and use them in ways that allow them to avoid the challenges that I had.
12:22And then, you know, there may be some people that have problems, but that's not what I've seen in terms of my experience.
12:28Well, last question. What would you tell Donald Trump if you had the opportunity about Jay Powell and about the Fed?
12:36I'd say Jay's trying to do the best that he can. He's a smart man. He understands markets.
12:42And if you want him to succeed, you should let him succeed.
12:47Well, the Fed itself, do you think it is under threat from this administration?
12:51Threat, I don't know. What I would say is my whole time here, and I think that most of the history of the Fed, there have been people who thought the Fed should do other things and talked about that and called them out.
13:05This is another one of those times.
13:07And we need to be mindful and we need to be solid and resolute to understand that that's part of that comes with the territory and with that territory then requires our strength and our our resoluteness to stay focused on what we've been asked to do.
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