B (2:56)

Well, how, how long, how high, how fast would inflation have to move to merit a rate response?

C (3:04)

Well, I think really it does go back to kind of the full kind of, of factors influencing inflation. And I'm going to bring up tariffs because it is a big part of the story so far about why core inflation has been elevated. So I am watching, you know, imported good prices, looking at core inflation, inflation expectations, and then obviously on top of that, what's happening to food, food and energy. So to my mind, monetary policy today is really well positioned given where all of those dynamics have been playing out and well positioned to kind of wait and, and see on some of the effects of, you know, what's happening today isn't, I'm not saying we're just, you know, in some kind of, we can't act. I think this monetary policy is exactly where it needs to be and then we can, we can respond if the situation changes. Right now I think that monetary policy though is pretty well positioned, you know, given what we've been seeing so far.

B (3:56)

Monetary policy is well positioned. But what about the economy? What's the state of the economy?

C (4:00)

Well, you know, if you asked me this a month or two ago, we would be talking about remarkable resilience of the economy, growing at 2% last year, looking to grow even faster this year. Clearly with the conflict in the Middle east, that changes that a bit. So I'm, you know, consumers, families are going to be paying higher fuel cost, gas price with the gas price increases. So I've been bringing down my forecast for growth this year, probably somewhere between 2 and 2 and a half percent for growth this year and unemployment rate probably staying around where it is now, 4.3%. And in an economy that's continuing to grow, but roughly roughly at trend again driven by consumer spending and investments, especially in AI.

B (4:44)

Well, you mentioned unemployment. You cut rates in the last year. We were told basically to prop up the labor market. What is the state of the labor market? Is that accomplished?

C (4:54)

Well, it's hard, it's hard to read all the tea leaves because it's pretty complicated situation with the labor market. We are seeing some various kind of different signals. My, if you look at, my view is if you look at the unemployment rate, it's today at 4.3%. It's about where it was in July. So we've seen some, you know, stability there in terms of the unemployment rate and in job open openings and some of the other indicators. So I feel like we've gotten the labor, we've seen the labor market more, much more stable now. Definitely not a labor market that's weakening based on the economic indicators. That said, if you look at the surveys, including the survey that we do in the conference board survey, that's not how people are, you know, kind of feeling about the labor market. Definitely we've seen a continued process of people being more pessimistic about the labor market. Not about a recession or something, but just a view that this is a pretty low hire, low fire labor, labor market. And maybe the kind of views are not as strong as you would, you would think just looking at the, the aggregate payroll and unemployment data, you're well

B (5:57)

positioned to do whatever you need to do to help the economy. But can monetary policy really do a lot in these situations? What's the lag Jay Powell was talking about? It could be a year from now before it hits the economy, whatever you did.

C (6:09)

Yeah, absolutely. So monetary policy, based on all the kind of historical evidence takes about a year to have its full effect on the economy and even longer on infl. So we always have to be forward looking. We have to be thinking about where is the economy going to be rather than where it is today or where it's been in the, in the past. So that means trying to, you know, think through where is inflation going to be, you know, later this year, next year, where's the economy going to be now? I do, you know, I go back to kind of the analysis we've done. I do expect underlying inflation eventually later this year to start coming back down because the, the effects of the tariffs on inflation will start to, to wane. I do expect, you know, a continuation of the good positive movement in underlying inflation. But we'll have to watch is that, does that continue? And again, what happens in terms of the conflict and its effects on inflation?

B (7:01)

We're worried about the Iran war, we're worried about tariffs, people are worried about AI and you mentioned the consumer sentiment numbers, but the economy has been fairly resilient. Why?

C (7:16)

Well, I think, I think America has the best productivity, highest productivity in the world. It's got the high, highest, among the highest productivity growth. We are a remarkably resilient, innovative, dynamic economy. And I think the new technology is making a big difference not just AI, but more broadly we've seen productivity growth that's actually been above par for the past six years. So I think there's, there are some fundamentals that are driving, you know, solid gains in productivity in real incomes and you know, demand for, you know, demand to hire people. But there's, you know, there's these various cross currency you mentioned. So again last year the story, the surprise was the economy was so resilient despite the uncertainty, despite other factors like the tariffs. This year it's, you know, it's another test of that resilience. But investment in AI and data centers is, I think will continue to be strong this year and for, you know, as long as the economy continues to grow, I think consumer spending will continue to, to be a very positive.

B (8:19)

Well along those lines, what's your read on average hourly earnings for wages or whatever measure you want to use? Average hourly earnings came down to three and a half percent. What's a sweet spot? What's a level at which it won't be a concern?

C (8:36)

Yeah, I think we're at that level. If you look at all the different indicators and now we have some very good real time indicators. We have, you know, the standard official statistics, I think pretty much all of them are telling us that compensation is, is continue to grow, real compensation is growing and it's growing in a, that's consistent with productivity growth. We're seeing. So to my mind, the labor market and you know, whether you look at the unemployment rate and you look at wage growth, these are not factors pushing up inflation at all. So I feel like we're, we're at a good place for that. And I think that's consistent with what we're seeing. The labor market.

B (9:14)

General, you've been traveling around the state of New York lately. What are you hearing from CEOs? For a long time the story has been we're just sitting there because we don't know what's going to happen.

C (9:27)

I think that story has changed a bit. You know, the, when you think about how do you respond to uncertainty, the first thing you do is you pause any longer term plans around hiring and investment and try to figure out what to do. I think a lot of CEOs have said, well, we're past that. So now we just have to navigate a world with, with higher uncertainty, make the decisions that make sense, make the investments that make sense. And you, you hear about that a lot with AI and investments in AI. So I think we're, we're kind of in the second stage. You will respond to uncertainty is really about, okay, we need to make decisions. Let's, let's move forward. And I think that's consistent with what we're seeing. You know, we're seeing positive job growth. We're seeing an economy that continues to grow and invest.

B (10:11)

Well, are people talking at all about cutting back?

C (10:14)

Well, it's interesting on that. I mean, going to the AI specific question, I think most of the conversation the CEOs, most of them are talking about is really about making smart decisions, hiring people with AI skills, not hiring in areas that, you know, may be jobs we don't need because we could use AI. So there's a lot of, I think, thought going into that, but not in terms of, you know, we need to cut back our labor force. You know, of course, you see this with the data too. We're not seeing high, high levels at all of initial claims for unemployment or layoffs. So I think it's a low, higher, low fire and low unemployment economy. It's unusual mix, but it's, that's, I think that's what we're still seeing even today.

B (10:57)

The next FOMC meeting at the end of the month is Powell's last as chair. Maybe. What's your understanding as the vice chair of the Open Market Committee about what happens if Kevin Wash is not confirmed by that?

C (11:11)

Well, Chair Powell already spoke to that recently in terms of the Board of Governors. I'll speak to the fomc, the Federal Open Market Committee. I mean, every January we have a vote about, you know, selecting a chair and a vice chair, and that's, that vote is in, is in place for, throughout the year. So there's, there's no issue of continuity. There's no issue of anything. You know, we're, you know, that's all in place. Typically we have this vote in January for the chair of the FOMC and, or if a new chair is confirmed by the Senate, then that person becomes the chair of the fomc. But I would just highlight the most important thing here is that, you know, we're just focused on doing our work. There's no issue about continuity or, or things like that at the fomc. We're just, you know, doing what we always do, which is digging into all the data, you know, trying to do our very best to achieve our maximum employment and price st goals.

B (12:05)

So basically, if war is not confirmed, you don't have to do anything. You just continue on.

C (12:13)

Exactly. At the fomc. Just continue on.

B (12:15)

Now Kevin has come in, come out and said that there's a lot of things he would like to change and we won't go down the whole laundry list. But how effective do you think with this fomc, with this board, can he be in affecting changes in the short run? Are we looking at some sort of massive change in the way things are done, or is this going to be a process that takes place over years?

C (12:42)

Well, at first, you know, Kevin Warshunders hands the Federal Reserve very well. He was a governor. I knew him then. I think he has a keen understanding of what our mission is and the importance of what we do. You know, I can't speak for him and I haven't spoken to him lately, but I do expect that when he, when he does get confirmed by the Senate, that he will share his views and perspectives as he thinks about, you know, what he wants to accomplish as chair. And, you know, I've worked now with, with four different chairs and, and many governors and very many presidents, and the most, you know, I think the most common element of all this is when people come into the Federal Reserve, they understand the importance of the work we do, the importance of the mission to the American people. And that's, that's exactly what I expect when Kevin Warsh rejoins, if you will, the Federal Reserve.

B (13:32)

Now, one of the open questions is what happens to Chairman Powell when he's no longer chairman, but still a governor? Would you like to see him stay on?

C (13:42)

Well, that's a decision for Chair Powell, and I don't have any comment on that. I leave that to him.

B (13:50)

Well, we'd like to thank you very much for talking with us this morning. John Williams, the president of the New York Fed and vice Chair of the Open Market Committee, will send it back to, to you.

D (14:00)

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