Bloomberg Audio Studios, Podcasts Radio. An important conversation we want to bring you now to in New York Bloomberg Salaams and sitting down with the newest member of the FED Governor Stephen Myron. This is at the Economic Club of New York, a fireside chat live on Bloomberg, and.
That it wasn't bad. And so my initial thought was that I was going to be given I was going to be asked to run the buer of labor sistics as a second job. That's what I initially expected when I walked into the Oval office that day. But yeah, that's that's not how it turned out.
Yeah, they couldn't find you personnel decision could be firing or would you like to be a FED governor?
Yes, So that's that's what it turned out to be. Yeah.
Yeah, So you're on leave from working for President Trump, where in your job you provided economic analysis for the White House. Trump says in the White House says that the US economy is doing great. They recently put a post up on the website that talks about how Americans adding like never before, they are earning more, and the industrial renaissance is here.
Yet. As a FED governor.
Last week you wrote down a forecast for a total of one hundred and fifty basis point cuts in three meetings, which is usually panic territory. How can both points be true at the same time that the economy is doing great, but a rapid interest rate reduction is necessary.
Yeah. So, look, I mean, as I said a few moments ago, I expect the second half of the year and into next year to be better in terms of growth. In the first half of this year in large part because a lot of the effects of the tax bill are going to be kicking in and trade uncertainty is dissipating.
But I view a lot of that as also expanding the supply side at the same time as the as the demand side, And so, as I said, if actual output and potential output are moving up at the same time, it doesn't imply a necessarily hawkish or much tigher policy because the apple cap isn't expanding if they're both moving at the same time. Instead, my view is that policy is roughly two points too restrictive, which is considerably restrictive.
And even though I am expecting growth to be a little bit better in the future, that could get derailed unnecessarily so and create an apup of gap where one need not exist if we don't get policy closer to neutral. Now that said, because of the distance neutral, my view is it's better to move there more quickly than less quickly. It's not a panic, you know. I think a panicky move would be something like seventy five business points or
even more. I'm not panicked. I just see that the risks grow the longer you remain significantly above neutral.
You have company among your new colleagues at the FED in your neutral rate forecast that nobody wants to move quite as quickly as you do.
What is it that concerns you about the labor market?
Well, we learned that the first half of the year was not as strong as we would have liked it to have been. We learned that the labor marketing continued to lose momentum throughout last year and into the first
half of this year. And that to me means that even though I think that growth is going to pick up for various reasons, there are concerns that, hey, things had been moving in the wrong direction, and if you keep policy this degree of restrictive for too long, you're not going to allow things to move in the other direction, and so you're going to create a situation which napokap expands. And so in my opinion, it's imperative that we get
closer to neutral quickly. And so I thought three, you know, sort of a series of fifties to recalibrate interest rates was the appropriate policy.
And you don't see that as panic, No.
I don't see that as panic. I mean, if I were panicking, I would tell people I were panicking.
All right, A lot of businesses say that you talk in your speech and just now about how rates are too restrictive, But a lot of businesses that I've been hearing from reading different reports and analyzes, show that some of the pullback and investments is not to the restrictive rate environment, but has to do with policy related uncertainty.
How do you counter that, well.
I mean I think that you know, there's a lot of different interest rates in the economy and a lot of different types of investment, and so for sure, there are parts of the economy that have been affected by that. And as I said before, I do think that that that type of uncertainty is not totally on, but I
think it's certainly less than it was a few months ago. However, if you look at other sectors like housing, you know, I think it's very clear that rates are that rates are you know, that rates are the primary impetitive and to investing in housing and building more housing at the moment. You know, I don't think that that's a function of trade policy uncertainty.
You threw a lot of numbers.
I apologize everyone.
Yes, I'm sure everyone's going to go back and look at this speech and the table. Can you break down just a little bit what your economic growth forecast is for twenty twenty six.
Where do you see the economy ending the.
Year so conditional upon economy, sorry, conditional upon on getting rates closer to neutral as I had in the SEP, I think growth is going to be in the you know, sort of in the mid two area.
And where do you see the federal funds rate.
Again in the mid in the in the mid two area.
So if your forecasts are right, it might be time for rates to go up at that time.
Uh no, because some of the so so there's a difference between So in the speech I said two to two and a half percent was the correct rate, but my dots actually have a slight divergence from that because
some of the effects kick in differentially over time. And so there are some effects that you know, I think we'll be kicking in immediately, but then sort of the rent disinflation accelerates over time, and the apple gaps kind of ameliorate over time as potential, sorry, as actual catches up to potential, and so there's a so so it's not the case that you would sort of just collapse down immediately to two to two and a half percent
and then gradually raise back up over time. Because of that, there's actually there's you know, my view is get relatively close neutral quickly, and then there's a little bit more cutting next year, and then a little bit more cutting the year after that, and then sort of back up to neutral thereafter.
So I want to talk to you about a paper that you wrote for the Manhattan Institute last year. It came out in March of twenty twenty four. You name Lalel Brainard, specifically criticizing her for being among the Central Bank officials who have rotated between the White House and the Federal Reserve. Of course, that officials are most of them are nominated by the president, and so there's a
natural link there. You named that Brainard specifically took one single weekend between a political role at the White House and a role as an independent member of the Federal Reserve.
A quote that jumps out from the paper is to pretend that no one to pretend that one can easily shift between highly political and allegedly non political roles without letting political bias informed policy is at best naive and at worst, sinister Governor Myron, how is your being on leave from working directly from President Trump different?
Yeah, so first, let me let me address me let me go backwards with that. Right, So, first, the on leave is just because it's a four month job. And if it were a longer than four month job, I would of course resign, you know, immediately. If there were some reason that I would think that I would be in the seat past January, i'd resign. Now at the moment,
I don't have such a reason, you know. And I think that there's no question that the FED had previously gotten over its skis in terms of politics, and I think my analysis is borne out by the history. The FED decided that it was going to be the organization to take on climate change and to join various international
networks for bringing the financial system. The FED decided that it was going to get involved in credit allocation, deciding that this sector of the economy is worthy of credit and this sector that we don't politically favor is not worthy of credit. The FED decided that it was going to intervene in heavily political issues of racism and police, and FED officials started giving speeches about police brutality and
arguing that we were overincarcerated the you know. The FED decided that it was going to become more and more political along these lines, and I viewed that as a significant problem. That's the context in which I in which I in which I wrote that the proposals that in that paper are a package deal, a system of checks and balances, and everything that I wrote in there requires the entire system of checks and balances to be effective.
If you just took one check and you ignored all the others, all you do is empower the one that you're protecting. So it's a it's a it all has to be viewed in the context of a total system, as opposed to sort of in isolation. Now, I was asked to take this role by the President of the United States. I took the role. I will do the
best at it that I possibly can. That means for forming my own views independently based on what I think is appropriate economics, based on what I think is appropriate analysis, and because of exactly the things that you're discussing are why I want to be so transparent and as transparent as I possibly can be. I didn't just make the number up for the SAP, right, I just read everyone the analysis. And I know I probably bored people to
death with this many numbers. But the reason why I did so is that people know these numbers aren't just made up. There's a reason every single line there has a number on it, and every single line has an elasticity, a size of the change, and then these policy outcome, which is basically the two multiplied to each other. And if you're going to disagree with me, I invite you
to disagree with me. Tell me, do you think the elcicsity is wrong or do you think that the size of the size of the changing the changing parameter is wrong? The changing variable is wrong? Right? Because you may think that you know that there's other estimates of the effects of immigrants on rental prices on rents right that you know are higher or lower, and I should be using a higher and lower elisticity, right like, please have the conversation, right.
But I am being as transparent as I possibly can, precisely because of the concerns that you just listed, and I invite everyone to do so. Well.
There's nothing boring about what's coming out of the Federal Reserve these days, I assure you, the President, Let's talk about the context you shared, the context against which you wrote the March twenty twenty four paper for the Manhattan Institute. The context right now is that the President has said many times that he will have a majority soon at the FED, more of his appointees than anyone else. A lot of academic studies show that a loss of central
bank independence is often associated with higher borrowing costs. Do you think that there is a risk to the President being so directly involved in selecting governors who have a certain view on rates. Let's set aside DEI and climate risks, but we're talking monetary policy where the rate path should be.
You know, again, the president is entitled to his views on monetary policy. I think everyone's entailed to their views on monitary policy, and I'm delighted to hear views from all I think it's very important to avoid groupthink. That means hearing all views from all perspectives, and I'm very
happy to hear the President's views. But at the end of the day, I make my analysis based on my own understanding of economics and how the economy works, and I just read it all out loud to everybody, and I would hope that everyone else who is appointed the Federal Reserve does the same. You know, presidents have always appointed people to the Federal Reserve who thought about policy in a way that they wanted to appoint people to the FED.
You did stay on Friday on Live TV that you had spoken to the President the day that you were confirmed.
That was just a congratulatory call.
You said, Yes, he called me to congratulate me after I'd been sworn in.
If I'm curious what you would do if, in a phone call the President directly asked you to vie for a specific decision at the FED.
I would respectfully listen to his view and his analysis of why interest rates should be wherever they think that they should be. And he has been very forthright in his view, right, which is not exactly the same as the numbers that I put out there. There is a difference, right. I would respectfully listen to his view. I would consider his arguments, consider whether they had any merit, and then I would make up my own mind based on my
own analysis. And I would do that whether it's the President or anyone or any other you know, political actor.
Would you share publicly if that conversation were to take.
Place, Well, you know, as you can imagine, I've had a number of conversations with the President about the economy, about economic policy over the last you know, nine months, about the economy, economic policy. A number of those conversations that touched in the FED. Also, he's never asked me to set policy in a specific way. So Amy never asked me. It's never happened.
From my understanding. On the day that you were nominated, you were interviewed, I believe by Scott Bessen, the treasure Secretary, Susie Wiles, the White House Chief of Staff, and the President.
Did the rate path come up in those conversations.
No, he never asked me. He never asked me to set policy in a specific way. He shared his view about Monterey policy, the same view he says on TV several times a week. You know, there's nothing about his view about Monterey policy that I know that you don't know. But he never asked me to set policy in a specific way in nine months.
In nine months. So last Monday night you're confirmed by this. Then Tuesday morning you have a phone call from the president and then you walk into your very first FOMC meeting. Can you share just a little bit about what it is like to walk in? It was a historic meeting on Monday. We didn't know who was going to be in the room. Would you be confirmed? Would Lisa Cook still be able to participate?
What was that like?
It was? It was cordial, it was collegial, It was friendly, it was respectful, and I was very appreciative of that. Everybody was very welcoming, you know, and it was a good discussion. And you know, the way that it works is the staff make their presentation, Participants are allowed to ask the staff questions. Participants read their views of the economy and about appropriate monetary policy, and there was a forthright exchange of views, and you know, lots of diversity
of views. And I appreciated that conversation and everybody was just very kind, and you know that meant a lot to me. And you know, in the press conference, Chairman Powell said something which I think really resonated, which is that the way the FMC works is by persuasion. Right. People go there, they have their view, and they try
and convince other people of their view. Now, I don't think that persuasion actually tends to happen at the meeting because, let's face it, with nineteen people in just a few hours, you're never going to really reach a consensus on a lot of issues in that short amount of time. Conversation. It happens in between, right, And that's what I'm trying to do today, right, is I'm trying to tell people
there's a reason why policy rates are too high. It's because there's been substantial changes in immigration, there's been substantial changes in tariff revenue. And these need to be incorporated into our economic models because they're relevant for how monetary policy is set. And that's how I'm going to approach my time at the Federal Reserve is to lay up my economic arguments as clearly and transparently as I can, and hope to persuade people by the force of the economics.
I don't think, I really don't think the idea that population growth affects neutral interest rates as a controversial view. This was a universally held accepted fact. Probably nearly there's always an exception. Probably a nearly universally held accepted fact. Five or six years ago, everyone would have almost everybody would have agreed sure population growth effects neutral interest rates. Countries with high population growth have high neutral interest rates.
Countries low population growth have loan neutral interest rates. Well, we just had a major swing in population growth because of the changes in border policy, and in my mind, it's incumbent upon us as policy makers to think about that when we think about where appropriate mantar policy should be.
Governor Martin, you're talking about your approach while you're at the FED. You have a few short months, and it seems like a little bit of a caretaker role that should be taken seriously. You've also come out of the gate quite strong. You had your descent last week. We saw you on the airwaves on Friday, and now you've
laid out in detail your views to be transparent. As you said, what should we make of your approach are you hoping to spend these few short months persuading on a board that is run by a chair whose ultimate job is to forge consensus.
Yeah, I mean, look, you know, I'm I think at the end of the day, you know, I just try and think things through myself and ask questions to try and figure out where consensus might be complacent and wrong.
And I've always done that and I think you sort of see that on you know, some of my previous writing on tariffs, for instance, right, you know, the idea that you would be able to implement these things without significant retaliation was once very out of consensus, and now I think a lot of folks are coming along to that direct, you know, sort of to that view. The
same is true of this. I will be as independent as I can in thinking through monetary policy, and that means not only in a political sense, but in an intellectual sense as well. On the FMC, and I view my job as trying to provoke an interesting discussion that will help that will help the FOMC arrive at arrive at arrive at clear clearer understandings of the way the economy works and where Monterey policy should be set. It's
a few short mind. But you know, I've got I think a lot of a lot of content to work through.
In those months, you shared that you're using CEA data right now, but you're looking forward to working with FED staff as well as you move forward. You talked about population growth and other data points that you're looking at. Can you share with us a little bit about your views on the power of a descent. We saw governors Mickey Bowman and Chris Waller over the summer descent against
Powell or the board. A few months prior, Governor Waller was on Bloomberg TV actually talking about how he views dissent as you do it once and then you've made your point, and maybe you back off and see how the economy develops and how the discussion goes. First, I'm curious your views on that, and then I'm curious about how you're going to be the October meeting.
Yeah, I mean, look, you know, I arrive at a view. I do a lot of careful thinking. I arrive at a view, and then I will sort of continue, you know, until my view change. I will continue arguing for that view. And if that means continuing to descent, that means continuing
to dissent. I don't view you know, look, I will always be polite and collegial, but I don't view voting with the consensus for the sake of establishing an appearance of a consensus, even if I disagree with it, to be more important than trying to argue for what I
consider to be the correct policy. And if that means that I keep on being I think, you know, sort of sticking out from the crowd and sort of being more individual in my views and more adiosyncratic in my views I think than maybe the rest of the pumcy, then that's the way it's going to be. I'm not going to I'm not going to vote for something I don't believe in just for the sake of creating an illusion of consensus where where there is none.
So, depending on how the economy unfolds and what data we see between now and the end of October, you are willing to be the loan descent again in October with fifty basis point dot on the plot?
Or are you hoping that more people join you?
Yeah, unless something unless something changes that would lead me to change my economic view, right, I mean something could change that would that would make change my economic view. You know, there's any number of things that could that could leave that, But as long as my current view remains my operative view, I don't see why I would vote for anything that's not my view.
You have a way of getting the attention of the world of finance and economics with the words and phrases that you use. A few months ago, it was the notion of a mar A Lago accord that had a lot of people buzzing, especially in the Bloomberg that I live in. And now it's this concept of a third mandate, which is a word or phrase that you did not actually use.
Let's talk about this.
In your testimony, you brought up a piece of the FED legislative mandate.
You noted the moderate.
Long term interest rates that comes right after the duel that everyone looks at. Do you see the FED using securities purchases to reduce long term rates?
Sure? So let me let me address there. The two things you mentioned are related, right, and so like I just have a personality that I like thoroughness, and I like to, you know, sort of explore all the angles, and I like to be exhaustive if I can. And when I wrote that paper and trade policy last year before joining any policy role, I was attempting to be exhaustive and list every policy I could possibly imagine as being able to affect the as being able to reduce
narrow the national accounts. I never advocated for that mar Lago accord. In fact, it wasn't even my idea. I was quoting somebody else's idea and gave him due credit in the citations and in the text as a result of it, and I underlined that it wasn't a policyroposal. It wasn't. Sorry, it wasn't policy advocacy, but I like to be a thorough and so I included it. Uh,
And it was uh. You know, it continued to haunt me for many months after that, just despite despite that, this this third mandate stuff is the same thing, right, Like you know, like I take a job seriously, and if I get asked to go to the Federal Reserve Board, I will look up the statutes that and I'm a lawyer, but you know I can read. And so I'll look up the statutes that govern the Federal Reserve Board, and I see that the Congress assigned the FED stable prices,
maximumployment and moderate long term interest rates. So when I'm testifying in front of the Congress, I will just repeat their own words back to them. There's nothing more to it than that, you know. I think most people generally leave the third part out because they think that it's implied by the first two, like that if you are going to achieve stable prices and you're going to achieve maximum employment, then moderate long term interstrates will necessarily fall
out of that. I think that's what most people typically do. They leave it unsaid for that reason. But just because I'm a thorough person and because I was in front of the Congress, I wanted to be respectful of their words and not my interpretation of their words.
There's been a lot of talk about the balance sheet. Treasure Secretary Scott Bessant has laid out in detail in a lengthy essay about the Federal Reserve and his views on it. We've heard about it from Kevin Worrish, a former FED official who is in the running to possibly be nominated FED chair. I'm curious what you make of Beson's criticism of the Fed's large balance sheets and mission creep that he points to.
So you know, I've also been very critical of mission creep. We talked a little bit about it before in the discussion about FED independence. The balance sheet. I believe the balance sheet became as big as it is in part because of previous asset purchases that weren't strictly necessary. You know, I think that if you look at you know, the FED was still buying mortgage securities when housing prices were up double digits or twenty percent, I think twenty percent
year year in the way of the pandemic. So I don't think there was a need for the balance sheet to get as large as it has. I think the FED has been doing a good job of bringing it, of reducing it. In my mind, though, focusing excessively on the size of the balance sheet is more like focusing
on on on the symptom rather than cause. And like I said a few days ago, you know, my view is that the balance sheet size that you ultimately need is ultimately falls out of the regulatory framework, because if the regulatory framework requires a certain amount of reserves in the system, the FED needs to provide that size of a balance sheet in order to in order to allow the banking system to have the capital and needs under the regulatory framework, and so my view is that sort
of focusing on the on the balance sheet size is focusing on the wrong on the wrong thing, and that it's better to focus on the regulation and to get the regulatory framework that you want correct, and then the right size the balance sheet will kind of fall out of that.
Do you think that the there should be more done to focus on long term rates the way the President says using the balance sheet?
Perhaps?
Uh? No, I mean I think that that you know is historically the FED sets short term interest rates, right, and then that affects financial a broad array of financial conditions, including long term financial sort including long term interest rates. And as long as you are, you know, sort of not near the zero lower bound, you know, I think that there's no need to sort of move towards trying to capture additional instruments.
So you agree with that the FED has a dual mandate. There's confusion out there after you listed, like you said, read back the law of Congress that there's now a third mandate policy, especially with the President talking about lowering long term interest right.
Yeah, Well, look, Congress gave the Congress gave the Fed those words that I read that I read in front of them, and that you quoted before. Now, as I said before, I don't think moderate long term interest rates are necessarily you know, in action item at the present, right, Like I'm focused on bringing inflation down sustainably to two percent, I'm focused on preventing deterioration the labor market that would expand an apple gap, And I think those are the
primary focus the listing. The third thing is just an you know, an item of completeness. But it's not for me to tell Congress they didn't say something. They've said, sorry, they didn't enact something. They enacted.
One thing that the President is acutely focused on is housing costs for the average American. Is there anything more that the FED could do to influence mortgage rates or just alleviate some of that pressure in the economy.
Yeah, So, as I said a moment ago, you know, the FED controls the short term interust rate, the overnight industrate in the economy, right, and financial conditions more broadly across a range of items, including longer term interist rates, credit spreads, the dollar, mortgage rates. Right, they all sort of can be responsive to changes in short term interest rates. And so if the FED continues to ease policy. Presumably
that will bring mortgage rates down to an extent. Right, bringing mortgage rates down will help, you know, unlock additional home building, will help unlock additional investment in housing. However, you know the degree to which mortgage rates come down versus other financial conditions. Listening, you know, I don't. I don't have a firm sense of exactly which which one is being pulled at this given moment.
Talk to us a little bit about the Fed's inflation. Do you think that the two percent range is the appropriate goal?
Sure? So, first, let me reiterate my commitment to bring inflation sustainably down. Second, let me say that any perspective changes to an inflation target should only ever be entertained after after a material period of the FED achieving its inflation target. To avoid any appearance of moving the goalposts, you should never even entertain that idea after after being off target for a period of time. That said, you know,
my view is that measuring inflation is incredibly difficult. And you know, when you look at when you when you get into the guts of how inflation is measured, there's all sorts of things that you know are strange, Right, So, for instance, you know, probably a lot of people in this room in finished services. Right. So when the stock market moves higher, financial managers, advisors, asset managers, they get more income because the base is higher, right, and sort
of a constant fee times a higher base. Right. The way that inflation is calculated then generates inflation in the portfolio management section of the personal consumption expenditures index. Right. So the fact that the stock market goes up mechanically leads to higher inflation the way it's measured. Right. So you know, obviously if you'd if you'd took that literally,
the FED would hiking response to that, right. So my view is that that's sort of like a weird that's a weird thing, right, And I just think that inflation is very, very difficult to measure, and so having a very precise inflation target like that can lead to excessive micromanagement. Instead, if you look before twenty twelve, the FED didn't have a formal target at all. They pursued low and stable prices.
Right to me, that's an interesting way of doing things. Also, you know, the target was really introduced in twenty twelve as a bulwark against deflationary risk in the wake of the Great Financial Crisis, when the FED was at the zero lower bound and felt the need to further credibly enforce a commitment to positive inflation. And so, you know, I think there's sort of very interesting questions about how would you actually want to set MANTA policy over the
longer term. But I do want to emphasize that these questions should only ever be entertained in terms of changing the framework after the FED has successfully achieved its target for a sustained period of time, to make sure that there's no appearance whatsoever moving goalposts.
Governor Marion, thank you so much for taking my questions great.
Thank you all very much. And let's scrawling around with callus. Thank you both. So you have it.
Live from the Economic Club of New York, Stephen Myron, the FED Governor, the newest member of the FED, sitting down with Bloomberg's Saliah Mosen for a conversation that you will not hear anywhere else other than here on Bloomberg TV and Radio.