00:00I first want to start out with the Fed communication because in addition to the rate decision,
00:04which is most likely to be no movement at all, they are supposed to update their summary of
00:08economic projections, update the dot plot. And of course, this is against the backdrop
00:12of a war that kicked off about two weeks or so ago that I would assume is going to play
00:18a big
00:18role in what those economic projections look like. Yeah, the war will have an impact on how
00:26people are thinking about the economy. I would highlight that even before the war,
00:31the committee was quite divided. So there was a significant subset of individuals that were
00:38very concerned about inflation and a somewhat smaller subset that were worried about the
00:43fragility of the labor market. And this war makes it much more difficult to determine both sides of
00:50the mandate. So on the inflation side, even if you focus on core PCE, which was already running,
00:56at 3.1 percent, even if this was to end right away, you're probably going to have spillover effects
01:04to things like food and transportation. It's going to take some time before the oil would
01:09start flowing in a more regular way. So I think people concerned about inflation are going to
01:15continue to be quite concerned about inflation. And that's going to be reflected in their summary
01:20of economic projection. And those worried about the labor market are going to be concerned
01:25that an oil shock potentially on top of other shocks that are hitting the economy, both from
01:31immigration and AI, are worried that these disruptions are going to make the labor market
01:37very difficult to predict and potentially cause a slowdown that's unwanted. So I think while I agree
01:45with you that the ultimate outcome because of the uncertainty is probably no change in interest rates,
01:50I think the summary of economic projections and what both the forecast for interest rates,
01:56but also the economy are going to be the highlight of this meeting.
02:00I am curious. That's a good point. I am curious on the labor side of it, too. And you brought
02:05up AI.
02:05We've had several companies announce layoffs to a certain extent that they've attributed to AI,
02:12whether it's the upside of increased productivity or just simply the downside of disruption.
02:17And I know that's still a very small number, at least when it comes to the economy writ large.
02:22But how do you normally address that? Like when you're in these policy meetings and you start to
02:27see something developing that maybe isn't in the official economic data yet, what does that discussion
02:32even sound like? Well, there's a forecast that the staff provides. And a lot of the discussion is
02:40around what the expectations for the forecast are. And so those forecasts would incorporate
02:45some assumptions about how many jobs are going to be lost by disruptions like AI.
02:51As you've pointed out, the job loss to this point is relatively modest and is mostly information
02:59technology, which is not a huge part of the labor market. That's where most of the layoffs have been
03:06announced. I think it only becomes more substantive when other types of organizations not directly involved
03:14in information processing, start using AI in a way that they could be more productive.
03:21That spillover effect is probably going to take a good bit longer before it flows through the economy.
03:28And Eric, I just want to look at the inflation data that we've been seeing. We've been north of
03:32two percent for quite some time, which has been the Fed's target. And we have a war going on.
03:36And to Romaine's point, we do have at least down the road potential risks of job cuts,
03:41just trying to think through what the remainder of the year looks like from the Fed's perspective,
03:45potentially, and how they can battle both the kind of impacts of inflation, but also the ongoing war.
03:53Well, the problem for the FOMC is you can't battle both. The solution to a weak economy and a high
04:00unemployment rate would be to lower rates. And the solution to a high inflation rate would be to raise rates.
04:07So they have to pick the part of the mandate that they think is most likely to be problematic.
04:15And I think that's why there's such dispersion on the committee is there already are people that
04:22were very concerned about either inflation or unemployment. And they probably both are going
04:28to be able to use the war as area that they're concerned will make their concerns even more
04:35significant than they were before. So that is exactly the challenge. And I think until they get
04:40more clarity on how long the war is going to last, how disruptive it's going to be, it would be
04:45very
04:45hard to know for sure to what extent the unemployment is going to be more severe than the problems for
04:53inflation. So I think the Fed's on hold until it gets a little more clarity about the outcome on the
04:58war.
04:58And Eric, normally we would be looking through every sentence that Jerome Powell kind of lays out for
05:05clues about what lies ahead. Obviously, there's a lot of questions about when Kevin Warsh will be
05:10able to get kind of through the government. What does matter or doesn't matter from Jerome Powell in
05:19terms of messaging or at least kind of pointing to expectations for the near term and the longer term,
05:25given the expectation that he'll be kind of a less central figure in the not too distant future?
05:31Yeah, it's certainly a bad time to have Federal Reserve succession. So his term as chair of the Fed ends
05:38in
05:38May. It remains to be seen whether Kevin Warsh actually gets approved by the Senate and by the time to
05:46actually be seated in May. So I think there's a fair amount of uncertainty even about the succession because
05:54recent court cases that have threatened to indict the chair over cost overruns in their construction
06:01project. While the courts have not been particularly sympathetic, there's been an inclination that's been
06:10announced that they're going to continue to fight in court for potentially subpoenaing Jay Powell.
06:18So I think Jay has said that he's not necessarily going to step down as governor. That would be fairly
06:25unprecedented. Normally, when you have a chair that is completed his term as chair but has a longer term
06:32as governor, they step down as soon as the new chair is appointed. In this case, there's the possibility
06:38that Jay decides to continue on. And he's been quite coy as to what his plans are. And I think
06:47he is going
06:48to wait and see. He wants to leave a committee that remains independent from the administration.
06:54And I think if he thinks his resignation would change that, then he would be reluctant to step down.
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