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This morning, the New York Fed President John Williams pushing back against hawkish commentary from the FMC and Wall Street now pricing in better than fifty percent odds the Fed will cut race in December. FED Governor Stephen Marram was the loan to sent for a fifty basis point raid cut at last month FMC meeting, and Governor Maron joins us now for more.
Governor Maron, good.
Morning, Good morning once again, thanks for being here, Thanks for having me back. We've got to start with the labor market. Your reflections on what we saw yesterday. Does it lean one way or the other?
Yeah, I mean I think the implications of yesterday were obviously dubvish, and if anyone was on the fence, I would hope that this would move them in the direction of cutting. I mean, you saw the unemployment rate edged up a bit. You know, you saw some other indicators like an increase in permanent layoffs. You know, those are indications that the labor market has been affected by restrictive
FED policy. And given the outlook for inflation, there's not really much of a need to be as restrictive as we are, and.
Yet on the committee we have pushedback.
Maybe after that, FED Governor Michael Bach had this to say, I'm concerned that we're seeing inflation still around three percent. Inflation's closer to three that it is to two. What do you make of that argument? How percisive is it?
It's not persuasive to me. And I'll tell you why.
All of the inflation excess, sorry, almost all of the inflation excess is a mirage. It's not indicative of supplied demand in balances. And so, for example, if you look at the housing market, right, market rents have been running at about one percent for a couple of years. Measured inflation in the index is actually much higher than that because it takes a really long time for the index to converge down.
To where market rents are.
That's a statistical artifact, right, That's an artifact of the statistical measurement process. It's indicative of a supplied demand in balance that was there in twenty twenty two, twenty twenty three. Monterre policy works with lags. It has to be set now for twenty twenty seven. So when you look at the housing data, right, you see market rents running about one percent for a couple of years. There's no supply
demand in balance there. We should not be setting policy for twenty twenty seven based on a supply demand in balance that existed in twenty twenty two or twenty twenty three.
That doesn't make any sense.
There's other things too, like portfolio management services which confuse quantities for prices. This stuff is all well known. If you look at market based measures of inflation, they're much closer too than they are to three. So I think that the excess the overage is a mirage, and it's a mistake to ask people to lose their jobs because of course of the statistical measurement process.
And you've got to put out new forecasts on December tenth as well, which is going to be complicated by the fact we've had limited data more recently. How relevant do you think the Canida actually is, because I'll I'll offer you the perspective on more straight At the moment, it goes something like this. The meeting's on the tenth, you don't get the dates fro until the sixteenth. The Fed's kind of constrained by that. They can't do anything what's your perspective on that.
Yeah, so, as I said moment ago, monter policy works with lags. It'ld be much easier if it hit the economy immediately, but it doesn't. It works with lags, So you have to set policy based on the forecast. So the data matter insofar as they affect your forecast. It doesn't make sense to be setting policy for where the economy was three or six months ago. We should be setting policy based for where the economy is going to
be twelve to eighteen months from now. And so if we have data, it gives us the ability to update our four K. But the lack of data doesn't mean that we don't have a forecast. We did have a forecast. It all gives us as opportunities to falsify a forecast. And there hasn't been anything in the data in the news, in media stories, in private sector data, alternative data that's available to us that would make us think that the forecast has somehow nullified. And there's been a big shock
to it. So, if anything, all the information that we've gotten in the interim since September FMC has inclined to the Duvish side. You know, we got weaker inflation than people expected, and we got a higher unemployment rate than folks were expecting. So all of that information should push one in the Duvish direction.
But there are still FED officials that are looking for more data, and they have said they're data dependent. They want that insurance that they're cutting right now and it's the right time. Potentially the unemployment rate might be moving up to four point five percent on December sixteenth. Would you be in favor of just moving the meeting if it meant others felt more reassured to cut interest rates in December?
So you know, I haven't really thought about that, and it's not a conversation that It's not a conversation that I've been part of. I mean, I agree the meeting dates, see the meeting dates seem kind of arbitrary, But at the same time, there's a lot of there's a lot of stuff that gets done as a result of those meeting dates, and you know, people have investments and contracts and other decisions that are tied to the timing of the meeting date, and I don't know to what extent
moving those dates would be disruptive for all that. So it's something that I'm not sure about. But this ultimately comes down to the question of data dependence. Is what you do when you don't have a forecast or when you don't have any confidence in your forecast. Right, we should be forecast dependent, not data dependent. Being excessively data dependent is to be too backward looking. And if you're too backward looking, you necessarily are going to have the wrong policies.
Neil Daughter rights and he says, the only question that matters for you is will you descend for fifty if you believe it means not being able to push through a twenty five basis point cut.
Yeah, so absolutely not.
I would absolutely vote for for a twenty five basis point cut if I vote were the marginal vote, There's no question about that.
You know.
To do other wise would be to cause real harm to the economy for purposes of vanity.
And that's not who I am.
Going into next year talking about the forecast of what's going to happen. A lot of economists to come on the show expect a reacceleration on the backs of the tax refunds and some of the other stimulative measures that could come early next year. How do you factor that into your forecast for ongoing weakness in the labor market and the consumer.
Yeah, so I think that, you know, I have not been a what I would think of as excessively pessimistic on the economy. I do think policy is restrictive, and I do think that it's too restrictive, and we don't need to be And the longer we remain restrictive, the greater the chances that we are the source of an economic downturn, which we should not seek to be.
I think that.
Many of the many of the factors that will be kicking in over the next twelve months that might be supportive of GDP growth are things that miss is. They really don't have hawks implications for Monterey policy because they affect the supply side. And when you think about things like relaxing regulations, and I think that that has been going on at actually an impressive pace, these are things that push out the supply side of the economy and
therefore don't necessarily create a demand excess of supply. Right, Montere policy should be tight if demands is too much an excess of supply, and if you push out the supply side of the economy, then that's not something you worry about.
There's a duration mismatch here though, the idea that if you reduce regulations and you allow people to build supply, that it takes a longer time than say, if you give people two thousand dollars checks right up front that they can spend immediately, or if they get a rebate that's a lot bigger from their tax from the tax filings.
How do you factor in that timing mismatch? Would you look through any bump up in inflation next year from both stimulative measures as well as a price increases that we're hearing from a lot of retailers that they're going to pass along.
So you know, I wouldn't look through I wouldn't look through bumps from uh from from checks like.
That, right, you know, I don't think that. I don't think that you'd be able to.
However, a policy like that has been hasn't been formalized, it hasn't been introduced, We don't know the parameters of it. It's too early to sort of think about basing a forecast on something like that. What we do know is that the is that the labor market data have been coming in not as strong as we'd like them to be in that policy is too restrictive.
Governor, if we can stay on inflation. Do you know when we're going to get some inflation data? When are we going to get that? Because we've heard about the payroll schedule. I haven't really heard anything about the CPI schedule. You've got any indication whatsoever when it's coming.
Yeah, the BLS put it out on its website this week. I think that we're not going to get the November CPI data until after the next FMC, so we've got to wait for that too. We've got we've got to waste that.
Do you see that, Lisa, Yes, I did.
I saw that we have to wait and it's not clear exactly when we're going to get it, but there's a real question going forward about when we might get.
We don't have the DACE ship, but we don't have.
The data are on the website.
Yeah, the BLS has a has a as a list of the release dates on.
The payrolls one. But I've missed the CPI one.
Which doesn't that just make it an even stronger case just to wait and have this meeting when we've got all this data.
Why is it that we have to wait so much long before at governor.
Wait for the data.
Yes, well, because the government shutdown introduced a whole number of snags into the data collection process, and so that those snags mean extra time to collect the data, extra time to process the data. People have a log gym of work to get back to. I mean, we just you know, sort of spent several years talking about talking about bullwhips from supply chains, right and you know, gets
pulled in at once. And when you have a government shutdown, all the government employees aren't working and they come back to work and they've got a ton of work to do, all at once. And so you know, we have those those bullwhips in government data right now. And you know, if that were a market, you'd see some inflation in the price of data.
But it's not a market.
So give me for coming out with the hawkish hits. But we got another one in the last twenty four hours two and it came from Beth Hammock laring interest rights to support the labor market risk prolonging this period of elevated inflation, and it could also encourage risk taking and financial markets. Can we finish on that last point, risk taking and financial markets. How excessive is it and should it be on the ritar of the f WEBC sure.
So, first of all, as I said before, the excess of inflation is a quirk of the statistical process. And it is a mistake to ask people to lose their jobs as a result of a quirk of the satistical process on financial markets. You know, Look, I think that lots of things affect financial markets. Tax policy does, regulation does technology like artificial intelligence does. It's a mistake to conflate the stance of the status of financial markets with
the status of montary policy. Right, even when you look at us something as a financial market as deeply connected to mantary policy, like interest rates, We've lived through periods of conundrums, right, We're passing through of the Fed funds rate into longer term interest rates was confusing to people. So it's just a mistake to do a one for
one mapping of these things. And I think that when you look at financial conditions, the financial condition that matters most for the real economy is and remain, has been and remains housing, right, And this this is an area where financial conditions are not tight, so are not loose. This is an area where financial conditions are still quite tight going out getting a mortgage. You know, this is not something that's not a financial condition that I would
consider to be excessively easy. And so I think it's a mistake. And I think it's also a mistake, as I said before, to ask people to experience job losses because you think the stock market is too high. I don't know what the right level for the stock market is, and I think that it's a very challenging question to be able to answer credibly.
And to say that we need to create job.
Losses in order to sort of restore the stock market to some level that we think is more reflective of fair value is just not a policy view that I hold.
A lot of people have come on this show and said that right now the FED is stuck between a conundrum of the K shaped economy where you have people at the upper end who are doing just fine and are supporting consumption, and people on the lower end who are experiencing lack of wage gains and they're experiencing those
job losses more significantly. How concerned are you about sort of your dual roles of trying to help prop up and prevent some of those job losses from really escalating, while at the same time, potentially cutting rates would exacerbate that case shape, and you only exacerbate what you're seeing with respect to the wealth divide.
So Congress didn't task us with addressing all social problems in the world, in equality one of them. They tasked us with tackling aggregate maximum employment and stable prices. And so therefore the right policy to take is to stabilize employment and prices, and that's the policy.
That's the policy that I support.
I do think though, while discussing the subject of inequality, it would be much worse for the people at the lower end of the income distribution if the unemployment rate continued to go up as a result of our policies.
That's not something that they.
Would be that they would welcome, and it's not something that I would welcome either.
Governor arts with the President this week and you have an office and I asked them about the FED interviews.
It says lots of names.
We may go the standard way quote, it's nice every once in a while to go politically correct. Out of the names that we know that are being interviewed, who is politically correct?
You know? I don't really know the n work.
You worked for the president, so you understand how his mine works. Do you think it means someone that is currently on the board, like a Governor Waller or someone that's very close to him in your former colleague Kevin has it.
Yeah, So I mean it should be pretty clear that I just always say what's on my mind, and therefore I don't even know what politically correct is. So I don't even know how to begin addressing that, you know, but look, don't I don't make being.
Too politically correct right now?
Actually am I've never been accused of that before, so hey, you know, I'm happy to have it first.
Govin a very diplomatic it's going to see you, thanks for dropping by, Thanks for having me, Thank you, sir, Thank you very much.
The fact Govin is Stephen Myron