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Thank you to Raphael Bostik for joining us. You've been on Bloomberg's Odd Lots and you run another Networks morning. So we're going to stipulate that things are uncertain in the economy and you don't exactly know where policy is going to be. And let me ask you a couple
things in a different areas. Monetary policy works through the markets, and I'm not talking about the judgment of market people, but do you think that market rates are essentially where they should be given where your rates are at this point?
Well, that's all. That's an first of all, good to have you here. I'm really always happy to speak on Bloomberg. What I would say is this the market is trying to process a lot at this point, and where our rates are, I think are mildly restrictive in the marketplace, trying to get inflation back to our two percent target
because it's been too high for two long. I think the rest of it is really about perceptions of risk in the marketplace, and you know, uncertainty and the volatility that might be present in the market I think leads to there being an extra premium on it. And so you know, the market will decide what his price needs to be. But it doesn't surprise me very much that we see it at a higher level relative to the things that we've done with our rate in the last year.
Well, we've got the downgrade now that pushed rates up early this morning and overnight, and then it started to fade back a bit, the same thing that sort of happened after Fitch and s ANDP did their downgrades. Does it were you that they are not pricing in more of credit risk to the United States, given that we're no longer triple A.
Well, you'll have to talk to the raider. It's about sort of how they interpret these things. What I would say is this, so much of our economy is based on faith that we will deliver on the things that we say that we promised for the future. When you start to see the Marcus waiver a little bit, people, I think people are asking the question, do we still
have that same level of faith. I think the sign that our rates have started to come back down and the markets are sort of returning back to a normal stasis to guess that they think there is that likelihood moving forward and we'll just have to see where it goes. I mean, I always want to make sure I understand what the price of credit and debt is. But you know, the markets all will make a determination that on their own.
Well, if they are higher and stay higher as they are right now, does that affect your calculation of what you have to.
Do, well, it depends, you know. One of the things that we'll be interesting to see is how businesses and consumers respond to the environment. What I'll say is, because of the word that you said at the very beginning, uncertainty, we know that many businesses and many families are really holding tight to see sort of how this all sorts out. And we'll just have to see how the changes in pricing inbound markets and other markets translates into different strategies
moving forward. I do think the stasis that we have right now is one reason why I think it's appropriate for us to be waiting on our policy as well. And we'll just have to see how this all plays out. I'm hopeful that as we get through the summer, we start to get more clarity on exactly where things are going to set out in trade policy and other factors.
Well, I know you've got your people working on this, But is it going to be hard? Do you think Do they tell you to separate out tariff effects from just secular movements in both sides of your mandate.
Well, I'm not sure you can really do it so cleanly. What I would say is when we talk to businesses, what they tell us is they've got a plan based on a projection of where things would be. Tariffs have evolved over time, and it looks like some of those levels are going to be higher, and we have to just see what they decide chan needs to change in
those plans. Today, they're telling us that if tariffs don't get too high that they can sustain with the level of UH employment that they have, then they don't necessarily we'll have to turn to laying people off. But they say, you know, we don't know, and so we're gonna wait and we're just gonna watch. And on the inflationary side as well, all the models say that the level of inflation that we have is gonna be upward put upward
pressure on prices. So we're just gonna have to see what the negotiations turn out to be, and then at that point we'll have a better sense of how much we're gonna have to do on our side to keep both the employment mandate and the stable prices mandate close to our targets.
Well, you said this morning you thought it would be three six months before you get clarity. Does that mean that any kind of FED action is gonna be off the table until at least September?
Well, okay, the as if and then A then I would say, Look, if it takes negotiations a longer time to settle things out, we have another ninety days on China, for example, that starts to push much further into the summer, in which case we won't actually know what the true effects are going to be for several months after that. If that's how it plays out, then that's then sure,
I think. And right now I would say in my SCP, I have one cut only for this year, because I think this is going to take longer to resolve than it might have otherwise. But things could go faster. It could be the case that these negotiations bear a lot of fruit. We know what the numbers are and they
perhaps come in lower than people are expecting. In that case, we may be able to pull forward some of our actions because there may not be as much that we need to do in terms of managing the price level.
Well, I know it's a surprise that the President keeps changing his mind to hunt teriffs. So what does clarity look like to you?
So for me, I would say where clarity is where businesses feel like they know what the lay of the land is, what the rules of the road are likely to be, and are making plans and moving forward based on that. You know, when I talk to a lot of folks, when I go talk to chambers of commerce, and like, I always ask the question, how many people here think that the rules we have today are the rules we're gonna have a month from now, And no hands go up. That to me says we don't have clarity.
What I would look for is at some point all the hands to go up, and then I know, and I'll have some confidence that when they tell me what they're gonna do with their workforce, when they tell me what they're gonna do with their pricing, that's actually what will turn out. And at that point then I'll have a much better sense. I can come back with my team, we can figure out exactly what we think an appropriate path the policy would be, and then we'll we'll move forward with that.
Well, given that no hands are going up at this point, when we get an SEP from the FED, or a dot plot or your argument for one cut this year, should we take any of that seriously?
Well, you take it as seriously as you want. I say, like for most times, actually whenever I do the SEP, it's a point in time. It has a narrative about where I think the economy is going to go. If the economy goes that way, and that's exactly what we'll do. If it doesn't, then I'll pivot to something else. I think that's really the way to look at it. But also recognize that in the SEP submissions there's a whole narrative in the BacT that most people don't pay attention to.
It ties to describe some of the things that are embedded in the narrative, and I think those narratives will be particularly important moving forward to determine how much to take on board as to an expectation about where our policy will go.
Speaking of unemployment, the Chairman put out of MEMMO on Friday saying that the system was going to cut ten percent of its workforce. How is that going to affect the Atlanta FED and what kind of divisions are affected.
Well, I would say we are always looking for ways to find efficiency, and when I took this job, was committed to making sure that we use our resource in the most efficient way possible. We don't have a formal plan right now. The Chairs just announced this on Friday. I'm talking with my colleagues across the system. We've always been thinking about ways to do efficiencies, and we'll come
up with a plan moving forward. But this is something that look, business has come on Bloomberg all the time and tell us and tell you that where they're going to restructure. I would look at this not as anything different than that.
Is this in any way a response to the those cuts that are going through Washington.
Well, this is the president, this is the chairs directive. You'll have to talk to him about that. I would say, I've been having discussions about efficiencies in our bank and in the system for pretty much the whole time I've been here, and you know, we'll just I'm looking forward to the discussions to figure out how we're going to do this. I would also say the ten percent number is going to be moved on in a number of different ways. So our annual attrition rate is about eight percent,
so we're going to take our time. We want to do this in a strategic and intentional way so that we don't degrade our capabilities as we adjust our workforce level.
Another subject uh the framework review. The chair said last week at the conference in Washington that the shortfall idea maybe didn't work as well as you thought. Is are you assuming that that's going to go away in the new framework?
So I don't know about that. I think for me, one thing that I think would be quite positive, and the chair said this as well, is that our framework statement has to apply in a broad set of economic contexts. When we did the last one, there was a a belief, I think that was widely held that inflation was going to be lower as a baseline and that we would be close to the zero effective zero bound for as our steady state, and it turned out that wasn't the case.
So I would look for adjustments that allow us to allow actually everybody in the public to see the framework and be able to apply it in a way that works for whatever circumstance arises.
One last question, to steal a bit from a panel that's going to be here tomorrow. As you look at the framework, you're talking about the policy the way you look at policy, But what about an operational change like to demand driven reserve levels as opposed to ample reserve something broader for the FED, Well.
That's going to be a much larger discussion, and I think the Chair has said pretty clearly he wanted to really focus on the things we're focusing on. How are we talking about are addressing both the inflation approach and the employment approach to make sure that there was clarity on that. I expect in the years to come, we'll have a lot more conversation about ample versus other types of reserve regimes to implement our policy.
Thank you very much, Raphael Bastik from the Atlanta FED, thanks for joining us today.