- 5 days ago
Category
🗞
NewsTranscript
00:00What's your assessment of developments in the Middle East and ultimately what it means for you and the committee?
00:04Yeah, I mean, I guess that's exactly the thing is what you're going to see is you're going to see
00:08a spike in gasoline prices.
00:10That's what the American citizens are going to see when they go to the pump and they're going to stare
00:13at it and be a little shocked in terms of how things go.
00:16But for us, thinking about policy going forward, this is unlikely to cause sustained inflation.
00:22There's one reason we don't look at energy prices when we look at core.
00:26Core is a better predictor of future inflation.
00:29You're going to see this.
00:30But once these kind of supply chain issues that you laid out, Lisa, once they unravel, this will start coming
00:36back down.
00:37So it's kind of very odd to think about the Fed maybe changing rates six months from now based on
00:43this.
00:44If it's unwound in a like, as you said, Jonathan, a couple of weeks or even two months, it's not
00:49going to be a big factor down the road.
00:51So this is why we never look at energy prices.
00:53They bounce up.
00:54They come back down.
00:55It's not that it's something that we don't feel sympathy for people, that that's what they have to pay when
01:00they put the gas in their cars.
01:02But for us, thinking about the longer term in terms of policy, this is something we're just going to have
01:06to kind of put off for now.
01:07When does it become something bigger, if it's all?
01:09It becomes bigger if it becomes more permanent, because then what's going to happen, you're going to see this jump
01:14in prices.
01:15Then it'll start bleeding through to other parts of the economy.
01:18Energy is a big part.
01:19It feeds into everything else.
01:21And then somehow those energy costs get passed along like everything else.
01:24So that's what you're more worried about.
01:26Economists on any given day, Lisa, Mike, myself, and they'll talk about the experience of the 70s and coming out
01:31of the pandemic.
01:32And they'll say things like that officials of the Federal Reserve are somewhat conditioned, scarred by some of that.
01:37Is that your experience of things?
01:38Well, in the 70s, remember, we didn't just have one.
01:40We had massive oil shocks.
01:42If you take 73, the price of oil quadrupled overnight.
01:46It went from $4 a barrel to $12 a barrel, or it went from $3 to whatever the numbers were.
01:52But that was a shock, and it never came back down.
01:54And then there was another one.
01:55Every time you turned around, there was another oil shock.
01:57Then Iran oil embargo in 79.
02:00So that was kind of the problem with the oil shocks.
02:02They just kept coming and coming and coming.
02:04So it's not clear this will be one shock after another after another.
02:08So that's why I'm more willing to say this is, I hate to say it, but more like a one
02:13-off event than what we saw in the 1970s.
02:15Well, as Roseanne, Roseanne Adana used to say, it's always something.
02:19Because if it's not just the oil shocks, it's the whole idea now we're going to have a whole new
02:23round of tariffs coming through the economy.
02:26And we've got this low-hire, low-hire economy.
02:30How long do you think that continues?
02:33Does this just push out the time period for companies to sit on their hands, not invest, because they don't
02:38know what's going to happen?
02:40Yeah, I mean, this is one of the things I've been concerned about since last June is how weak the
02:44labor market has been.
02:45There were a lot of factors last summer that were driving this kind of low-hire, low-fire.
02:51It looked like maybe in January we might be turning a corner.
02:55We'll find out today whether that was, as I said last week, signal or noise.
03:00But, you know, when you're in this world in which the labor market, even with 130,000 jobs, it was
03:04really concentrated in a couple of sectors.
03:0680% of the economy, the labor market wasn't doing anything.
03:09It was zero to negative.
03:11So that kind of fragility wouldn't take much for some sort of a serious shock to sort of start pushing
03:18people in another direction.
03:20Whether this is that kind of shock or not, we'll start finding out.
03:23Yeah, it's early because, of course, these are going to be January numbers.
03:27But you've been on record as saying you'd like to cut more because you're still worried about where the labor
03:32market is.
03:33What would it take to get you to back off on that feeling?
03:37Because if we get the same sort of numbers we had in December, it still shows very narrow breadth of
03:45hiring.
03:46And it still shows some reasonably good numbers for hiring.
03:50Yeah.
03:52Even with the January report, like I said, it was all concentrated in a couple of sectors.
03:58So that was good.
03:58They were robust.
03:59We got a big number well above everybody's estimate of break even.
04:02But the concentration didn't give me a lot of comfort that the economy as a whole was doing really well.
04:09So that's where my brain is telling me the number was good, the economy looks OK, it was above break
04:16even.
04:16But my guts are telling me it may not be that good.
04:19And that's where I'm waiting to see what today's number is.
04:22I'm almost certain it's going to get revised down because this has been a pattern in January the last few
04:27years.
04:28Let me pair these two ideas, the idea of the oil shock that's creating some concerns about inflation
04:33and then a labor market that kind of is in question, right?
04:35Is it decelerating or is it reaccelerating?
04:37How much has your reaction changed potentially to today's report given the fact that we do see energy prices pushing
04:47on inflation?
04:47In other words, would you be less inclined to cut rates if there is strength that's demonstrated in the labor
04:53market today?
04:54Yeah, that's kind of what I was hinting at last week, that if we get another solid jobs report than
04:59last month, this month,
05:01it looks like the labor market's turning around.
05:03A lot of the downside risk I've been worried about for six months is kind of going away.
05:07We got a hot we're going to get a hot PCE number, given what we already have seen coming in.
05:12That's going to probably print from everything I've seen about a point four.
05:17OK, usually that comes down again.
05:19We've had this January effect.
05:21We have some more pass-throughs of tariffs.
05:24But because that inflation's hot, it's going to look even worse now with the oil prices, at least on headline.
05:30And then if you get a solid job number, it does say there's you can sit there and wait.
05:35Let's say the counterfactual.
05:36Let's say we don't get a good print.
05:38Let's say we see the weakness that you see right now when you talk to people in your district and
05:41that you speak to in the different districts as well as beyond.
05:45How much do you think the Fed should react to this?
05:48Because it's sort of the dual mandate is in conflict in absolutely the wrong way.
05:52Yeah, I mean, that's the tension we've had for the last years.
05:55I've been more worried about the labor market risk, the inflation risk.
05:58I've always believed inflation was going to come back down once tariff effects pass through.
06:03My other colleagues on the committee are much more concerned about the inflation.
06:06It's been high for five years.
06:07They're not seeing it coming down.
06:10And they think the labor market is all stabilized.
06:12It's all supply side.
06:13So these are the two different views that people have about thinking about policy.
06:17And I was more willing to cut rates because I was more worried about the labor market, not as worried
06:21about inflation coming down.
06:23But like I said, if the labor market continues to go weak, if this thing comes in, I mean, ADP
06:29was promising the other day.
06:30So if the labor market is good, inflation is hotter than we think, it's fine to kind of wait another
06:37meeting and kind of see.
06:38But if we get a bad number and January is revised down to some really low number like ADP got
06:43revised in half, the labor market is just not that good.
06:46And so the question is, why are you just sitting on your hands?
06:50So I could certainly see this meeting going other way depending on the data this week and the CPI next
06:54week comes in.
06:55I hate to be the one to ask this question, but what's a good report?
06:58Because at 8.30 Eastern time, we'll all be asking that question of ourselves.
07:01What's good to you?
07:02What does good look like?
07:03Well, I think good would be if you saw another number like January.
07:07That would be really good because you're well above everybody's break-even estimates at that point.
07:11And that would be two in a row.
07:12Looks like it's going through.
07:13We got very good numbers off the ISM manufacturing and services this week.
07:18That's another indication that maybe things are turning around.
07:21So if that's the case, I'm starting to see less downside risk.
07:24Now, on the tariff stuff, I still have a view that all the tariff risk is to the downside.
07:31I just don't see big increases in tariffs spread all over the place.
07:35If anything, they're going to come down.
07:37Estimates of this are coming down.
07:39Deals are going to potentially get made.
07:41So I don't see a lot of tariff risk going.
07:43Even though there's more uncertainty, there's always the uncertainty.
07:45I don't see a lot of price pressures from what we think could happen going forward.
07:49So that's going to bring, I think that's going to bring inflation down or take pressure off.
07:53And it'll take some of the uncertainty off at some point.
07:55Well, it becomes a question of what problem are you trying to solve and what tool are you using to
08:00do it?
08:01How would cutting rates by 25 or 50 basis points help the labor market
08:07if companies are sitting on their hands because they're still waiting for tariff news and we've got a war going
08:13on?
08:14Yeah, I mean, we can always say, ah, we can't do anything, just sit there.
08:17That's not my job.
08:18My job is to try to help the economy and achieve our dual mandate.
08:21And if the labor market's not looking good, then I have to make this tradeoff.
08:24But does it make a difference to the CEOs?
08:28Well, maybe not.
08:29I mean, that's what I'm saying.
08:31We could argue about whether monetary policy has any effect in general on the labor market.
08:36There's, you know, you go back in economics back to the 80s and 90s,
08:39there's a whole camp of people that said monetary policy is completely irrelevant for the economy.
08:44So quit wasting your time.
08:46You're opening up a very different conversation.
08:48Yeah, that's a whole different thing.
08:49We could spend a long time on it.
08:50I wanted to squeeze this in.
08:51I actually think it's one of the more important topics at the moment.
08:54We're not seeing a tightening of financial conditions, a material one, in public markets.
08:58I don't see that in stocks.
08:59I don't see that in bond yields.
09:01I'm wondering what on earth you see in private markets.
09:04Because every day there's another headline about another fund,
09:07another company struggling to meet redemptions.
09:09What is the Federal Reserve assessment of what is happening?
09:12Because that has powered this economy.
09:13Some people might say in a bigger way than the Federal Reserve or, for that matter, public markets have.
09:18What is going on?
09:19Well, there's a couple of things.
09:20I mean, in general, I'm not, I don't see big, really big widespread problems in the private credit market.
09:26What you're seeing is a couple of cases of certainly fraud.
09:29Is that fraud widespread?
09:31I don't, you know, it's hard to believe that the entire private credit market is being driven by fraud or
09:38bubble posting of collateral.
09:39So these are kind of these one-off things that get a lot of headlines, but it's not clear it's
09:43systemic.
09:44You have to kind of look at whether there are a lot of, you know, there's different types of private
09:50credit.
09:50There's stuff that's in high yield, you know, risky junk bond stuff.
09:53And there's other stuff that's better quality in terms of what they're funding.
09:57So I don't think as a whole, the private credit market is in any serious trouble.
10:02But you're going to have these things popping up here and there.
10:04But I don't think there's enough of it that's going to somehow drive down the financial markets
10:09and create any kind of financial stability problems.
10:12So I don't think there's enough of it that's going to be a lot of things that are going to
10:12be a lot of things that are going to be a lot of things that are going to be a
10:12lot of things.
Comments