Atlanta Fed President Raphael Bostic Talks Inflation, Jerome Powell

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Good morning.

I'm Michael McKee, the international economics and policy correspondent for Bloomberg, and we are here in Atlanta. Welcome to all of our viewers and listeners around the world on Bloomberg Television and Radio. We're speaking with the Atlanta Fed President, Rafael Bostik, who is retiring at the end of this month. So this is sort of your HR exit exit interview.

Mike, it's always good to see you.

I want to ask you, as you travel around your district for the past year, what's the mood like among companies and consumers. We've seen the surveys show that people are getting very, very pessimistic.

Well, I'd say it runs in two ways.

So, first of all, what has been true throughout the last year is a tremendous amount of resilience on the part of both.

But this is and consumers.

You know, April second, when ther were announced at very high levels. That put everyone back on their heels, and there's a lot of uncertainty. And what's happened through the year is people have figured out ways to deal with that uncertainty. So as for today, I think most businesses and most households are not thinking that the worst of the possible outcomes.

Are going to happen. They're not sure they can get to the best ones.

But everyone's trying to find a steady state where they can get through. So I think the sentiment is one of cautious optimism. But I put emphasis on the cautious as opposed to the optimism. I think people that are really trying to wait and see what happens.

Well, what do you think that means for the economy.

Well, I think it means that the things that we've seen for the second half of twenty twenty five we will continue to see through twenty twenty six. And I've talked to a lot of folks in the last six weeks or so, and they said, we think our experiences in October and November December are likely to move on.

And then there are some reasons.

Why they think it might actually get stronger.

You know, the tariffs.

People have gotten used to those, and so those effects will run through by the middle of the year. We've seen some of the stimulative aspects of the tax bill last summer.

Those will be coming on board.

And if consumers start to feel like there's more certainty then I think businesses, I think there's some upside potential in the economy.

Well, this last week we've gotten a lot of bad news on the employment front with ADP and Challenger and the other numbers that have come out. Does any of that you don't have another meeting to vote at, But does any of that give you pause about the FED pausing at this point?

For me, no, I think we've been in a situation where inflation has been too high for too long, and by many readings it's been kind of marking time has been at a plateau well above our target for the better part of two years. That's not acceptable, and for me, I think we can't lose sight of the inflationary concerns. The labor market is very turbulent right now, and some of it is because there are some big structural things

And I'm hearing that kind of reticence.

There's also the reality that during the pandemic, a lot of companies ramped up because the demand ramped up, and they've been slower to right size. We see a bunch of that right sizing happening as well. And then we have issues around the labor supply and whether the immigration shifts are going to be temporary or permanent, and if they're permanent, then we're going to have a lower steady state job creation. So for all those reasons, I think

What's going on.

Yeah, we wanted to wish you a happy non jobs dated today.

You started a long and varied career at the FED in nineteen ninety five. Since d what have you learned about the economy and about inflation?

Well, I think for the economy, one thing that's true is that it is a very complex economy is very large, and to understand it you really have to get out and see all parts of it and One of the things that's been great in my role here is I've had a chance.

To do that.

I think it's given me a deeper understanding of just how people engage and experience the economy and how they make decisions to move it forward. In terms of inflation, you know, what I've learned is that we really don't want to have inflation. Once inflation gets entransient, people's mindset changes how the economy evolves. And it's one of the reasons why I think that we need to keep our policy in a restrictive posture so that we get inflation

Do you think the economy is becoming more K shaped?

You know, I don't know more. I mean it's been that way for a while.

Just before the pandemic, I had been talking about this and we were trying to find some metrics to really detail how there's a split. I used to call it the Barbell economy, where either you were at the high end or at the low end.

The K shape is the same thing.

What I know is that there are a lot of families that are precarious and are feeling very uncertain about their prospects for the future and the prospects for their children for that matter. And that concern, I think does underlie a bit of the lower on the low consumer confidence that we continue to see being reported. And what we'll need to do is really give people reasons to be optimistic, to show them where the new jobs are coming from, and show them how they get the skills to compete.

For it well.

This week, Treasury Secretary Besson said the FED has lost the confidence of the American people.

Do you think you.

Have lost the confidence of the American people in your district? Do you hear people raising questions about that?

That's not been my experience. As I go around the sixth district, people tell me we're grateful for what you're doing. You have a very hard job, and we want you to be as data dependent and as open to information so you can make the best judgment that you can.

Look.

The world is very complicated it's actually more complicated today than it has been my whole time here. So I think most people understand that, and they know that we're doing the best job that we can under very difficult circumstances.

Well, you have a unique perspective because when you took office the Atlanta FED in twenty seventeen, you were the first black president of a regional FED bank. Looking back now and hearing the criticism that we get from Washington, do you think the Fed was too woke and perhaps the inclusive employment idea was a mistake.

I don't think so.

Look, what we have is an economy that needs to work for everyone, and if we're not mindful about the ways that the economy is not working for people, then our maximum employment outcome is going to be lower than it can be and it doesn't serve the American people as well as it could. So I think the focus on every American and every Americans experience is exactly the.

Thing that the Federal Reserve needs to be doing.

That's different than saying that that is unduly influencing our policy decisions.

And I will say, through this whole.

Episode, the whole time I've been here, you can look at at the market projectors. In the market projections, they in many instances we're more extreme than ours, right, And so I actually think we've been doing the best that we can and we've been data dependent and the way we've been for one hundred and some odd years. So I don't take on board those arguments.

Well, the new chair designate, Kevin Warsh says that that needs regime change.

What does that mean to you?

I have no idea. You're going to have to ask him what that means.

I think we definitely need to be data dependent. Our bank has really taken on board the notion that we need to go out and engage and talk to business leaders, find out how they're engaging with the business, how they're making decisions, and that combination we have found to give us the best perspective on how the economy is performing.

Well, he's been very critical of what he calls the fence mission creep.

Does he have a point?

I actually don't even see the mission creep argument. Like for me, on the banking side, for example, our job is to make sure that every bank that's alive today is alive tomorrow, and so we need to make sure that banks are thinking about the risks that could cause them to need to deploy capital in ways others then in loans, and so having conversations about those things I think is fully appropriate and we should be doing that.

I think we're.

Asking prudent questions to make sure that financial sector business leaders are aware of trends that could be introducing risk.

Warsh also says that he wants to shelve QY and significantly shrink the balance sheet and perhaps go back to a scarce reserves regime for managing the interest rates of the country. Could he do that? Would that be a good idea or how hard would that be?

So I think it's doable to me.

I was not at the FED when the decision was made to go from the scarce reserves to an abundant reserve regime. I do know there were tensions and a lot of volunteer that happened in the scarce reserve environment, and so if you're we're going to move back to that, I would hope that there'd be a discussion about how to mitigate that volatility, because so much of what we've done is just to make sure there's liquidity in the marketplace, and that liquidity is actually important to make sure that

Tell me about j Powell and what he means to the FED.

Jay has been great.

He's a colleague, I consider him a friend, very open and very transparent, and he's led the institution.

He's been at the institution for a long.

Time, through a lot of significant periods. I think his legacy will be quite positive and I'd be sad to see him and leave the board if that's what he chooses to do. But it's been a great relationship for me with him, and I've had been my pleasure to serve under him.

Do you agree with the sentiments he showed when he made his video a couple of weeks ago.

So I'm not going.

To talk about the specifics of the legal action from the Justice Department. What I would say is this, it is essential that the FED performance duty mindful to its charge, which is stable price and maximum employment to really focus and create long term stability and predictability.

In the US economy.

And if you want to call it independence or whatever you want to call it, you can do that. But that's the charge and we need to stay true to that, even when people with different horizons and different objectives have their views about what.

We want to do.

There were questions about the FED and its ethics rules. You ranted some problems, as did others with those.

Was that the rules or was that the individuals who created the problems?

Well, you know, individuals make the rules. I will say for me, I thought I was doing the right thing, and I found out that I wasn't. So once I discovered that I didn't, I wasn't doing that in the reporting side, then I changed them and I changed our rules.

Well, last question, what would you tell Donald Trump if you had the opportunity about j Powell and about the FED?

I'd say Jay's trying to do the best that he can.

He's a smart man, he understands markets, uh, and if you want him to succeed, you should let him succeed.

The FED itself, do you think it is under threat from this administration threat?

I don't know.

What I would say is my whole time here, and I think that most of the history of the FED, there have been people who thought the FED should do other things and talked about.

That, and we called them out.

This is another one of those times, and we need to be mindful and we need to be solid and resolute to understand that. That's part of that comes with the territory, and with that territory then requires our strength and our resoluteness to stay focused on what we've.

Been asked to do.

We fail, Bastic, thank you very much for joining us as president for another couple of weeks.

I've got at landa fed