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Indiana University is shaping the future of healthcare. Advancing discoveries that become treatments for Alzheimer's, obesity, cancer and rare diseases. And training the providers trusted to deliver them from the lab to the clinic. IU powers medical breakthroughs and the talent behind them. See how IU solves what's next IU Edu Impact.
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Bloomberg Audio Studios Podcasts Radio.
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An important conversation we want to bring you now to In New York, Bloomberg Soleil Mohsen sitting down with the newest member of the Fed, Governor Stephen Myron. This is at the Economic Club of New York, a fireside chat live on Bloomberg that it wasn't bad. And so my initial thought was that I was going to be given I was going to be asked to run the Bureau of Labor Statistics as a second job. That's what I initially expected when I walked into the Oval Office that day. But yeah, that's not how it turned out.
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B
Yeah, they couldn't find you personnel decision could be firing or would you like to be a Fed governor?
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A
Yes. So that's what it turned out to be. Yeah.
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B
Yeah. So you're on leave from working for President Trump, where in your job you provided economic analysis for the White House. Trump says, and the White House says that the US Economy is doing great. They recently put a post up on the website that talks about how Americans are acting like never before. They are earning more and the industrial renaissance is here. Yet as a Fed governor, last week you wrote down a forecast for a total of 150 basis point cuts in three meetings, which is usually panic territory. How can both points be true at the same time? That the economy is doing great, but a rapid interest rate reduction is necessary.
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Yeah. So look, I mean, as I said a few moments ago, I expect the second half of the year and into next year to be better in terms of growth than the first half of this year, in large part because a lot of the effects of the tax bill are going to be kicking in and trade uncertainty is dissipating. But I view a lot of that as also expanding the supply side at the same time as the demand side. And so as I said, if actual output and potential output are moving at the same time, it doesn't imply a necessarily hawkish or much tighter policy because the apple cap isn't expanding. And if they're both moving at the same time instead, my view is that policy is roughly 2 points too restrictive, which is considerably restrictive. And even though I am expecting growth to be a little better in the future, that could get derailed unnecessarily so and Create an output gap where one need not exist if we don't get policy closer to neutral. Now, that said, because of the distance to neutral, my view is it's better to move there more quickly than less quickly. It's not a panic. You know, I think a panicky move would be something like 75 basis points or even more. I don't, I'm not, I'm not panicked. I just see that the risks grow the longer you remain significantly above neutral.
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B
You have company among your new colleagues at the Fed in your neutral rate forecast, but nobody wants to move quite as quickly as you do. What is it that concerns you about the labor market?
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Well, we learned that the first half of the year was not as strong as we would have liked it to have been. We learned that the labor market continued to lose momentum throughout last year and into the first half of this year. And that to me means that even though I think that growth is going to pick up for various reasons, there are concerns that, hey, things had been moving in the wrong direction. And if you keep policy this degree of restrictive for too long, you're not going to allow things to move in the other direction. And so you're going to create a situation in which Napa cap expands. And so in my opinion, it's imperative that we get closer to neutral quickly. And So I thought three sort of a series of 50s to recalibrate interest rates was the appropriate policy.
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B
And you don't see that as panic?
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No, I don't see that as panic. I mean, if I were panicking, I would tell people I were panicking.
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B
All right. A lot of businesses say that you talk in your speech and just now about how rates are too restrictive. But a lot of businesses that I've been hearing from, reading different reports and analyses show that some of the pullback in investments is not to the restrictive rate environment, but has to do with policy related uncertainty. How do you counter that?
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Well, I mean, I think that, you know, there's a lot of different interest rates in the economy and a lot of different types of investment. And so for sure there are parts of the economy that have been affected by that. And as I said before, I do think that that type of uncertainty is not totally on, but I think it's certainly less than it was a few months ago. However, if you look at other sectors like housing, you know, I think it's very clear that rates are, that rates are, you know, that rates are the primary impediment to investing in housing and building more housing at the moment. I don't think that that's a function of trade policy uncertainty.
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B
You threw a lot of numbers.
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I did. I apologize everyone.
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B
Yes. I'm sure everyone's gonna go back and look at this speech and the table. Can you break down just a little bit what your economic growth Forecast is for 2026? Where do you see the economy ending the year?
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So conditional upon. Economy, sorry, conditional upon on getting rates closer to neutral, as I had in the sep, I think growth is going to be in the, you know, sort of in the mid 2 area.
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B
And where do you see the federal funds rate again?
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In the mid two area.
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B
So if your forecasts are right, it might be time for rates to go up at that time.
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No, because some of the. So there's a difference between. So in the speech I said 2 to 2.5% was the correct rate, but my dots actually have a slight divergence from that because some of the effects kick in differentially over time. And so there are some effects that I think will be kicking in immediately, but then sort of the rent disinflation accelerates over time and the output gaps kind of ameliorate over time as potential. Sorry, as actual. Catches up to potential. And so there's a. So it's not the case that you would sort of just collapse down immediately to 2 to 2.5% and then gradually raise back up over time because of that. There's actually, there's, you know, my view is get relatively close neutral quickly and then there's a little bit more cutting next year and then a little bit more cutting the year after that and then sort of back up to neutral thereafter.
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B
I want to talk to you about a paper that you co wrote for the Manhattan Institute last year. It came out in March of 2024. You name Lael Brainard, specifically criticizing her for being among those central bank officials who have rotated between the White House and the Federal Reserve. Of course that officials are. Most of them are nominated by the President. And so there's a natural link there. You named that Brainard specifically took one single weekend between a political role at the White House and a role as an independent member of the Federal Reserve. A quote that jumps out from the paper is to pretend that no one. To pretend that one can easily shift between highly political and allegedly non political roles without letting political bias informed policy is at best naive and at worst sinister. Governor Myron, how is your being on leave from working directly from President Trump different?
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Yeah, so first let me address. Let me go backwards with that. Right, so first, the on leave is just because it's just a four month job and if it were a longer than four month job, I would of course resign, you know, immediately. If there were some reason that I would think that I would be in this seat past January, I'd resign. Now at the moment I don't have such a reason. You know, I think that there's no question that the Fed had previously gotten over its skis in terms of politics. And I think my, my analysis is borne out by the history. The Fed decided that it was going to be the organization to take on climate change and to join various international networks for greening the financial system. The Fed decided that it was going to get involved in credit allocation, deciding that this sector of the economy is worthy of credit and this sector that we don't politically favor is not worthy of credit. The Fed decided that it was going to intervene in heavily political issues of racism and police and Fed officials started giving speeches about police brutality and arguing that we were over incarcerated. The Fed decided that it was going to become more and more political along these lines and I viewed that as a significant problem. That's the context in which I wrote that the proposals in that paper are a package deal, a system of checks and balances. And everything that I wrote in there requires the entire system of checks and balances to be effective. If you just took one check and you ignored all the others, all you do is empower the one that you're protecting. So it all has to be viewed in the context of a total system as opposed to sort of in isolation. Now I was asked to take this role by the President of the United States. I took the role. I will do the best at it that I possibly can. That means forming my own views independently based on what I think is appropriate economics, based on what I think is appropriate analysis, and because of exactly the things that you're discussing are why I want to be so transparent and as transparent as I possibly can be. I didn't just make the numbers up for the sep, right? I just read everyone the analysis and I know I probably bored people to death with, with this many numbers, but the reason why I did so is that people know these numbers aren't just made up. There's a reason every single line there has a number on it and every single line has an elasticity, a size of the change and then the policy outcome, which is basically the two multiplied by each other. And if you're going to disagree with me, I invite you to disagree with me. Tell me do you think the elasticity is wrong, or do you think that the size of. The size of the changing. The changing parameter is wrong, the changing variable is wrong? Because you may think that there's other estimates of the effects of immigrants on rental prices, on rents that are higher or lower, and I should be using a higher or lower elasticity. Please have the conversation. But I am being as transparent as I possibly can precisely because of the concerns that you just listed, and I invite everyone to do so.
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B
Well, there's nothing boring about what's coming out of the Federal Reserve these days, I assure you. The President. Let's talk about the context you shared, the context against which you wrote the March 2024 paper for the Manhattan Institute. The context right now is that the President has said many times that he will have a majority soon at the Fed, more of his appointees than anyone else. A lot of academic studies show that a loss of central bank independence is often associated with higher borrowing costs. Do you think that there is a risk to the President being so directly involved in selecting governors who have a certain view on rates? Let's set aside DEI and climate risks, but we're talking monetary policy where the rate path should be.
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A
You know, again, the President is entitled to his views on monetary policy. I think everyone's entitled to their views on monetary policy, and I'm delighted to hear views from all sorts. I think it's very important to avoid groupthink. That means hearing all views from all perspectives. And I'm very happy to hear the President's views. But at the end of the day, I make my analysis based on my own understanding of economics and how the economy works. And I just read it all out loud to everybody. And I would hope that everyone else who is appointed to the Federal Reserve does the same. You know, presidents have always appointed people to the Federal Reserve who thought about policy in a way that they wanted to appoint people to the. To the Fed.
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B
You did say on Friday on live TV that you had spoken to the President the day that you were confirmed. That was just a congratulatory call. You said.
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Yes, he called me to congratulate me after I'd been sworn in.
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B
I'm curious what you would do if in a phone call, the President directly asked you to vie for a specific decision at the Fed.
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A
I would respectfully listen to his view and his analysis of why interest rates should be wherever they think that they should be. And he has been very forthright in his view. Right. Which is not exactly the same as the numbers that I put out there. There is a difference. Right. I would respectfully listen to his view. I would consider his arguments, consider whether they had any merit, and then I would make up my own mind based on my own analysis, and I would do that, whether it's the President or anyone or any other political actor.
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B
Would you share publicly if that conversation were to take place?
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Well, as you can imagine, I've had a number of conversations with the President about the economy, about economic policy over the last nine months. About the economy, economic policy. A number of those conversations have touched on the Fed also. He's never asked me to set policy in a specific way. He's never asked me.
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B
It's never happened from my understanding. On the day that you were nominated, you were interviewed, I believe, by Scott Bessant, the Treasury Secretary, Susie Wiles, the White House Chief of Staff, and the President. Did the rate path come up in those conversations?
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No, he never asked me. He never asked me to set policy in a specific way. He shared his view about monetary policy, the same view he says on TV several times a week. You know, there's nothing about his view about monetary policy that I know that you don't know, but he never asked me to set policy in a specific way. In nine months.
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B
In nine months, yeah. So last Monday night, you're confirmed by the Senate. Tuesday morning, you have a phone call from the President, and then you walk into your very first FOMC meeting. Can you share just a little bit about what it is like to walk in? It was a historic meeting on Monday. We didn't know who was going to be in the room. Would you be confirmed? Would Lisa Cook still be able to participate? What was that like?
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It was cordial, it was collegial, it was friendly, it was respectful, and I was very appreciative of that. Everybody was very welcoming, and it was a good discussion. And the way that it works is the staff make their presentation. Participants are allowed to ask the staff questions. Participants read their views of the economy and about appropriate monetary policy. And there was a forthright exchange of views and, you know, lots of diversity of views. And I appreciated that conversation. And everybody was just very kind. And, you know, that meant a lot to me. And, you know, in the press conference, Chairman Powell said something which I think really resonated, which is that the way the FOMC works is by persuasion, Right? People go there, they have their view, and they try and convince other people of their view. Now, I don't think that persuasion actually tends to happen at the meeting, because let's face it, with 19 people in just a few hours, you're never going to really reach a consensus on a lot of issues in that short amount of time. Conversation. It happens in between. Right. And that's what I'm trying to do today, right, is I'm trying to tell people there's a reason why policy rates are too high. It's because there's been substantial changes in immigration, there's been substantial changes in tariff revenue. And these need to be incorporated into our economic models because they're relevant for how monetary policy is set. And that's how I'm going to approach my time at the Federal Reserve, is to lay out my economic arguments as clearly and transparently as I can and hope to persuade people by the force of the economics. I don't think. I really don't think the idea that population growth affects neutral interest rates is a controversial view. This was a universally held accepted fact. Sorry, probably nearly. There's always an exception. Probably a nearly universally held accepted fact. Five or six years ago, everyone would have. Almost everybody would have agreed. Sure. Population growth affects neutral interest rates. Countries with high population growth have high neutral interest rates. Countries with low population growth have low neutral interest rates. Well, we just had a major swing in population growth because of the changes in border policy. And in my mind, it's incumbent upon us as policymakers to think about that when we think about where appropriate monetary policy should be.
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B
Governor Martin, you're talking about your approach while you're at the Fed. You have a few short months, and it seems like a little bit of a caretaker role that should be taken seriously. You've also come out of the gate quite strong. You had your dissent last week. We saw you on the airwaves on Friday, and now you've laid out in detail your views to be transparent, as you said. What should we make of your approach? Are you hoping to spend these few short months persuading on a board that is run by a chair whose ultimate job is to forge consensus?
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Yeah, I mean, look, you know, I think at the end of the day, you know, I just try and think things through myself and ask questions to try and figure out where consensus might be complacent and wrong. And I've always done that. And I think you sort of see that on some of my previous rating on tariffs, for instance. Right. The idea that you would be able to implement these things without significant retaliation was once very out of consensus, and now I think a lot of folks are coming along to that view. The same is true of this, I will be as independent as I can in thinking through monetary policy. And that means not only in a political sense, but in an intellectual sense as well on the fomc. And I view my job as trying to provoke an interesting discussion that will help the FOMC arrive at, arrive at, arrive at clear understandings of the way the economy works and where monetary policy should be set. It's a few short months, but, you know, I've got, I think, a lot of, a lot of content to work through in those months.
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B
You shared that you're using CEA data right now, but you're looking forward to working with Fed staff as well as you move forward. You talked about population growth and other data points that you're looking at. Can you share with us a little bit about your views on the power of a dissent? We saw Governors Mickey Bowman and Chris Waller over the summer dissent against Powell or the board. A few months prior, Governor Waller was on Bloomberg TV actually talking about how he views dissent as you do it once and then you've made your point and maybe you back off and see how the economy develops and how the discussion goes. First, I'm curious your views on that and then I'm curious about how you're going to view the October meeting.
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Yeah, I mean, look, I arrive at a view, I do a lot of careful thinking. I arrive at a view and then I will sort of continue, you know, until my view changes, I will continue arguing for that view. And if that means continuing to dissent, that means continuing to dissent. I don't view, you know, look, I will always be polite and collegial, but I don't view voting with the consensus for the sake of establishing an appearance of a consensus, even if I disagree with it, to be more important than trying to argue for what I consider to be the correct policy. And if that means that I keep on being, I think, you know, sort of sticking out from the crowd and sort of being more individual in my views and more idiosyncratic in my views than I think than maybe the rest of the fomc, then that's the way it's going to be. I'm not going to vote for something I don't believe in just for the sake of creating an illusion of consensus where there is none.
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B
So depending on how the economy unfolds and what data we see between now and the end of October, you are willing to be the lone descent again in October with 50 basis point dot on the plot, or are you hoping that more people join you?
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A
Yeah, Unless something changes that would lead me to change my economic view. Right? I mean, something could change that would make me, that would make me change my economic view. You know, there's any number of things that could, that could lead that. But as long as my current view remains my operative view, I don't see why I would vote for anything that's not my view.
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B
You have a way of getting the attention of the world of finance and economics with the words and phrases that you use. A few months ago it was the notion of a Mar A Lago accord that had a lot of people buzzing, especially in the Bloomberg world that I live in. And now it's this concept of a third mandate, which is a word or phrase that you did not actually use. Let's talk about this. In your testimony, you brought up a piece of the Fed legislative mandate. You noted the moderate long term interest rates. That comes right after the duel that everyone looks at. Do you see the Fed using securities purchases to reduce long term rates?
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A
Sure. So let me address the two things you mentioned are related, right? And so like, I just have a personality that I like thoroughness and I like to, you know, sort of explore all the angles. And I like to be exhaustive if I can. And when I wrote that paper on trade policy last year, before joining any policy role, I was attempting to be exhaustive and list every policy I could possibly imagine as being able to affect the, as being able to narrow the national accounts. I never advocated for that Mar A Lago accord. In fact, it wasn't even my idea. I was quoting somebody else's idea and gave him due credit in the citations and in the text as a result of it. And I underlined that it wasn't a policy, policy proposal. Sorry, it wasn't policy advocacy, but I like to be thorough. And so I included it and it was, you know, it continued to haunt me for many months after that. Despite, despite that this third mandate stuff is the same thing, right? Like, you know, like I take a job seriously and if I get asked to go to the Federal Reserve Board, I will look up the statutes that, and I'm not a lawyer, but, you know, I can read. And so I'll look up the statutes that govern the Federal Reserve Board and I see that the Congress assigned the Fed stable prices, maximum employment and moderate long term interest rates. So when I'm testifying in front of the Congress, I will just repeat their own words back to them. There's nothing more to it than that. I think most people generally leave the third part out because they think that it's implied by the first two like that if you are going to achieve stable prices and you're going to achieve maximum employment, then moderate long term interest rates will necessarily fall out of that. I think that's what most people typically do. They leave it unsaid for that reason, but just because I'm a thorough person and because I was in front of the Congress, I wanted to be respectful of their words and not my interpretation of their words.
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B
There's been a lot of talk about the balance sheet. Treasury Secretary Scott Besant has laid out in detail in a lengthy essay about the Federal Reserve and his views on it. We've heard about it from Kevin Warsh, a former Fed official who is in the running tonight, possibly be nominated as Fed Chair. I'm curious what you make of Bessen's criticism of the Fed's large balance sheets and mission creep that he points to.
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A
So, you know, I've also been very critical of mission creep. We talked a little bit about it before in the discussion about Fed independence. The balance sheet, I believe the balance sheet became as big as it is in part because of previous asset purchases that weren't strictly necessary. You know, I think that if you look at, you know, the Fed was still buying mortgage securities when housing prices were up double digits or 20%, I think 20% year over year in the wake of the pandemic. So I don't think there was a need for the balance sheet to get as large as it has. I think the Fed has been doing a good job of bringing it, of reducing it. In my mind, though, focusing excessively on the size of the balance sheet is more like focusing on the symptom rather than the cause. And like I said a few days ago, my view is that the balance sheet size that you ultimately need ultimately falls out of the regulatory framework because if the regulatory framework requires a certain amount of reserves in the system, the Fed needs to provide that size of a balance sheet in order to, in order to allow the banking system to have the capital needs under the regulatory framework. And so my view is that sort of focusing on the, on the balance sheet size is focusing on the wrong, on the wrong thing and that it's better to focus on the regulatory, to get the regulatory framework that you want correct and then the right size of the balance sheet will kind of fall out of that.
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B
Do you think that there should be more done to focus on long term rates the way the President says, using the balance sheet, perhaps?
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A
No, I mean, I think that historically The Fed sets short term interest rates. Right. And then that affects financial, a broad array of financial conditions, including long term financial. Sorry, including long term interest rates. And as long as you are, you know, sort of not near the zero lower bound, you know, I think that there's no need to sort of move towards trying to capture additional instruments.
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B
So you agree with that? The Fed has a dual mandate. There's confusion out there. After you listed, like you said, read back the law to Congress that there is now a third mandate policy, especially with the President talking about lowering long term interest rates.
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A
Yeah, well, look, Congress gave the, Congress gave the Fed those words that I read, that I read in front of them and that you quoted before. Now, as I said before, I don't think moderate long term interest rates are necessarily, you know, an action item. The present. Right. Like I'm focused on bringing inflation down sustainably to 2%. I'm focused on preventing deterioration in the labor market that would expand an output gap. And I think those are the primary focus the listing. The third thing is just, you know, an item of completeness. But it's not for me to tell Congress. They didn't say something. They said, sorry, they didn't enact something. They enacted.
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B
One thing that the President is acutely focused on is housing costs for the average American. Is there anything more that the Fed could do to influence mortgage rates or just alleviate some of that pressure in the economy?
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A
Yeah. So as I said a moment ago, the Fed controls the short term interest rate, the overnight interest rate in the economy. Right. And financial conditions more broadly across a range of items, including longer term interest rates, credit spreads, the dollar, mortgage rates. Right. They all sort of can be responsive to changes in short term interest rates. And so if the Fed continues to ease policy, presumably that will bring mortgage rates down to an extent. Right. Bringing mortgage rates down will help, you know, unlock additional home building, will help unlock additional investment in housing. However, you know, the degree to which mortgage rates come down versus other financial conditions loosening, you know, I don't have a firm, a firm sense of exactly which, which one is being pulled at this given moment.
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B
Talk to us a little bit about the Fed's inflation target. Do you think that the 2% range is the appropriate goal?
- [26:28]
A
Sure. So first, let me reiterate my commitment to bringing inflation sustainably down. Second, let me say that any prospective changes to, to an inflation target should only ever be entertained after a material period of the Fed achieving its inflation target. To avoid any appearance of moving the goalposts. You should never even entertain that idea after being off target for a period of time. That said, my view is that measuring inflation is incredibly difficult. And you know, when you look at, when you, when you get into the guts of how inflation is measured, there's all sorts of things that you know are strange, right? So for instance, you know, probably a lot of people in this room in financial services, right? So when the stock market moves higher, financial managers, advisors, asset managers, they get more income because the base is higher. Right. And sort of a constant fee times a higher base. Right. The way that inflation is calculated then generates inflation in the portfolio management section of the Personal Consumption Expenditures Index, right? So the fact that the stock market goes up mechanically leads to higher inflation the way it's measured. Right? So, you know, obviously if you, if you'd took that literally, the Fed would hike in response to that. Right? So my view is that that's sort of like a weird. That's a weird thing, Right? And I just think that inflation is very, very difficult to measure. And so having a very precise inflation target like that can lead to excessive micromanagement instead. If you look before 2012, the Fed didn't have a formal target at all. They pursued low and stable prices, Right. To me, that's an interesting way of doing things. Also, you know, the inflation target was really introduced in 2012 as a bulwark against deflationary risk in the wake of the great financial crisis when the Fed was at the zero lower bound and felt the need to further credibly enforce a commitment to positive inflation. And so I think there's sort of very interesting questions about how would you actually want to set monetary policy over the longer term. But I do want to emphasize that these questions should only ever be entertained in terms of changing the framework after the Fed has successfully achieved its target for a sustained period of time to make sure there's no appearance whatsoever moving goalposts.
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B
Governor Myron, thank you so much for taking my questions. Great.
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A
Thank you all very much. Let's start with a round of applause.
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B
Thank you both.
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A
There you have it. Live from the Economic Club of New York, Stephen Myron, the Fed governor, the newest member of the Fed, sitting down with Bloomberg's Saleh Mohsen for a conversation that you will not hear anywhere else other than here on Bloomberg TV and radio.
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B
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