Dallas Fed's Kaplan Says Fed Should Tighten Policy Patiently

Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, on the Bloomberg The Morning David Garrel with Michael McKee. This morning, Tom Keene at the Council on Foreign Relations. In just a few moments, he's gonna sit down with Robert Kaplan, the President and CEO of the Federal Bank. See the man himself in his If you have it, you can listen here, or if you're on the Internet, you can pull up the web feed

from the CFR even aview. Robert Caplan before situated him and the pantheon of Fed presidents. Right now he's becoming a little more influential. Of course, he's fairly new, and it takes a little while to get your sea legs. But Uh, he's a guy who was executive at Goldman Sachs and Harvard University professor for a long time. So a very smart man. Uh, different than previous Dallas FED presidents and much more of a centrist and much more of a practical thinker rather than coming from a particular

political point of view. And uh, he is a voter this year. Uh. And tell us a bit about the Dallas FED itself. You look at all of these various districts. What's what's the historical reputation of the Dallas Fed. Well, historical reputation has been very very free market, anti regulation, and very tough on inflation. And we have no inflation to speak up at this point. That's less of an issue, but Kaplan is less It's not that he's against free markets,

but he is not pushing that as much. They're also very concerned with trade issues and they do a lot of work on the US and Mexico and have for years and now of course that's come front and center as an issue absolutely as we look ahead to the next f O MC meeting taking place on the thirteenth, I believe thirteenth and fourteenth in Washington, d C. As he mentioned Robert Capital of voting member of the f

O m C this year. He the thirteenth president and CEO of the Federals at Bank of Dallas, former professor at the Harvard Business School, author of a number of books on on leadership as well, and still fairly new to the job, right, Mike, Yes, this is I think his second year, uh and his his first year as a voter, and so far he has voted with the majority in every case to raise rates or hold an

alternating meetings. We'll see what he does that. I would bet you, given what he has said, that he has going to vote for a rate in Greece in June. Since yesterday we saw Lele Brainer, the dove, the Dove's dove on the FED say a radio increase is likely very soon. And everybody he takes that to me. In June, a number of FED policymakers speaking here before the quiet period that precedes at the f O m C meeting go ahead. Yeah, you know, they expanded the quiet period.

They moved it back so it's longer. And I was sitting with a FED stafford yesterday who was listening in on Little Brainer's speech, and she said, thank god, unless we have to worry about more days in which they can't test. Weeks was before the last meeting. It seems like that there were a tremendous amount of speeches. Seems like the quantity of speeches has increased. Let's head over to the council in formulations up Park Avenue from O

Bloomberg eleven through with Studios. Tom Keene interviewing Robert Kaplan of the Dallas Fan I'm not going to go through your bio because it will just take too long, other than to say he was Marshall Professor at Harvard Business School by way of the University of Kansas, which is always a good thing. What have you learned about the heritage of the Dallas Fed parachuting in Well, Uh, there's a great history in the Dallas Fed. But with the most significant thing to me about the Than district is

uh the business dynamics. It's uh. We're largest energy producer in the United States, largest exporting state Texas is in the United States. Growing. President will go after you, after he's going after the Germans. Well, I won't even go near that. But uh, but and we're growing very very rapidly. We're uh migration of people in firms to the state of Texas in particular has been a significant trend is

accelerating over the last fifteen years. We have a national growth rate to three whatever it is, what's the Texas growth rate? If we're we're going about a full percentage point faster over the last fifteen years on average every year. Uh, And so what it's going to be this year, I'm not sure but that but for lots of reasons, people and firms are moving to the eleventh districts, So we're

growing very rapidly. And that'll be one of our themes here, particularly to dive into the concept of John Edwards to America's and maybe we can talk not you're just stricks outside Texas, but the two Texas is a more general statement. I want to go to an idea that I was talking with our Matt Bestler about and and and this is this wonderful thing. This is a mouthful, folks. For those of you not in economics, this is why you're not in economics. The Dallas Fed trimmed mean PC. That's

your proprietary view of inflation. What I know in my work at Bloomberg is inflation and the vector of it now is front and center. Is the vector up or is a vector to disinflation again. So it's been weak the last couple of months. If you go step a little further back, it's been gradually increasing from fourteen fifteen to sixteen to seventeen. That the thing that's giving people pause is over the last two months, particularly March, for

a number of I think idiosyncratic reasons. Inflation dipped, telecommunications, pricing, other factors. But you notice the e C came out, Personal consumption expenditures came out yesterday, and I think it showed me that the April number is sort of back on trend. The number for most people quote the trailing twelve months, and you'll notice the trailing twelve months after yesterday declined. But the reason for that is not that April was week. It was that a year ago April

was so strong. So I actually think while inflation has been slow and uneven, I don't think we have a deteriorating trend. I don't believe that's what's going on. To text off this one is the Dala's heritage. I get to it in a moment, but let's talk about them more. Washington centric analysis we heard that from Governor Brainerd earlier today and all the other feed speakers all diving into this mix. Is your take that the prism around around

that table of the ECHOS building. Is your take that it's a traditional study of inflation or is there a new new to how the feed itself has to deal with this odd thing? There's definitely, in my judgment, a new new. Now I'm not an economist, I'm a business person, but I have I work with lots of economists, so I think that gives me a little different perspective. But the things that are new, I'll mention two, in particular,

global over capacity, particularly because of China. China has been growing GDP on average about six and a percent a year, but the problem is it's they're increasing debt to GDP in order to achieve that growth, and they're creating over capacity, not just an infrastructure, but an industry is like steel. So that's increasing global over capacity that's creating a headwind

for inflation. And then the second thing that's significant is technology enabled disruption, which is another way of saying machines are increasingly replacing people, but consumers can use technology now to shop for pricing more than ever in our lifetime, and therefore the pricing power of businesses is less than has it been at any time in our to the PhD economists, and wants you to know that, I mean,

a guy like you come from a different world. Uh, the guy up in Minneapolis comes from Cary, comes from a different world, et cetera. Do you guys have an advantage because you didn't read the textbooks? Well, I think many of the many FED presidents, or I would say even most do what I do. I look, I talked to all the economists, I go through all the economic theory, all the economic data, and then I talked to probably thirty c e o s. Every month, we do surveys

among businesses, small businesses, big business as. We do not only industrial surveys, but energy surveys, service sector surveys, and I put them both together. So a lot of my understand about what's going on out there I look at data, but a lot of it also comes from talking to business leaders. Talking to business leaders is in the present. What are your thoughts on forward guidance? This concept is silliness of data dependency. Do you find the dots to

be a constructive tool? Well, so there's a few questions in there. So let's talk about data. Let's take data dependency for starters. So I'm not I'm not crazy out the term data dependency. I prefer to look at data. But as a business person, again, I like to look at secular drivers, and then data as the economy unfolds, either confirms or makes me question the effect these drivers are having. So, uh, for example, GDP growth is sluggish.

I think the big driver behind that. One of the big drivers is aging demographics, slowing population growth, slowing workforce growth, and so that makes that makes sense to me. Uh So I think you got to look at both. But I prefer to look at drivers, and then the data sort of confirms, like it would as a business person, what track we're on or whether whether the drivers are having the effect. I think, Carrie, let's go two hours.

This is going too well, all right, So that you talked about the dot plot, so that makes plain of people. I think most people here probably come on, we all know what the plot. Well, it's shockingly some people may

not know what the dot plot is. But every quarter, all the FED presidents and the governor's submit we all submit our forecast for seventeen, eighteen nineteen in the medium term GDP inflation not only headline, but core unemployment rate and what we think the neutral rate is likely to be, which will come back to settle out. So that's referred to affectionately or not so affectionately as the dot plot

or the summary of economic projections. But that gives you a pretty good feel every quarter of what each of us is thinking about and the views there. There's a scatter chart, but they tend to congeal around. Uh, certainly, where's the vector of that chart? Right now? What are we going to see in future? Dot? I mean you, I know you're filling your form out on the way from Reagan into the Ecles Building, right, But actually, I mean, come on, there's a lot of analysis going into this thing.

But is it a valuable tool? Sure? And what's it gonna show us in the number of If somebody who's been observing the FED now for thirty years, that's me and my business career, I think I think it's very useful, um, because it gives me a pretty good idea about what every participant around that table is thinking. Uh, and when there are differences, it gives us a basis to debate, so I think it's very useful. My own view, just my dot has been GDP growth, for example this year

would be between two two and a quarter percent. I think the unemployment rates four point four percent now I think it's going to decline further as we get at the end of this year. It's not the only employment measure I look at. I look at something called you six, which doesn't go on the dot plot, which I'll come back to. And my own view is inflation will slowly but gradually over the next two or three years, not immediately, but the next two or three years. Get the two percent.

Within your wonderful books on leadership, there is implied through all these books confidence. One of the great mysteries in this room at the Council on Foreign Relations, one of the great mysteries in your Dallas district is where is business investment? Where is the confidence to move forward? Let me just start with the Mathness is it because the people that you used to talk to an HBS, they can't figure out where the risk free rate is? Are

the distortions so great? So let's take let's take the first part. Business confidence right now is high? Okay, there's a lot of business optimism, and you see business investment is stronger this year than it's been in the last few years. The issue is, UH, that's great and it can help GDP growth, but se approximately the economy is the consumer. So at the end of the day, businesses are more optimistic for several reasons, but ultimately everyone is

watching the consumer. The consumer is the primary driver of GDP growth. Increased business investment though helps and businesses right now, we're optimistic, do they see it? The disconnect right now is while they're more optimistic, then when you ask a business leader, do you see improvement in your business? Oftentimes the answer is not yet, but we're expecting it. We're expecting We're still there. Does it have to do with rain art rokeof length or duration coming out of the

financial crisis? It just takes kind to heal or there a new format of globalization where American business is waiting to pull the trigger on the nostalgic investment. Remember, so for me, UH, I think some business leaders are hopeful, UH that fiscal and other policies might help improve GDP growth.

That's part of it, UM and UH. In addition, though some of the things that have been headwinds which I don't think are going away, sluggish population growth which has a big effect on consumer spending, and sluggish GDP growth, but also increasing disruption and new business models increasingly are displacing old ones, which are giving many business leaders pause. Even though they want to invest in their business, they're not sure that the model that they're investing in is

going to be sustainable. So I think that's a that's a countervailing headwind which is putting a bit of tamping down a little bit of options. So you wandered down to college station and you have to give a lecture at the business school, and some wise guy in an A Corps uniform stands up in the back and goes, excuse me, sir, do you believe in GDP because that's a whole belief right now that these statistics, these traditional models that we have don't work anywhere. How do you

respond to the youngster Texas A? Yeah, So here's here's the things that are clear, and here the things that are getting debated. GDP growth still it's not perfect, but it's still pretty good measure of economic activity. There's an issue a lot of people raise about transfer pricing. You know Apple, uh innovates a phone here, but they manufactured overseas. But I still think GDP growth is is pretty good measure.

The debate has been about the unemployment rate UH and famously, you know many many people have gotten on television said the four point four percent. That's a great number, but it's not a real number. So I like to go to U six, which I mentioned earlier. Here's what U six is in the lingo, So you three to use the lingo is the headline unemploy himent rate. You six is unemployed plus discourage workers plus people who are working part time if in a better economy would rather work

full time. I think that's a better measure of slack. That's at eight point six percent right now, here's the problem. The pre recession low in that number was eight point one percent, So we're gradually moving toward the prerecession low. And in a hundred and sixty million person economy, difference between eight six and eight one, it's less than a million workers. While they're slack. There's not as much slack as people might think. And here's the second problem, which

we'll get to. Where there is slack, it is highly correlated to lower levels of educational attainment i e. College and less than college. That participation rates and employment rates if you finished college are very high in the United States. They could get better, but they're pretty high. Even if you've finished some college, they're relatively high. If you went to high school, though, they're lower, and if you've got some high school education, they're much lower. And so the

problem is where they're slack and discourage workers. There's there's a high correlation between high school and less than high school, and that's why there's a number of things we're gonna need to do to address that runt. You by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world. VI of a mL dot Com slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated.

There's something new from Bloomberg. It's called Lens. Starting right now, you can use the Bloomberg iOS app off your iPhone or iPad or our new Google Chrome extension to read any news story on any website, scan it, and then instantly see the news stories relevant market data from Bloomberg. In addition, see all the bios of the key people mentioned in the story. It's called lens, and it is just that, a lens into the people and the data of any story you may be reading. Again, Lens brings

you the power of Bloomberg's news and data. Download or io s app or search for the Bloomberg extension at the Chrome Store to try lens out. Learn more at Bloomberg dot com slash lens. I want to ask one more monetary question before we dive into what some of the research you and your team have been doing at at Dallas. One of my treasured books is out of the Dallas fed and it is a beautiful, thick monograph, exceptionally smart set of essays in honor of John B. Taylor,

Stanford University. It was a symposium, it was done. I've read the whole thing cover to cover. It is math warning for those of you have the CFR, I'm sorry, algebra differential equations, but within that is some brilliance. Do you buy the traditional economics of the feed when the media trots out the Phillips curve and you and I can go much deeper than trying to answers, do you buy the orthodoxy still works? Or do we have to

amend it. So let me talk about some things that have been used historically that I think need to be adjusted. The Philip's curve, for example, which talks about transmission. If you're at full employment, you would expects wage pressure. You expect that wage pressure to translate into price pressure and inflation. I would say because of globalization, i e. This excess capacity issue, and also what I talked about disruption, the

fact that businesses have less pricing power. I think the Phillips curve is still is alive and well, but it's more muted, meaning to extent there's wage pressure here today, it's less likely that gets transmitted to prices because business customers won't accept the price increase. And um, because businesses can replace workers with technology and there's wage pressure, it puts some downward pressure on wage pressure. So that's one example. UM.

I would say. The second thing is the economy is dramatically different than it was ten years ago, twenty years ago, and thirty years ago. You know, a lot of people like to refer back to the Reagan air and it's and here's what's so different, uh, aging demographics. So the trend over the last thirty years has been going like this, slowing population growth, lower participation rates, and over the next ten years, the bad news is it's gonna get worse. And it's one of the few things we can forecast

with a lot of confidence. And we think the participation rate today sixty it's likely to diplo. So that's one issue. Globalization is different today than it was twenty and thirty years ago, meaning, uh, we're much more globally intertwined. But the trade relationships I think are being misdiagnosed a little bit today, meaning uh, it's not a zero sum game. Our relationship, for example, with Mexico, in our judgment, increases US competitiveness, has caused jobs to stay in the United

States that we'd otherwise lose, most likely to Asia. And so you have to think about globalization different disruption. We've already mentioned that I got one last one and I'll stop, and that is the debt supercycle. We are much more leveraged today than we were ten years ago, certainly twenty years ago and thirty years ago. Uh. Government dead held by the public is now seventy it's been going up, and present value of unfunded entitlements is now forty six trillion.

Dollars also been going up, and because of aging demographics makes it worse. And that's that last part. I think that creates a head wind that isn't talked about that much. Reason it's not talked about his rates are so low. If you had more normal interest rates, I think we'd be having a much more intense national discussion on that. I want to take to some of those themes, but I got so it changes everything. The FETE analysis, you have to talk agree, it changes the world is different.

So we've got to change the way we look at Okay, we're gonna do that in a minute, but I got to rip up the script on one question. I want to speak not so much to the president. Is a public official, I'm not. I know you're not going to take shots in any other I am not. I know you're not. We're gonna get that out of the way. But what I would suggest, within the format of the counts on foreign relations and the heritage of this shot, we can go back to Jacob win or Chicago and

talk about America is a mercantilis power. You're on the border with Mexico. They're gonna build the walls. You can see it outside your window on Pearl Street. Are we gonna end up being a mercantilist America? Is that a real risk? It's it's a direction we we would be well served not to go in. And here's the Here's the problem is the of the imports it's from Mexico today. Is US content okay? Means these goods going back and forth across the border. Adding jobs in the US is

not the only criteria. Are they globally competitive? That that will they sustain? Will they be here ten years now? The relationship with Mexico allows us to be more globally competitive. Here's the second problem is geo politically. I think this country, maybe we've taken it for rent, is very well served by having stable relationships with stale relationship with our neighbor on our southern border. UH. It has been. It's a

very helpful to the United States. And my only my main concern I think NAFTA my own view, and I've said this publicly, will get renegotiated in a constructive way despite the rhetoric. But the mood in Mexico UH is much more. And I go down there a lot and spend a lot of time with leaders there is more

anti American. And my concern is when there's a presidential election in Mexico in the summer of two thousand eighteen, unless we unless we can improve this this tone, it's more likely that you'll have to be an American to get elected as the president of Mexico in the summer of two thousand eighteen. I think that would that would

not serve the United States very well. Let us call us together here before we get to your questions here in about twelve minutes, I want to call us together some of the themes you and your research have been working on. UM. I go back and forth with Michael Dell, who's a leading technologist of your shop. Arguably he jumped started. I mean I think asleep the band Asleep at the Wheel would think they jump started Austin. But we'll give the credit to Mr Dell. The answer is technology disruption

is owned by the eleventh District. I know out in California they think they don't know you guys own it. What have you learned about technology disruption in our two America's Uh, Well, the first thing I've learned is no one owns it. It's everywhere. Uh, it's affecting every mall, it's affecting every business. It's even affecting higher education. Used to be people you just think higher education it's not going to get disrupted. It's getting disrupted. It's everywhere, and

it's springing up in every state in this country. And so what does it mean. It means workers are far more likely in the next thirty years to have to find a new career or a new job during their career, which means skills training is much more important. Worker adaptability

is much more important. And the problem is worker mobility is declining lower, so it means if you're going to find a new job, it's probably gonna have to be locally, which is why we're spending a lot of time on the Dallas FED and in our research focusing on creating these partnerships between businesses, educational institutions, nonprofits to to create skills training for a whole series of jobs to let people who get who lose their job, to get trained

and back into the workforce. We're doing it much more in the United States, but not quickly enough. We did that when the Cowboys went six super rolls in a row. We called it the community college model. Is that the model that works or what's the new community has to be? There's community colleges are a part of this. It has to be a partnership. Okay, So we have a number of businesses in our district. They have to get together and we help facilitate this. At the FED, we convene people.

They have to say, we need so many pipe fitters, automotive technicians, registered nurses, insurance specialists, go on and on at the I T people and we have enough slots that to the local community college if we if we create a training program, we can take these see tangible results of that. You see it all over the state and all around the country. My concern is it's not happening fast enough. We have to scale it up. And the reason it's not so easy to scale it's got

to be done locally. It's not the kind of thing you scale nationally so easily because it has to be done locally, because worker mobility is lower. That's why this is so hard. Link this idea and frankly many other ideas to the tragedy. I haven't read about it in Texas, but we have an opioid epidemic across a leaguered Middle West. I'll pick on West Virginia, Ohio. I'm sorry, sunder Deportment

that I did that. But there are these geographies of incredible disassociation from the world of economics, in the world of a better America's President Obama called it, what do you need to do in the eleventh district to jump start those people who are truly outside the good? So all the work we do, first of all, there's a trend,

as you know, people moving from rural areas in two cities. Uh. But the big trend, and the big thing that you keep coming back to, is if you have lower levels of educational attainment, you are more likely have poor health, You're more likely to use drugs, you're more likely to be incarcerated. Everything that's bad is more likely that you're

likely to have a shorter lifespan. And so I think the two things that can be done I talked about workforce development, that there's a second thing, which also spent a lot of time on early childhood literacy. So we have to improve the school system. But what happens is all our work shows that we look at says if you start kindergarten behind, you never catch up. Okay, it's already too late. Minnieapolis has done great. They do great work in Minneapolis FED on this and so and we've

piggybacked on that zero to five. We've got to do much more in this away from the Dallas FED. Yeah, we're dealing with the guy out of Kansas who owns leadership and own great service to Harvard Business School. Why can't we jump start this? What's the impediment? What is the constrain to getting the five year olds jump started? I'll give you my own view, and this is somebody,

but I'm speaking for myself. Spent a lot of time in the nonprofit World Forward Foundation on this first awareness just making clear people has to be done locally because you know what you're gonna You have to do this with a local program. So you've got to make business leaders aware of it. Government is unlikely to allocate enough money to solve this, so means business leaders and nonprofits have to get together or you have to form nonprofits so that kids are read to if their parents don't

do it. Uh at ages one to three, four and five, and so, I think this takes leadership, and this is something that business leaders mayors in this country are spending time on But it's gonna take I think if we're waiting for the government to solve this problem, Washington, what does any government or state govern if you if you're

waiting for government to solve this, you can stop. It's that they can do it, but it's got to be done from leadership leaders locally and I'm talking business leaders, community leaders, nonprofit leaders, and yes, local government leaders need to take ownership. And I think they are and this

is one of those things. We're just not doing it nearly fast enough given the demographic trends, which suggests if you if you don't improve educational attainment level, it's twenty years from now, wealth inequality is going to grow much much, to a much greater degree. Within that wealth and equality And you mentioned this earlier in our discussion, is the concept of age and you talk about an aging America. Yeah, I looked at last night out on Twitter. There's a

wonderful a six decade distribution of Japanese population dynamics. It's a terrible problem there to see those issues. How do we deal with that as a public policy? And by the way, I'll just I'll mention on Japan they have a much worse demographic issue than we do, and they've had very slow depth geographic GDP growth. The one thing they have that we don't have very high savings rate, and they can they they're highly leveraged, but because um the Central Bank has bought a lot of that and

they can restructure this. We and we are very highly leveraged also, so we really we've got to grow faster. And the problem is as the workforce ages, we can create incentives for people to work longer, but there's no gain around. Even if we do that, we're just delaying the inevitable. Participation rates are declining. Now, how do you solve that? Workforce development would help. The second thing that would help is immigration. Some I know it's controversy built

sensible immigration reform. Immigration has been key to this country. Immigrants and their children have made up over half the workforce growth in this country over the last twenty years, and it's our judgment of the Dallas Fed that if you go out the next twenty years, it's going to be higher than that because of aging demographics. So if we do things that limit sensible immigration, we are likely

to slow GDP. Based on what you're saying, you're not going to get the new slots at the White House, with with with with within. That is what is the tone out of Washington and what many perceived to be a anger across this nation about immigrants, anger about this, anger about that. I'm sure you see that within the eleventh district, how do policymakers move beyond the angers of two thousand seventeen um. So, actually within the eleventh district,

I think I wouldn't. I would say it's a little bit more balanced the view because of the fact we're right on the border with Mexico. I would say the following. When I go around Texas, New Mexico and Louisiana, which is primary and I talked, go to rural areas and we talk about what the actual trends are. Uh, I think, and we've talked about this fact globalization is increasingly being

conflated with technology enabled disruption. What I mean by that, twenty years ago, many jobs that were lost in this country we're due to globalization, and we can go industry by industry and give examples today not so much. Uh, it's technology enabled disruption is far more responsible for job displacement.

And the trends were saying than probably globalization is, and to the point where I think part of key elements of globalization are more likely to be part of the solution than part of the problem, because I think a lot of the disruption we're seeing is due to technology. Uh, and I think we're mixing them up, and I don't

think we're being well served by it. How does the Dallas FED, I mean, seriously, how does the Dallas Fed respond to the idea that on this morning in Abilene, there's somebody with brown skin worried they're gonna be picked up by the US government. That's a new feeling for millions of Americans. What is your research show is a better outcome to that? Well, I guess I would observe the following. And I've said this publicly a few times

several times, and I'll say it again. Um, consumer is the economy, Okay, And so I'm insensitive to anything that affects consumer spending, particularly among groups that have a very high propensity to spend, which tend to be lower, lower middle income groups. So healthcare reform I'm very sensitive to to the extent people are more concerned about access to health care, access to be able to get subsidies or be able to be eligible for medicaid. They are more

likely to save them to spend. And there are millions of immigrants living in this country, and to your point, they're not going out and shopping, They're staying home. They're afraid if they go out they may not come home on margin, and that it's too soon for the data to pick it up. So I'm hearing it anecdotally, and I believe we're going to see it. I think those people are more likely to save than to spend, and those two effects have some muting effect on consumer spending

and therefore GDP growth. Within that and with the responsibilities that Cheery Olne has, I don't want you to speak for the chair, but I would suggest that she has a huge burden and responsibility as we somehow normalize ourselves back to rates. Do you believe we can do that for that person in Abilene or for the rich guy outside Dallas who's employing people. Can we do it in a way of stability? Do you worried within the media about the doom and gloom if we raise rates six

times in two thousand seventeen, Well there'll be instability. So my own view is the following. UM, I got raise rates six times. There, I got that we're not going to do that, uh in a rapid way. UM. I believe because of these secular headwinds. UH. And and we

say this, I say this over and over again. I think, while I believe we should be removing accommodation, because I think we're getting we're near full employment, and while it's been frustratingly slow, we're moving toward our inflation target, although I think not yet. Over the next few years, we should be removing comedation. But it's got to be done

patiently and gradually. UH. For those who say, why aren't you raising rates more dramatically, I think the secular headwinds we just talked about, these, these factors that make this economy different than ten years ago and twenty years ago, means that we at the Central Bank need to be much more careful we remove accommodation. And that's why my own view is everybody, every people, everyone around the table

has an independent view. I believe we should remove accommodation, but gradually and patiently, because I don't think this economy is running away from US. I don't think inflation is running away from us. I wish it were, and I think we need to do this in a very careful way. You have a wonderful heritage here for this question, the idea of Dallas, McTeer, Fisher Kaplan. And yet you live for a long time in the people's republic at Cambridge. How far is Dallas away from rosen Gren in Boston?

What is that divide? Where's the ven diagram? So Eric of a different view versus debt. It's interesting. I knew Eric rosen Grin when I was in Cambridge, and uh, you know, I think the great thing about the FED I've learned there's great the great people. Uh. But around the table, um, each of them gives an does an independent analysis the economy and gives a view on what's going on in their district. And so um you know my views on this. Uh, well I won't. I won't

compare them to others. But they're very similar to many people around the table. But they come each come from different districts. That there are some things we have in common, uh, and a number of things that I said, the secular trends affect all of us. The other thing I think

I hear about everywhere is the skills gap. So I'll just get this in the skills gap in the United States, Meaning with all these issues we just talked about in educational attainment, there are more openings for skilled workers there in the supply of workers. So part of this educational attainment issue and the urgent need for workforce development is we're missing an enormous opportunity. And this is probably true in every district in the country where their businesses cannot

find skilled workers. I think I quoted the n f I B Survey, a small business survey unless I think almost fifty I think of them reported they can't find workers to fill skilled jobs. So this is a big opportunities. So, while each district in the United States is different, there's a number of these trends that and themes we have in common. What are the adjacency effects of low taxas? Texas is on fire, It's always been on fire, and a lot of that is tax policy. I looked at

the personal savings rate to disposable income. Savings rate to disposable income back then in the regime seems to be one with a lower aggregate tax set, and then the next ten twenty years was with a higher tax asset which brought down savings. Is that the Texas distinction is different texts. I think. I think there are a number of things. First of all, UH, pro business culture, relatively lower level of regulation. Yes, central location. Yes, there's the

tax issues. Some people love tribute some of it to the weather. But I know I can tell you this having spent a lot of my life traveling to Texas with my dad and jewelry salesperson. Uh, Texas is a very welcoming place for people who of their most people I meet, most CEO s I know in state are not from Texas. They've moved there. They migrated their business there.

Taxes might not have been the reason, might have been workforce availability, um, it might have been the fact that other businesses that are related to them have moved there. So there's an ecosystem that makes it a very attractive place for businesses to move. We're gonna get the questions. Is one more question, Ben, I'm gonna go to you first, so you get a warning. I'm gonna Ben Steel here with the first question. But I got one more question. Cathleen Hayes and I go back and forth on this.

The idea I hate this phrase a border tax. Isn't there no border, it's a tax against everything. Where are you and where are your PhDs on the efficacy of an import tax? And I believe has more countries involved in Mexico. So uh, I'll answer this in a political way as you would expect. Uh. Yeah, So our analysis is as follless um, And I'll go through the pros and the cons which the only way know how to do it. Um. Uh. The challenges will be there gonna

be winners and losers from this. Uh. For example, retailers have made very clear people in our district that it will eat into their margins. And I think a lot of people in businesses are people are focusing on the fact that, boy, businesses they didn't think imported that much turn out import a lot more than they thought. Imports are very critical to competitiveness. And then the second issue

is what's the effect on consumer prices here? Now the counter to that has been but the currency will adjust. But the truth is it's a big uncertainty how much the currency will adjust and will adjust enough to offset the fact that this border tax has to be paid by consumers here. And then the third thing, which you don't know and you can't quantify is retaliation what's the likelihood of retaliation? Uh? It is critical to the United States and certainly the US domiciled companies to be a

able to sell goods overseas. A lot has been made recently for about the fact that of SMP five hundred neighborhood of half revenues and profits come from outside the And And I'd say, if there's retaliation, what will be effect on US companies and US employment. So I think there's a lot of uncertainties. If you could get through those five years from now, Um, certainly there will it will create incentives for people to locate manufacturing here or locate

facilities here. But I think they're enormous number of uncertainties. So and I don't think there's been enough time to analyze in my judgment, UH, particularly the retaliation issue. What what's the likelihood? And so I think that's one of the reasons why this may You know, people are very concerned about implementing this kind of policy. Thanks for listening

to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you could always catch us worldwide. I'm Bloomberg Radio. Runch you by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in

a transforming world. VI of a mL dot Com slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated