We I'm from feel so sorry for the way that I asked but we are not perfect people I need Somey Oh understand to Deliver Us from this evil I'm I'm working I'm over time little B by in by in making little bit by bit inch by inch I'm making more and more little by little bit by bit it's inch by inch I Mak Oh let's go Let's go Let's go Let's go. Welcome back to a specialty episode of the Mattor show I know some of you are thinking to yourself, but dude I just saw you chitchatting on the interwebs about 30 minutes ago. 45 minutes ago. an hour ago.

definitely sub one hour and yeah, we're We're back. We're back, We're back, we're back cuz we are here to see what the chairman of the Federal Reserve Mr Money printer Gober Daddy Jerome pal that's his full legal name is about to be speaking in a mere Trace minutes Uno Doo Treso Trace minutes it's going down. Heading into this meeting, the Market's popping a little bit popping a little bit. So ever since 1120, the Spy has gone from about 429 up to 430 and some change bending a little bit back down.

Do I think this is going to hold? of course it could, but looking at some other data sets I don't think it's holding the options Market spiked at 1135 and ever since then down down down. Now of course he could say something that's very doish AKA hawkish and or excuse me doish AKA bullish and caus the market to take off but I doubt he will because that's not how the guy's been chitchatting lately. So I even though the price is holding decently the options Market is not buying it whatsoever. We s over to this.

uh, people are just we're not seeing it. we're not seeing it. the P the puts are getting a bit more aggressive and calls are basically you could see right when they started taking profits around 1148 I.E The peak of the intraday movement so pal coming on very very soon I have this. Nope, they're playing music I don't want to get DMC on that but I do have the chart.

There we go. Boom bada bing bada boom So Po will be speaking over my head as we could check out what's going on with I Guess if you guys want, we can watch yields in this craziness and we could also watch the dollar if you so choose or if you want Bitcoin up we could do that instead. Really, it's up to you. My point in bringing this to your attention is the fact that the 10year yield is crazy high 4.9% and then if we look at the dollar yeah, the dollar did get hit this morning.

Uh, but it's still hanging out at 106 and some change so if you want we could put put up Bitcoin instead. but maybe yields and Bitcoin yields in dollar I mean the dollar and Bitcoin probably going to be moving a bit inversely so. various things. Uh Jal Speaking soon, he should be coming on the stage.

Uh, very very shortly, very very shortly. I Guess before it gets going, I probably won't be doing much talking as he's talking cuz I Kind of want to take some notes and digest everything that's going on. but but but but before he gets rocking, my question to all of you is is the market GNA Okay, this is an easy one. The Spy is at 430 now by the time that stock market Bell goes dingy ding ding ding to basically suggest the close of the trading day.

Do you think we're above or below 430 relative to where we are right now? Are you bullish? Are you bearish? What are your Vibes What are you thinking? Tell me about it. Help me. Help you. Help me.

Help you help me. help you one of those below below 431 So that's an above above you bullish Above This 434 below below. You guys are a little bit of a a mixed bag. You just made me sign up for Rumble.

Is this a new channel? Wait Am I on my wrong Channel A new oh wait, this is not the right channel. Uh, hang on. Hang on hang on hang on. How is this on the wrong? Channel Hang on.

Um, Well as this is going to let me know if he gets underway I think I need his, We're going. let me fix it on. Rumble They should be starting any second Market Already showing a lot of volatility Drop Pop all over the place. Uh, go live.

just are they talking? Are they going to start anytime soon? Uh, add Chananel custom. Okay, we did that. We're doing this. Let's see if we can get it over to the right.

Channel H Edit: Really awkward I Don't know. do they think they're talking right now or the Market's moving a lot. but based off of seemingly nothing, what's happening. Great audio settings Market's popping on, no audio working.

The chairman of the FED pal will be speaking uh, basically sharing his thoughts on the economic Outlook starting momentarily. Let's see if they ever fix the mic. Great talk as always. This is how you know you have Boomers running it when they like.

Can't do the most basic things like just basic mic setup. How how tough? What in of 2022? All right got Aam. Now to the order of the day. Me: welcome back to our club The Chairman of the Federal Reserve System Let's see how this goes Marcus all over First took office as chair of the Board of Governors of the Federal Reserve System in 2018 for a four-year term.

He was reappointed to that office and sworn in for a second year four-year term in May of 2022. Jay Additionally serves as chair of the Federal Open Market Committee the Systems Principal Monetary Policymaking body. He served as a member of the Board of Governors since he took office in 2012 to fill an unexpired term and then he was reappointed to the board and sworn in of June of 2014 for a term ending January of 2028. Prior to his period of service at the FED Jay was a visiting scholar at the Bipartisan Policy Center in Washington DC where he focused on Federal and State fiscal issues.

From 1997 to 2005, he was a partner at the Carlow group. Previously, he served as assistant Secretary and his under Secretary, and the US Department of the Treasury under President George HW Bush with responsibility for policy on financial institutions, the treasury, debt market, and other related policy issues. Prior to joining the Bush Administration Jay worked as an attorney and investment banker in New York City. In addition to his service on corporate boards, he's made a great contribution serving on the boards of charitable and Educational Instit Tions, including the Bendheim Center for Finance at Princeton and also at The Nature Conservancy of Washington DC in Maryland.

Our format today is that Jay is going to begin with some opening remarks and after he's concluded those remarks, he'll be joined in chairs with David Weston of Bloomberg David is the anchor for Bloomberg Wall Street Week off F Finance J off Fil Finance Thank you very much thank you dude. I Like that one, that's a good one they're saying Off Fossil Finance Jay Off Fossil Finance Off Fossil Finance J Off Fossil Finance No more dinosaurs, No more dinosaurs, No more dinosaurs, No more dinosaurs, No more dinosaurs, No more dinosaurs. Down with Dinosaurs as Bankers No More T-Rex is in the financial system Velociraptors are horrible Traders Dino Lives matter. No more Dinosaurs in the financial sector See, it's too long.

That's why they're just saying off Fossil Finance dude, let's make this the big screen. Are they cutting it? It's spooky. They made it dark and scary. This is honestly taking a turn I did not anticipate how's the market handling it.

The Market's like uh, what do we do like literally the Market's like ah, the Mark's like oh, what way do we go, What way do we go? We were going up, we were going down now we're scared M like I don't know Man is this good or is this bad dude. Bring back dinosaurs to Wall Street Dinos to Wall Street Dinos 2 Wall Street Dinos out of investment banking see there's no catchy tun. just oh fossil find As if Jerome Pal has an impact on oil like they're literally arguing at a guy that has. He's not the guy making decisions on fossil fuels in any way.

he looks at interest rates. It's not like they call Jerome Pal like what should we do with oil Nick MKS Just signed with kick streaming. Whoa whoa Oh Whoa whoa whoa whoa whoa whoa whoa whoa whoa whoa whoa whoa whoa whoa Nick Merks Nick MS Wao Kick streaming at Kick.com Nickm Big announcement in the world of streaming, specifically game streaming. Big news.

Wow I'm a fan of him I Kind of wish he went to rumble. Uh, but I guess that is what it is down with Fossil Finance Even that's Wor. Welcome to the Kick family Nick Ms that's a big signing. that's a dude.

Twitch is dead. Twitch is so dead. Twitch is just hot tub streams. At this point, inflation is still too damn.

High We're keeping our eyes on it folks. It's a dark room. It's a dark, scary room. They're still chanting it far away a Fossil Finance Market's not digging this one.

the old 15sec chart. This is crazy I Don't know if we've had this much excitement in a Fed talk in a hot minute. It's a burn bur burner. A burn burner.

Oh Fossil Fance I Didn't know there were that many people anti- dinosaurs working in all Fossil Finance Fuel All Fossil Finance All Fossil Finance Sh All Fossil Finance All Fossil Finance All Fossil Finance They're screaming it in the backgrounds. It might be a little too. can you guys hear it like it's really really like. Only only only audience members with high quality hearing sonar, bat level hearing can hear the a fossil.

Finance j A Fossil Finance a Fossil Finance sh a fossil Finance Nope I Wanted to quote tweet this off F Finance Okay off fossil it's kind of a bad I Don't know Dinosaur Ra Ra Ra a fossil Finance Jay Oh Fossil Finance Not understanding that he's not making any decisions. Did he just get do you think they mess with the mics That first stream we were on, the mics were all messed up. Do you think? uh, breaking drone p Escorted out of the room as climate protesters storm economic Club of New York Speech: Wow Aom Climate activist has storm Drone Pal speech I like how they turn the lights off, they can't They can't move as easily in the dark. Well this is awkward.

a F Finance J A Fil Finance a F Finance j a Fossil finance a Fossil Finance j a Fossil Finance I'm on their side. That's a joke I'm not. They're Do you condemn the Israeli radical fundamentalists that call for the extermination of Palestinians I Call for the of course of course if you call for the extermination of a population, of course I condemn that. Why wouldn't I The fact that Palestinian supporters can't do the same thing with Hamas tells you everything you need to know.

I Can do that off the no problem? That's pretty Bas Well if you're just tuning in right now, the skinny on the situation. Um, the skinny on the situation is Jerome Pal was about to speak and then a bunch of uh, climate protesters came in and started chanting oh Fossil Finance J Oh F Finance A F Oh, we're starting again we getting this show going. Manipulation, manipulation Dude. Even the options Market Dude, the options Market Did not like it at all.

Dude, thank you everyone! The good news is I'm not going to repeat the introduction and we'll start off turn the mics up, opening remarks and then he's be followed by a conversation with Bloomberg's David Weston David is the esteemed anchor of Bloomberg Wall Street week. This conversation is on the record and we do have media on the line and in the room. Let's welcome and Jay to the stage Jay For you the options Market was not thrilled about that Interruption right there right there 124 Bob Thank you to everyone for being here today. It's it's great to be back at the Economic Club of New York where I last visited before Co So before our discussion, uh, I'll take a few minutes to discuss recent economic data and the outlook for monetary policy.

Um, incoming data over recent months show ongoing progress toward both of our dual mandate goals: maximum employment and stable prices and I'll start with inflation. By the time we raised Uh rates in March of 2022, it was clear that restoring price stability would require both the unwinding of pandemic related distortions to supply and demand and also restrictive monetary policy to cool strong demand and give Supply time to catch up. These forces are now working together to bring inflation down. after peaking at 7.1% in June 2022 12-month headline Pce inflation is estimated at 3.5% through September Core PC Inflation, which omits the volatile food and energy components provides a better indicator of where inflation is heading and 12 month core PC Inflation This is as loud as the volume goes turn your 2022 and is estimated at 3.7% through September So clear progress.

there. Inflation readings turned lower over the summer, a very favorable development. The September inflation data continued that downward Trend but were somewhat less encouraging and shorter term measures. Of course, inflation over the most recent three and six months are now running below 3% but uh, these shorter term measures are often volatile and in any case, inflation is still too high and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.

We cannot yet know how long these lower readings will persist or where inflation will settle overc coming quarters. While the path is likely to be bumpy and to take some time, my colleagues and I are united in our commitment to bring down inflation sustainably to 2% in the labor market. Strong job creation has met a welcome increase in the supply of workers due both to higher participation and to a rebound of immigration to pre-pandemic levels. Many indicators suggest that while conditions remain tight, the labor market is gradually cooling.

Job openings have moved down wealth below their highs and are now only modestly above pre-pandemic levels. Quits are back to pre-pandemic levels as well, and the same is true of the wage premium earned by those who change jobs. Surveys of workers and employers show a return to pre-pandemic levels of tightness and indicators of wage growth show a gradual decline toward levels that would be consistent with 2% inflation Over time. To date, declining inflation has not come at the cost of meaningfully higher unemployment.

a highly welcome development, but also a historically unusual one. Healing of Supply chains in conjunction with the rebalancing of demand and Supply in the labor market has allowed disinflation without substantially weaker economic activity. Indeed, economic growth has consistently surprised to the upside this year, as most recently seen in the strong retail sales data released earlier this week, forecasters generally expect GDP to come in very strong for the third quarter before cooling off in the fourth quarter and next year. Still, the record suggests that a sustainable return to our 2% infation goal is likely to require a period of below Trend growth and some further softening and labor market conditions.

Hello, Geopolitical tensions are highly elevated and pose important risks to global economic activity. Of course, our institutional role at the FED is to monitor these developments hello for their economic implications, which remain highly uncertain. But I will also say speaking for myself personally: I Found the attack on Israel horrifying, as is the prospect for more loss of innocent lives. Turning to monetary policy, the Fomc has tightened sub policy substantially over the past 18 months, increasing the Federal Funds rate by 525 basis points at a historically fast pace, and decreasing our security Holdings by roughly a trillion dollars.

The Stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline. My colleagues and I are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2% over time, and to keeping policy restrictive so we're confident that inflation is on a path to that objective. We are attentive to recent data showing the resilience of economic growth and demand for labor.

Additional evidence of persistently above Trend growth or that tightness in the labor market is no longer easing could put further progress on inflation at risk and could warrant further tightening of policy, along with many other factors. Actual and expected changes in The Stance of monetary policy affect broader Financial conditions, which in turn affect economic activity, employment, and inflation. Financial Conditions have tightened significantly in re month. recent months and longer term bond deals have been an important driving factor in this tightening.

We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy. my colleagues and I remain Resolute in our commitment to returning inflation to 2% over time. A range of uncertainties both old ones and new ones complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Doing too little could allow above Target Inflation to become entrenched and ultimately require monetary policy to ring more.

Persistent inflation from the economy at a high cost to employment. doing too much could also do unnecessary harm to the economy given the uncertainties and risks. And given How Far We've Come the committee is proceeding carefully. We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving Outlook and the balance of risks.

Thank you I Look forward to our conversation. David Thank you very much chair Pal, for being with us today for the remarks and for for having a bit of a conversation here. Really appreciate it. It strikes me it's a particularly propitious time given everything that's going on in the world and in the economy.

There there a lot to talk about. a Lot to discuss. Let me start with something you just referred to, which is the surprise of The Upside in the economic data despite as you termed it I think historically fast pace of growth. Are you surprised at how resilient the United St economies.

Just today, we got Jobless Claims numbers surprised because they were low. We got the retail sales numbers you mentioned. We got industrial production across the board. It seems like a very strong economy despite all you've done to try to slow it down.

Yes, so uh, we certainly have a very uh, uh, resilient economy on our hands. We've got Uhu, the economy growing strongly if you think back a year. Many forast called for the US Econom economy to be in recession this year. Not only has that not happened, growth is now running for this year above its longer run Trend So that's been a surprise, driven largely by consumer spending, driven by a very strong job market with uh, people getting jobs with high first High nominal wages and then as inflation has come down real wages which is spurring spending.

And we've also had inflation coming down so you know, turn in a little. That's it. It really is a story of much stronger demand. There may also be there may be some ways in which the economy is, um, less effective Ed by interest rates.

It's hard to know precisely, but for example, companies, Many companies. Any company with bond market access will have termed out its debt, right and therefore may not be feeling the effects of higher rates. The same may be true of homeowners who have a long-term fixed rate low rate mortgage. Who then are therefore not because it's not an adjustable rate or a higher rate.

They're not. They're not feeling that increase in rate. So Market's turning rate increases. On the other hand, if you look at um, look at interest sensitive spending, these are options are diving, puts are getting loaded up, calls are being dump.

be careful to see do see effect. For example, in Um in housing or in you know, the housing effectors been sector has been very affected by higher R yields are picking up dollars picking up Market Dumping are going bearish, not say it's a good, are going bearish quite the contrary. So we see policy working through its usual Ch Chanels. It may just be that rates haven't been high enough for long enough and and again, it's all happening in a context of of very strong demand.

We've heard other people speculate maybe the terming out of debt as you say, both corporate debt and household debt May diminish the effectiveness of rate hikes. Do you have a view on whether that's true and if it is true. What does it say about monetary policy? Does it mean you have to go farther in the rate? hik? Or do you just not have the power to affect it? So no. I I I Don't think that that there's a, um, a fundamental shift in the way that interest rates affect the economy.

There may be some differences in this cycle because of what I mentioned. Um, as I mentioned, we are seeing those the effects where we expect to see them which is interest sensitive spending and also asset prices to some extent. uh and the exchange rate which you're also seeing a strong strong exchange rate which is which is disinflationary. So I Don't think there's a a fundamental change in the way monetary policy affects the economy and again it goes back to just very strong demand.

We take the economy as it is. We take fiscal policy and the economy and all the things we don't control. They come to us and we conduct policy always to options still looking pretty weak employ favoring the Bears So we just take what comes the fact that we have a strong growing economy, a strong growing labor market, and uh, you know, inflation coming down. These are the elements that we want to to see that to achieve the the outcome we want.

It may take more time, but ultimately uh, those are. that's This is the kind of thing you would want to see along the path to getting through this without a big increase in unemployment. How much effect thus far has the FED had we we all have memorized now long and variable legs, how long and how variable and where are you in that process are you at the 25% point? the 50% in terms of seeing it in the effect in the real economy. So there's there's no Precision in the Uh in in our understanding of of how long legs are.

Um, one thing that has changed in the modern era is that markets now. uh, over the course of the last 30 years, central banks have decided instead of being secretive to be very transparent. And what that has meant is that markets move actually, well in anticipation well before our policy moves. So the transmission from policy moves to to financial conditions actually happens before the moves.

Now was that was not the case 50 years ago when Milton Fredman, you know, coined the phrase long and variable legs. So but now you have Financial conditions changing and the question is, how does it affect the economy? The standard channels are U asset prices and interest sensitive spending in the exchange rate for example. And again, we do see that happening just not as fast as we would like and I would attribute some of that to just stronger demand. You know household savings were were turned out to be higher, household spending has been stronger and that's by far the largest part of the economy in order to conduct monetary policy effectively.

Do you need at least a hypo hypothesis about how much has already hit the economy because it's hard to know how much more you need to do if you don't know how far you've come. So on on lags I Think if you Think back, it's been a year since now since since the last 75 basis point hike we did. it was at the November meeting in 2022. the first one was in June So it's more than a year so we should be seeing the effect.

Looks like things are about to go, just arrive on one. The downside? that and then they're thought to Peak and then to diminish so there's a lot of uncertainty around lags. Um, and one of the reason reasons why we have slowed down significantly this year is to give monetary policy time to work. The truth is though, you can find academic support for different M different speeds of and and duration of lag.

So we have to use our eyes and a little bit of risk management in patience in slowing down the pace to make sure that we are seeing the full effects. And I think again. That's that's part of why we've slowed down this year. We've you know we were.

We went very quickly in 2022 to catch up to where we needed to be and now we're moving carefully with these decisions. Uh, so when you spoke back in August of 2020 and sort of laid out the revisions to the framework as it were, uh, you said that in terms of anticipated growth, the sort of consensus had gone from something like 2.5 to 1.8% I think were the numbers you laid out in that where are you now? where's the FED Where are you and what you think? Basically the long run growth is long run potential growth. Um, is not something that moves around a lot over time, but I would My my own guess is it's around 2% I Think that the the standard mainstream view would be a little bit below 2% but I would just say 2% Real growth. Uh, over time And you know what causes growth is.

You know growth in hours worked plus growth in productivity. growth in hours worked is is a function of population growth in the long run and also labor force participation. Many things affect productivity, but if you you drop in reasonable standard longer term estimates of hours worked, growth, and productivity it which is just output per hour productivity growth, you get something around 2% and that's that's higher than most other advanced economies. As you look at it, do you see historical precedence for having a growing economy with high rates over a long period of time? I Mean as you look back, I mean is it like options Market Bouncing a little bit, going a little bit more bullish as you try to determine what this might be doing in the economy over the longer term.

so that that's really a question about what the, what the, what the level of rates will be going for, what the new neutral level will be, and I think it's It's very hard to know confidently what the answer to that will be in five years. Some of the reasons why rates were low for the last 25 years were just uh, the Aging of the global population and globalization. and you know so lots of savings. and relatively with an aging population, savings greater than rates are lower Market getting knocked B So all of those led to low interest rates.

So what has changed with the pandemic? You might see less effects from Globalization Certainly demographics that the Aging of the global population has not changed. Um I mean this is a discussion we're having on an ongoing basis. It doesn't really affect current policy, but where will rates settle out what will be the a normal rate. So if if the if a typical Fed tightening cycle would leave you at five or six% and and this is this is in the before the pandemic and before this the low inflation period you would have had had Uh Fed rates four or 5% or even higher frequently are we going back to that I Really don't know I wouldn't want to speculate.

I Mean my guess is it'll be somewhere in the middle. but I I I don't know I I think I Think we can say this now. Uh, the effective lower bound is not an issue. You know we were.

We were very concerned about that right now. we're very far from the effective lower bound and the Econom is handling it just fine. But that's you. Know that's because we're at a time of of really elevated demand.

Uh, coming out of the pandemic as we reopened with fiscal stimulus and monetary stimulus, a very strong demand in the United States Hard to know what what the economy will want in the way of interest rates. when when five years from now, when all of the effects of the pandemic are behind us. you mentioned the long-term um. equilibrium rate, which you talked about again back in Jackson Hole in August of 2020.

Back then you said you thought it had the sort of consensus had come down. I think it was from like 4.25% to 2.5% Where is it today? Um so I Think by any Reckoning long-term interest rates and the neutral interest rate came down steadily over the course of several decades. So where is it today? I Market Diving Uh, you know we're finding it. U Basically the watch the low from yesterday 4299 top left of your screen indication of what the real neutral rate was.

Around 50 basis points before the pandemic. it may have risen in the near term. The real question that that matters though, is will it rise in the long term And that we don't know. But do you need to know in order to conduct monetary policy? I Mean you must have to have at least a theory I mean I'm not saying you have to be right about it, but you have to have a hypothesis, don't you? As you look at the data, you have to put the data through some sort of uh uh Theory So we we we all write down our estimates of the longer run neutral rate every quarter in the summary of economic projections.

and and that's based on models. It's based on also looking out the window and and including lags thinking how are our current rates affecting the economy? So the the evidence of your eyes is that the economy is is handling much higher rates at least for now without difficulty. So notionally that that might tell you that that the neutral rate has risen or it may just tell you that we haven't had rates high enough for long enough. You're right though.

But you know you you you have. We have models for everything. We have formulas for everything. Ultimately, as a practitioner, we have to, you know, be focused on what the economy is telling us, even taking lags into account.

what's it telling us does. Does it feel like policy is too tight right now I Would have to say no I Think the evidence is not that a policy is too tight right now. Um, so and and we're at five? Five and a quarter to five and a half percent are. Do you think we're entering into a new phase in monetary policy? We had the Vulker disinflation V ref to it As then we had sort of inflation targeting.

For a time there was concern about secular stagnation. We were new intr on both the spy and the cues Market vomiting We had the the real problem with inflation. What's the next phase look like What? What? How would you describe it? What we've been through is in all of the advanced economies around the world was a period where the effective lower bound, the proximity of interest rates risk-free interest rates to the effective lower bound which is zero or a little bit less was a big problem for monetary policy and and just rates came down and down and down. And the problem is if if rates are going to be close to zero in good times, then how do you cut and so has have central banks lost the power of their most important tool which is interest rates.

This was a subject of of a of a vast literature in monetary policy research for 20 years and and you know the the the most common answer was some kind of a makeup strategy so you would credibly promise to to run inflation a little bit hot and above 2% and that would anchor inflation 2% to counter the times when was below. So that was a very serious problem which filled books worth of research. Then comes the pandemic, then comes the response to the pandemic, and then comes the pandemic and inflation. Not just in the United States but everywhere.

The question is is that a secular change? or are these these factors that brought us to that place? Are they still out there waiting to come back? And you know books are written on this subject? Now you you can argue that Uh, and some have argued that that effectively, the last 20 years before the pandemic were kind of a perfect storm of disinflation. and now that's all gone and we're going into a more inflationary period that will be character cized by more Supply shocks and things like that and therefore more more inflationary pressure. So are we going into such: I I Don't know I mean all I Can tell you I Think it's unknowable and you know great theorists and researchers have different views on this. It's not.

It's not something you can settle in advance. We'll have to see I think our our issue is right now trying to achieve a sufficiently restrictive stance of of Po policy to bring inflation down to 2% over time. That's what we're really focused on whenever Any next stop 427 a dollar below where the Spy is right now watching 427 below that 425. So 427 F by 425 would be my next stop on the spy In terms of macroeconomics in terms of the economy from play carefully so hindsight is is always a wonderful thing, right? Um I Think the fair way to judge when he's saying we're going into a more inflationary period that's not good.

Put yourself in in in the place of of legislators and and policy other you know and Central Bankers around world. it is not too tight right now as it might continue hiking up interest rates. a global economic shutdown. People were were thinking that kill a whole lot of people and that we wouldn't have a vaccine for five years.

We might not have an economy for five years. So these things were all very possible in March of 2020. And so we pulled out all the stops in Congress with the benefit of hindsight and had a little bit of I guess we could. But I think if you look overall at the performance of the US economy, our our economy is the strongest.

We we're the we have the you know, the we're actually also making the most progress on inflation. but we certainly have the strongest growth. We're back to uh prior growth Trend Um, you know, not just level of where we were, we're actually back to the prior Trend Uh, the labor market. The last time we had uh this many consecutive months of unemployment below 4% was in the late 1960s.

So it's more than 50 years ago, so our economy is doing very well from all of yields, popping, dollar popping markets, equities getting hit, not have had as much inflation if we done less. Although other countries arguably the options market told us this was coming, the options Market is getting hit pretty hard. Definitely going bearish. Bottoming out Now though this might be a momentary break in the drop of the equity going forward would change the way you conduct monetary policy that you learned from that that maybe nobody had reason to know at the time, but it was an experience you went through.

Well, you know we we were in a time of a very long time, in a reasonably long time of disinflationary forces. and I think everybody's Instinct had been attuned to risks coming from this direction which is too low inflation. And so what this has taught us is that the you know now now that that period that period is over and we now have probably going forward a more balanced uh set of risks for high inflation and low inflation are are are both risks. In fact, right now the risk is still high inflation.

but I'm I'm assuming once we get back to 2% we won't have that. But we've certainly learned that. and uh, I mean things events are are the the. The possible range of events is so much wider than what what we think it is on any given day, right? The tales are so wide and it's just not human nature to constantly be thinking about things that are way out in the tail.

But they happen in in financial Market Maret. and in economies they they happen far more regularly than than they should. This is the Dday line. 5% Ys With bonds setting up an alert story, particularly in the longer end of the curve, what is your understanding of what is going on in the bond market and why those yields are going up, particularly again at the longer end of the curve? So it's really, it's really two questions.

One is why is it happening and and the other is why does it matter for policy? And so I would say on the why is it happening question I Think it's appropriate to have a little bit of humility. It's always hard to say exactly what's going on with longer term yields, but but this is what I Think we can say first what it's not. It's not apparently about expectations of higher inflation, and it's also not mainly about shorter. Term Policy moves so fed funds moves over the next year or two.

Really, if you can look at the two-year for example, and two-y years moved up a little bit since. September. But really, the move is in longer run bonds. so it's really happening in term premiums, which is the compens ation for holding longer run Securities and not principally a function of the market looking at at at near-term fund rate.

I think other other a few other ideas about there are many candidate ideas and uh, and many people feeling their priors have been confirmed by this event. I'll say as well. but um so one would be just that. Uh, markets and analysts are seeing the resilience.

the both are adding, people are adding to their calls and people are adding to their puts as well. Obviously the puts are being a little bit more aggressive, but look at ever since 1239 calls are getting more aggressive and puts are getting a bit more aggressive. Interesting could be part of it. Uh, another one you hear very often is the change changing correlation between bonds and equities.

If we're going forward into if we are going forward into a world of more Supply shocks rather than demand shocks that could make bonds a less attractive hedge to equities and therefore you need to be paid more to own bonds and therefore the term premium goes up. So all all of those uh uh are are possible ideas then then the question is, does it matter for us as long as I'm talking about this? So um, the way I think about it is Uh, you know we change our policy. Actual and expected changes in our policy affect Uh Financial conditions and persistent changes in financial conditions affect economic activity, hiring, and inflation. So one question is are we seeing the longer run bonds? Are they increases in in rates? Are we seeing those come through in financial conditions in a persistent way? And I think if you look at Financial conditions indexes the answer so far would be yes you are uh, persistence.

It will be a matter of of of just seeing with our own eyes, but certainly they're coming. If you look at Financial Conditions indexes, they're showing tightening and it's a lot because of longer rates. Then the question is is it endogenous and is it just is it just because the market expects us to take things to to to take further actions, to to to tighten monetary policy, in which case you have to follow through. But that doesn't seem to be the case it is.

It doesn't seem to be principally about expectations of us doing more. It seems to that the other factors are the more, uh, the more prominent ones. Another question is bottom bottom line though that that means it probably does over time. It makes sense.

It's something that we'll be looking at. well, that that's the question I Ask over time From what you understand right now, do you think this is a temporary phenomenon Or do you think there are structural factors? Whatever they are and we can talk about what they might be That would really this is the future we're looking at now. So of the factors: I just listed options bouncing a little bit with price finding itself at 428 but yields too strong if yields pop dollar pops this Market's going down. The change in correlations between stocks and bonds could be a long term I I don't think we know I think even CNBC know Basically, bond prices are set by supply and demand.

The supply of of treasuries is is is a known thing, but demand can be affected by any and all of these theories. And99 sentiment too, which is hard to characterize. So you know markets have volatile, they've been longer. You know you've seen the rates moving up and down a lot.

I Think we have to let this play out and watch it. Uh, but you know for now it it looks it's It's clearly a tightening in financial conditions and so we'll be watching. watching it carefully. Talking about the fiscal side and you've been very careful repeatedly.

say you want to stay in your lane, you're not responsible for fiscal issues at the same time you have to take into an account and it looks like the United States is going to have to borrow a fir amount of money by the way. Other countries are as well. Around the world we have a a big a big supply of treasuries coming on board. Uh, to what extent do you think that is a longer term issue And let me tie it back to something you referred to in your marks.

Actually when we see geopolitical conflict around the world like in Israel like in Ukraine some of the buildup with respect to China the defense spending is going to be elevator for the United States And for other countries do you take that into account in figuring monetary policy because it may well mean that we're borrowing a lot more money than we have in the past. So we of course see the things. Same things that everyone else. I Just came back from IMF meetings this weekend and there's a lot of talk of the very large resource demands that organizations like the IMF and and of course, countries are facing and the need for substantial amounts of Revenue You mentioned military.

there's also dealing with with climate change and things like that, so it's a there. There's a lot of that. Um, we don't. As you mentioned, we don't comment on on uh, fiscal policy.

Actually, the fiscal authorities have oversight over us and not the other way around. so we we know the fiscal path is ultimately unsustainable. Jesus I I Would just say everyone knows that it's not a secret and about all I can say is we know that we're on an unsustainable path fiscally. It's not that the level of the debt is unsustainable, it's not, it's that we're the path for on is unsustainable and we'll have to get off that path sooner rather than later.

It's not really something though that affects a monetary policy decision about whether how much we raise rates in the next six months. It's not. It's not going to be driven by um, uh, I mean if there were some vast new fiscal policy that were about to be enacted, then that that would have an effect on the models that would have an effect on projections and indirectly that would affect us. But we would not be in a position of responding directly to fiscal policy when we talk about the treasure.

Market Obviously, there's there's buying and selling. Uh, and the United States government is issuing a lot of treasuries. There's also a question of who's buying and we're We now have one buyer who stepped out of the marketplace, namely the FED which is a big buyer At the same time, we're getting reports that maybe some of the overseas buyers maybe pulling back as well. how do you take that into account and and assessing where we're going with long-term Bob Ys So actually, um, uh, I think o' buying by overseas entities is actually been pretty robust this year.

So there have been some small changes. but I think by and large it's been, it's they've they've been buying. You know, robustly. Again, we look at we look at the broad pal says strong data like September report could warrant further interest rate hikes.

You know we don't focus on fiscal policy. We wouldn't change monetary policy because because of uh, for example, it, you know because we think that the US is on an unsustainable path so they don't think anything's happening in November What about December There's now a 30% chance. A 31% chance of them raking hiking rates in December This is what is making the market bearish. E I Guess it's this commentary increasing those odds making the market perish.

Private sector, not just the Vo sector. Academics As you talk to CEOs people in Business: What are you hearing about the cost of capital? Because these bond prices are really affecting cost of capital? Uh, for the first time in a while, there was a long time the cost of capital felt like it was almost zero and business changes an awful lot when you really the price of money goes up. I Talked to several people this week who run companies and they each said that the economy remains strong and that they don't see the consumer. You know you see there's some areas where where where spending is softening, but overall I mean look at the retail sales number Consumer is strong.

Um, uh, volume is not going up very much. but but uh, companies are profitable. you don't you? Now if you get to where I think the cost of capital would really matter would be for smaller companies and and early stage companies and that really does matter. So we you know we don't have a lot of tools.

We have interest rates and they're far from perfect. Perfect. It's famously a blunt tool, but it's what we have to get. Uh, uh, Inflation down.

And and really, the world counts on us to deliver. Uh, low and stable inflation. That's what we have to do. And you at a time like this, you know we know that haven't really done it.

You know we had the home builders in this week. It's a very tough time in the home home building industry and U we know that. Uh, but ultimately what we want to get back to is a long period of price stability. That's the best thing we can provide.

and that that Pro policy makers and businesses and everyone can and people can can just lead their lives. Not worrying about inflation. This is what we can deliver. It's what we have to deliver.

and this is the time You know our independence is is not for times when we're really popular. It's for when we're now when we're doing something that that that really the public counts on us to do. Notwithstanding that, it's that it's challenging and difficult. and and you know, higher interest rates are difficult for everybody, You have not wavered from your commitment to 2% You did it again today.

2% No question about it. There are those who suggested including some colleagues in the FED that maybe the Bond market is doing part of your job for you. Is that the way you see it? Yeah, look, I would I would say it this way? Um, the whole idea of of U tightening policy is to affect financial conditions and to the extent higher Bond rates reflect, they do. They're producing tighter Financial conditions right now, so that is.

That's how monetary policy works. That's literally how it works. So again, in principle. literally how it as long as Bond rates are going up for the for some reasons and they're not going up just because they expect us to do things.

So if we don't do them, they'll come right back down as long. And we don't think that's the case. Actually does I don't think it's the case. It's it Doesn't seem to me, that's that's what Where analysis leads you Then sure, that's a tightening.

That's exactly what we're trying to achieve. and therefore, it seems like almost arithmetic. It must reduce some of the impetus for you to continue to raise rates at the margin. It could I mean that I Think that remains to be seen.

And by the way, I'm not blessing any particular level of longer term rates we, but just in principle. That's right. Uh, so let's talk about the labor market. Uh, you referred to that in your marks as well.

Uh, and as you say, vacancies have come down some, although they still are pretty elevated. If I'm not mistaken, quits have actually gone up some. It seems to be a tipe of the labor market. What do you make of what's going on in the labor market? Right now, labor market has been extraordinarily strong.

So what happened in the pandemic was we had a negative labor Supply shock is one way to think about it. So a whole lot of people left the labor market when the pandemic happened and then didn't come back. And and so when the economy reopened and everybody you know there was, remember there was Revenge Travel and Revenge. Everything.

Uh, very strong demand Revenge Travel. What's Revenge Travel had two job openings for seeking employment. We've never been anywhere near close to that. There was Panic that you know and wages and bonuses and particularly in things like uh, in-person Services where people had not gotten big wage increases and didn't want to come back to work.

So that's that's where we were. So since 10 there are very many signs that the labor market is getting back into balance. and I Talked about some of that in my remarks. uh, surveys of War You know we survey businesses.

We don't do it, but other people survey businesses and say our workers plentiful and that measure. That measure was no. But now it's back to pre-pandemic levels. You survey workers are jobs plentiful and that was at an all-time high and now it's still high.

But back. So wages are wage increases are coming back down to more normal levels. Job openings are down from two to 1.4 They were at 1.2 in in the very tight labor market of 2019. By so by, you know the the work week.

By so many measures, the labor market is gradually now popping and part of that is this. All through 2022, We thought we were going to get more labor Supply and we didn't and I personally thought well I guess we won't get any and then we've gotten a substantial amount. This year, the The Lab female labor force participation is at an In in prime age. Workers is at an all-time high which has to be related in in some way to work from home.

But labor force participation increased, immigration increased, and now you you see that in in the overall cooling of the labor market. So even though job creation is still very high, there are the workers to fill those jobs. and again, businesses will tell you it's that. It's very different.

It's still a very tight labor market, but it's it's loosening coming back to your goal of 2% inflation. What have you learned from this experience about the relationship between inflation and labor? I There's a lot of talk about Philips Curve: Whether it still applies, whether it's weaker, what is it? What? What is your hypothesis right now with the relationship between inflation and labor market, let me tell you what it was before. So um, one of my favorite charts is just the slope of the Phillips curve over 40 years and so it shows the relationship between unemployment and inflation. If you go back to the high inflation of the 70s, it was a very tight relationship and that relationships went down and down and down to the effect where the Phillips curve there was almost no relationship meaning uh, the the Philips curve was very very flat.

Um now actually if you just ignore cause and just look at the data it will tell you that that the relationship is back. Do we really think that's a sustainable thing? I Don't know What what happened though was that people people came to seriously expect 2% inflation something like 2% inflation. and if people expect that if companies expect it and workers expect it and you expect that in your shopping, then that's what'll happen in a way. And that's what that's what happened.

So even in very very tight labor market I Mean we expect it because that's what you say you're going to do and that's what you have done. I Think that's like a huge surprise that people expect that for the first time and you know the models were all saying that we should be seeing some inflation and we never saw. We never really saw 2% inflation on a sustained basis during that era. So we learned that the Philips curve was really flat, some pronounced it dead.

Um now uh I I I Don't think most of the inflation we're seeing at all is from is from I think it was buil really the Collision of very strong demand? Really strong Demand With with constrained Supply cars being a great example, many people Wanted cars didn't want to ride public transportation, wanted to move to the suburbs. Unlimited demand for cars. interest rates are low, yet we couldn't get semiconductors so there are no more cars. Choppy crappy day.

How do you solve that problem? Prices just go way way up for cars. That's how you clear the the market. So that's That's a classic example of what happened here. Really wasn't about the Phillips curve, it was more about constrained supply and demand more broadly, especially for Goods At the beginning let's turn into another responsibility.

yours which is the banking system. Last March we had something with scare because of I guess interest rate risk. with a three minute below above below it's whipping now. Where are we in that process? Are you? Are you rusting easy? So what you pay? maybe saving itself? Dude, this is.

this is a tough environment. Good luck I would say Where We Are Is this though things have certainly settled down, certainly have settled down. Um we see the funding markets is fine we see and you know we we We paid a lot of attention to banks that that looked anything like the banks that had the problems and made sure that they that they had credible liquidity plans and plenty of liquidity and and all of that and so I think getting hit and we we set up this facility that's available to for banks to borrow and so all of that has led to a real settling down. But you know our job is to be on the case and you know we're still on the case And uh, we'll um, you know, we'll we'll keep after that.

Um, banks are generally very well capitalized and highly liquid. In our country, banks are strong. You know we benefit from all those years of Reform under Dodd Frank and and bosel 3 that we went through uh, you know with former Governor Tulo and and many others and so we benefit from a very strong Banks are strong, well capitalized Banks at managing its risks than the one that ENT Global Financial crisis very well capitalized. but you want some more.

This is Proposal Basel 3 proposal. which is, you know it's it's a rule that's out for comment. so there's not a lot I can say. but we do expect a lot of comment and we do expect to take those comments very seriously.

Talk about the commercial real estate. There are some concerns out there in the marketplace what's going on, because obviously there's a repricing that comes with your increased rates. Uh, it's thought that there's some real estate out there that is not worth the money money that was originally financed with it. How concerned should we be about that as something lurking out there that could really affect the system overall.

not just the people invested. so there's work from home and and that's affecting downtown real estate in a lot of big cities and um, higher rates as well As you point out. So this is this is an issue that we PID a great deal of very careful attention to. Uh, commercial real estate is not a is not a principal risk or or a major risk for the very large largest banks, it is much more for Uh Regional.

And really, the really. the smaller banks have have proportionately a much larger exposure to real estate. so commercial real estate. So what we've done is the supervisors are in there looking at re real estate portfolios.

They're working with banks to make sure that they have they have plans to deal with the problems they have in their portfolio. These these problems evolve over time. they don't. They don't land with great suddenness like a market event.

And so we're working with all of the bank regulators of working with Uh banks that have, you know, concentrations of troubled real estate to work it out. Um, there will be losses for sure. Uh, you can drive down through most downtowns in many downtowns anyway and see U buildings that are empty and things like that. But we're we're working through it.

Uh, and you know we're on that case and and don't see it as uh, you know as presenting much broader problems, but our job is to make sure that it doesn't. As you mentioned, Regional Banks are where a lot of people focus on this, as you conceptualize the banking system. What is the role of the regional? Banks We have the super big banks that don't look like they're going anywhere and we've got the Community Banks The smaller banks that we understand are critical for particularly for small businesses and local context. but what about the regional? Banks How much pressure is there on them and what would the the damage be to the system if in fact there was more consolidation with some of the big Banks I Think the regional banks are very important.

extremely important. You know we are. we have 4500 Banks which is a lot more than any other or per dollar of GDP but we have you know our our GS the largest banks are the leading banks in the world in profitability and their success in their business. We have Community Banks in in and you know who deal in in smaller communities but we also have these great regionals and I think they do.

They do a great business among with you know with with many companies and uh I I do think their business model is under pressure and I would not like to see us add to that by treating them exactly like like GS I think they need they don't need exactly the same attention that a G gets. So but I I would say we I personally think and I think we at the FED strongly think that that the that the Regionals and the smaller regionals are an enormously important part of our banking system. Okay, you've been very generous over your time. Really appreciate.

I Have one last question: Are you having a good time? If so, why you a good time? I Assume this wasn't that pleasant, but in general are you're enjoying your job? I would say this. First of all, it's It's an incredible honor to do this job. and every day I Do It! I Feel so fortunate and so lucky and blessed to be entrusted with this and you know all I want to do is do the best job I can for the public that we all serve. Uh and yes, there's there's a lot that that's enjoyable about it, but mostly it's just uh, so important to get it right.

And that's what we're trying to do. Thank you so much Chair, It's really good. Are there additional questions that he fielded Market popping. Now that he's done, they're like, all right, you're not going to tank us.

Well, let me just conclude with four thank yous. Uh, First, thanks to the team from the Economic Club that organizes these events. It doesn't happen because picking up now that he's done, the team works hard and organizes it and makes it go so smoothly. Number two: thanks for our audience both and our members both here in the room and online.

Uh, let me also say thanks to David you did a great job Uh, engaging with the Chairman and you know I think uh I saved the best for last Jay Thank you very much for your talk today. Thank you for the time speaking with David and uh, all of us say uh very much when you read and listen to your contribution to the Fed and your various roles. There's only one thing to say and that is just thank you very very much for your service. Thank you everyone! Enjoy lunch lunch I Didn't get not only did I I can invited it, do they get a free lunch I can't believe it.

can't believe I didn't catch the invite to that. hey I suppose it is what it is. Well that was a a volatile mess. uh he.

the things were kind of drifting up into it Market took a hit when he sounded very very hawkish about hey the Market's handly fine. we might have to go higher and now that he's done the market bouncing a bit, uh, it'll be interesting I Don't think I'm going to be doing anything too crazy for the rest of the day just because like it seems crazy volatile. uh, the market popped, options got hit and then right here at 1240 you can see exactly where everything turned. Price turned options turned wild wild wild wild.

Uh folks, that's why for you now. Uh, in terms of live streaming for the day, I will be posting an update video later on tonight. Uh, giving you an idea of everything happening in the world of Netflix still looking good up 15% Tesla not having a good day down 9% trading in 221 I'll do a breakdown of the overall Market what pal said what he didn't say and then also just an update of the current craziness just in the political situation globally and also in the US so be on the lookout for that later on today and then obviously once again tomorrow. Morning streaming uh 9:00 a.m.

bright and early I Hope to see you there I Appreciate all the Good Vibes I appreciate you stopping by I'll catch you in the next one. Peace out.