Interviewer (2:52)

So, Governor, I think I want to give you some time. I think we should give you some time on a central argument of yours that this year you believe policy is actually passively tightened through 2025. I don't think that's an argument I've heard many people make. Just spend some time fleshing that out. What do you mean by that?

Fed Governor Stephen Myron (3:06)

Sure. So. So my, my perspective is that there's been a number of shocks that have hit the economy driven in large part by economic policy from, not, not from the Fed, from outside of the Fed that pushed neutral rates higher last year and lower this year. And so I think if you look where my neutral rate is, it's not that I'm out of bounds for where the rest of the committee is on neutral. It's just that I flipped from having one of the highest neutral rates last year to now one of the lowest neutral rates. And that's driven by things like population growth rate. It's driven by things like fiscal deficits. And if you think about population growth rate, that's normally considered to be one of the biggest drivers of neutral rates. And it's part of the reason why people think that neutral usually moves very, very slowly because population growth changes only very, very slowly as new technologies and cultural trends drive people to have fewer kids over time. But we experienced the last few years, 30 years worth of population growth change in only three years. When you look at the rate of population growth, it changed more in the last three years than it did in the previous 30 years. In both Directions, it round trips completely. And so if the drivers, if the drivers of changes neutral rate accelerate over time, it would only make sense to me that the neutral rate itself would change more rapidly over time as well. And so that's pushed neutral higher last year and lower this year, which means that policy has passively tightened. Because what matters for the stance of policy is where you are relative to the new neutral rate. And a neutral is here. And policies up here you're very tight. If neutrals here and policies down here, you're very loose. But if you stay where you are and then neutral goes down, you've passively tightened because the neutral rate has shifted. And so policy has grown tighter over the course of the year. Now, it's not the case that you would expect to see a significant downturn in the economy immediately as a result of that, because monetary policy works with lags. It hits the economy with long and variable lags, as we all know. But if you maintain that very restrictive stance of policy for a long period of time, you really increase the chances that those lags come to manifest and that monetary policy then itself induces a downturn in the economy.

Podcast Host (4:58)

Why wasn't your dissent bigger? You were Talking about a 50 basis point cut that you would have preferred to see in the September meeting. Why didn't you go for a 75 basis basis point cut? Dissent last month, of course.

Fed Governor Stephen Myron (5:11)

So look, you know, I think that we're, I think that we're a fair way from neutral and I think that we could get there a bit faster. I could imagine getting there in a series of 50 clips. I don't think it's the case that we need to get there. And more than that, because I don't think that, I don't think the economy is dysfunctional right now. I don't think the financial markets are dysfunctional right now. I don't think we need to move even faster than that for those, for those reasons. If I did, then, you know, I would have no problem voting for, voting for, for bigger cuts. But I think sort of getting there in 50s instead of 25 is fine.

Podcast Host (5:41)

So you would be open to dissenting again for a 50 basis point cut if the rest of the, the committee wasn't around for that next month or in December rather.

Fed Governor Stephen Myron (5:48)

Yeah, well, I don't want to, I don't want to commit to that because a lot can happen between now and the next meeting. We're getting a lot of data, I hope, between now and then, not only data about the near term, but data about the recent past as well that we don't have. So things could change. But if things play out according to my forecast, then, then, then yes, I would.

Follow-up Interviewer (6:04)

Governor, do you think your advocacy for a 50B cut is hardening the opposition to cuts at all?

Fed Governor Stephen Myron (6:12)

I don't think so. I think everybody is, everybody is doing their own analysis of the economy and inflation in the labor market and financial markets too, and coming to a conclusion. And you know, I don't think anybody is necessarily changing their mind sort of to not support a cut because I just, because I want to cut more.

Follow-up Interviewer (6:31)

Is there a lot of discussion at the Fed about the fact that you're all doing your own analysis, but what data are you all using if we're in the midst still in the middle of a government shutdown 34 days today?

Fed Governor Stephen Myron (6:40)

Yes. So there's a lot of, there's a lot of talk about that. Let me say a couple things about that. First of all, you know, it's my perspective that being excessively data dependent makes you backward looking because the data are always backward looking because of collection lags, because the amount of time that you're doing comparisons over. Right. And given monetary policy takes lags to hit the economy. You want to be forward looking, so you want to make policy based on your forecast. Now there are times when you might not have a lot of confidence in your forecast and so you need to be data pivot dependent, but you should be data dependent only to the extent that you don't have confidence in your forecast. My perspective is that we know the size of the shocks that have hit the economy this year. Things like population growth, that's a known, known quantity. We know what it does to the economy. We know what it does to neutral. We know the size of that. It's not, it's not a mystery. So therefore I have a lot of, a lot of confidence in my forecast. And therefore to the extent that we would get data that would make me change my forecast, I would then change my policy outlook. Right. So the question is, am I missing data because of the government shutdown that would lead me to change my forecast? And given so much of my forecast for inflation depends on the housing market and depends on the housing market, I would assume that I would see that in the reporting that Bloomberg and others do. Even if I'm not getting data in the short term now, something like that lasts a couple of months. Right. Can I make, can I continue to sort of have this degree of confidence if we go six months without data? Absolutely not. So I do Think this is something people are attentive to. And there's also alternative data. As you guys are aware, I find the alternative data on inflation to be not super useful. I do find it to be more useful on the labor market. And when you sort of look at alternative data on the labor market, you see data that's consistent with continual ebbing of demand, which again is a signal that policy is too tight. If the decline in hiring was a result of negative supply shocks from immigration, you would see higher wages and you would see, and you would see firms and people giving, answering surveys in a way that indicated that jobs were plentiful or it was difficult to find workers. From the firm perspective, we're not seeing.

Interviewer (8:36)

Developments in private credit as a scout, as evidence that we're restrictive. Perhaps it was the fault of our peers that this didn't come up much at the news conference. I was somewhat surprised. Did it come much come up much in the meeting, the two day meeting last week?

Fed Governor Stephen Myron (8:47)

Well, I mentioned it at the meeting as, as, as a, as a reason why it was potentially a mistake to make to make very confident inferences from the stance of equity markets to the stance of monetary policy. But other than that, I think that sort of folks were focused on private credit as a financial stability risk and sort of thinking about how much should we care about this? What are the risks? You know, you know, what are the risks? Where could this go? Just sort of analyzing it from a financial stability perspective. Whereas I was making the point as well that there's a chance that because we don't get much marks on these things very frequently that distresses are actually greater than we thought they were. Especially when you think about the share of credit that has been created in private markets in the last few years. You know, it slowed down recently, but over the last few years it's been a greater share of credit that's been extended to the economy. And so it could be that we're just not seeing it.

Interviewer (9:38)

Do you think we're missing something here? Because so many guests come on the program and say it's idiosyncratic, just signs of isolated fraud, not a big deal, not systemic, not broad enough. Do you share that view?

Fed Governor Stephen Myron (9:48)

So, you know, look, I think that probably at the end of the day that's what it is. However, I do want to make the point that when you get series of seemingly uncorrelated, non systematic problem, sorry, non, non systematic issues like that, it can be an indication that monetary policy is restrictive. Is restrictive. We've seen this in the past when you have a series of seemingly uncorrelated, uncorrelated credit problems that had been massed for a while and then suddenly come to light, it tells you something about the stance of monetary policy.

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