00:00Let me reiterate, there is no soft inflation target.
00:04There is no soft implicit target, not on this committee's watch.
00:10CapEx is preparing the ground for future growth.
00:14Nonetheless, the precise timing and magnitude of effects on the supply side remain hard to predict.
00:21I asked for a good family fight and I got one.
00:24I heard a lot of commonality on the questions.
00:27Were there different liens on the answers?
00:28You bet there was.
00:30In the high mountain air in Jackson, Wyoming, I'd like to also frame the big questions.
00:37There is a tendency, especially with the proliferation of meetings and press conferences, to get caught up in the myopic.
00:46Had your reserve chairman Kevin Walsh there speaking after policymakers held right steady, but of course referring to those dissenting
00:53votes.
00:53Let's bring in Sebnem Kalemni Eltskan, who's a professor of international economics at Brown University.
00:58Really great to have you with us and a good family fight.
01:02He got one, that's for sure.
01:04I do wonder, when you take a look at the dissenting votes, when you take a look at how markets
01:08are now positioning for the next meeting, is there an issue of credibility here at stake?
01:14Thank you so much, Heidi, for having me on the show.
01:17So I don't think we are there yet.
01:20Of course, you know, you can interpret this two ways, you know, at the kind of the bad side.
01:28You can interpret the increase in long-term yields as maybe markets are pricing in a problem with Fed credibility.
01:37But my interpretation is not that, because you can also have a positive interpretation saying, okay, those increase in the
01:46yields tell us that inflation is a problem.
01:49It stays elevated, which, you know, Fed admitted this, it is in their statement, and Governor Walsh said it several
01:56times, but it is more of a disagreement, right?
01:59There is more of a disagreement between the markets and the Fed and also within the Fed, which brings us
02:06back to this good family fight.
02:09One important point here, though, that is put and framed by markets and also within today's development as a disagreement
02:22between the hulks and those.
02:24I wouldn't frame it like that, because I think that framing tells you inflation is elevated due to supply shocks,
02:33but this is one-off, so they will go away on their own, so Fed can look true, so all
02:40we are disagreeing is about the timing, about the, you know, when they are going to disappear and what is
02:47their impact going to be.
02:49I think this is not the right framing.
02:52I think the right framing is the real disagreement is about the model and how shocks propagate, and that is
02:59the big unknown here.
03:02And you can see that worry in 30-year yields, right, in terms of where they're sitting at.
03:09Does that tell you how concerned markets are, particularly at the longer end there, worried about enduring inflation?
03:17Yes, markets are clearly concerned about inflation.
03:21Fed is concerned, too.
03:23It's just that markets are trying to make a sense of this new Fed, right?
03:28So we heard a very, in a sense, hawkish Fed, I mean, in the talk, right?
03:35So they admit this agreement.
03:37It is a nine-three hold with three descendants from regional Fed presidents.
03:44And, you know, so the market is trying to understand, okay, everybody agrees on inflation being a problem, but then
03:52why didn't you hike today?
03:54That's where the market is, right?
03:56So market is trying to make sense of the new Fed if they are going to give us tough talk
04:03and they do admit inflation is a problem.
04:07When are they going to hike, or if they are not going to hike, how are they going to deal
04:12with this problem?
04:13So market is trying to parse this out.
04:16Of course, the first reaction, you know, should have been long-term yields, and that's what happened, so that's not
04:22surprising.
04:23But I think we really have to watch what is going to happen in the next few days in terms
04:29of how market really try to parse this new Fed,
04:34information coming from this new Fed that really limits communication and also drops forward guidance.
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