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Us now, and without exaggeration, the only exception would be Edward Jardenny is the number one person I want to talk to now about the legacy of Alan greenspand William Dudley is a different FED president, yes, of the New York Fed and all, but far more. He built Goldman Sachs Economics with Ed McKelvey and the rest of young Jana Hasias. At the time Bill Dudley joins us this morning to me Bill Dudley, and the phrase I've always used is chart paragraph chart. And it was a people
like Hymen and Yard Denny at C. J. Lawrence. It was the Bear Stearns combine with mel Pass and writing. But more than anyone, it was Goldman Sachs chart paragraph chart. Alan Greenspan loved that. At the end of the day, he was a market economist awen to data. Do we have anyone that can be like Alan Greenspan in our future or was he a one off in the history of our economics?
Well, the future it takes up a long potential times.
I'm sure we'll see someone similar to Greenspan in the future, But you're right, he was a different type of FED chairman because not only was he very knowledgable about economics, but he wasn't academic, and so he was basically going from the data to the decision making rather than from the model to the decision making. And so sometimes when the world changed, he got it right before anybody else did.
The best example, of course, was the late nineteen nineties when there was the product three boom and Greenspan held off on tightening manentrey policy. So I think he was, you know, an exceptional exceptional chairman in both in terms of his understanding of economics, his openness to data, his willingness to you know, change.
His mind and update.
Is his fourth asked, I think the only really you know, blind spot was fully his views about financial stability and regulation. His view is always, you know, we can't identify bubbles in real time, so all we can clean up after the fact, And obviously the Great Financial Crisis showed that cleaning up after the fact is always it's not always the right approach.
Well did you get into your excellence at Berkeley and to say, okay, it is about the regulation decision? Are we making the same mistakes today that the critics they were made in five and six.
I don't see the same kind of problems.
Number one, in terms of, you know, the market having a lot of assumptions that will ultimately turn out to be wrong. I mean, if you look at two thousand and six, two thousand and seven, there was all these assumptions triple A CDOs are safe housing. Markets can never decline on a national basis. You know, uh, you know, there were just a lot of assumptions that turned out some prime lending it is not risky. All those assumptions
turned out to be dramatically wrong. So I think, you know, I like, I think there's risk of financial stability today, obviously in the non bank financial sector. But the other thing is we have a much more robust regulatory regime. I know we're in the process of dismantling that too much degree. I think it's important that we don't throw
the baby out with the bathwater. But you know, we did learn a lot of good lessons from the financial crisis that I think means that the financial system fundamentally is stronger than it was back then.
Putting all that together, Bill, what do you think the legacy is for mister Greenspan With a little bit of a hindsight here.
I think he's obviously going to go down in history as a great central banker, also go down as someone who was really politically adept. I mean, he navigated through democratic and Republican administrations really well and didn't have the kind of conflicts that a lot of other central bankers have run into, like J.
Paul for example.
So I think that combination of good economic intuition, reliance on data, ability to navigate through Washington really well is pretty special.
Wich.
He'd done a little bit better on the financial stabil reglatory side. If he did that, he sort of gets straight.
A's let's fast forward to today, mister Walsh. We did hear from Kevin Walsh last week for the first time as Chairman of the FED.
What were your takeaways?
Well, I think the big takeaway is number one that it's going to be a different regime under Kevin Walsh. You know, so the regime change that he promised is in the process of happening. You can just tell it right off the bat with a very much shortened statement I think and getting rid of Ford guides I think is completely appropriate. But I'm pretty nervous about his views about not communicating at all about how the FED is
likely to react if the economics circumstances has changed. This reliant on the markets views to sort of guide policy, I think is a mistake. The FED Reserve needs to set monetary policy, not financial markets. And then if you're relying on the markets, how do you make the decision? Markets basically don't price to what they think the FED should do. They priced to what the Fed what they think think the FED will do. So if you're relying on the market, you're sort of you have this indeterminacy
about what you should do. So I think so, I think that's a mistake. I think, you know. I think transparency I think is very helpful in terms of the conduct of mandre polic policy, because you do want markets to think along with the Fed when you know strong economic report comes out. You want the markets to reprice in terms of their expectation about the monetary policy path.
But to do that well, you need.
Good community, good communication, markets understand the Fed's monitary policy reaction from me. So, I think the risk here is Kevin is throwing out the baby with the bath water. I have no problem getting rid of afford guys, but don't throw out, you know, information about.
The Fed's Nentrey policy reaction function at the same time.
And I think he did that at the press conference because he was asked very explicitly, what would how did you want to tighten manitary policy?
And he really wouldn't answer the question.
I mean, obviously, obviously answer would be if inflation stays longer for higher than I expect, then we'll obviously have to tighten monetary policy. Or if the economy is stronger than we expect, then obviously I'll revise up my estimate of a neutral madry policy.
But he refused to answer those questions.
And I think that's maybe okay for the first press conference, but I don't think that can be sustained over time.
Dudley fired up. That's what we're saying right now, William Dudley with us, and we continue the former president of the New York FED. You're sitting there, Bill, all fired up, and everybody knows I agree with you on this. I mean to be polite about it. The heritage of your shop called Goldman, Sachs and Hotsius has carried this forward.
Is a disinflation narrative. Is the big shock after this war with West Texas intermediate to seventy one forty nine, so I could get with constructive news is sixty nine handle. Here are we prepared, Bill Dudley for the disinflation narrative that could come.
Well, there's going to be a disinflation narrative really next month, rightway when we get the PC and CPI data for June, because obviously oil prices and gasoline prices of them down this month. But I think that you have to look in the broader context what's the pressure on resources? More broadly, we still have a lot of price pressures, like for example,
chip prices going up really rapidly. And I think the I think the fundamental question really for the Madre policy outlook is the question is Mantrea policy actually restrictive today?
And my own personal view is that there's not much evidence of that.
I mean, we've had the Mantre policy at this setting or tighter for three years and yet we're still at an unploying rate consistent with full employment. So if Madre policy isn't restrictive, then why do you need to cut rates?
What's the next data point, Bill that you think the market should really be focusing on.
I think the layer market is really important here.
I mean, I think if the economy is strong enough to keep the payrolls growing like the pace they've done over the last few months, the unemploying rates flat to declining, you know that that's going to continue to push the fit in the direction of thinking that they need to tighten monetary policy.
I don't you know.
I'm I'm a little uncertain about how fast madret policy is Titan's likely to occur, or what that probability is, because it's not clear how much commitment Kevin worsh has to actually doing it.
I mean, the talk is cheap.
Of course, everybody's in favor of price stability, but the question is what are you actually prepared to do to achieve that outcome? And I don't think we really know that at this point. I mean, you could have obviously said the opposite. I'm not in favorite price stability, So it's not really clear that there's a lot of content in that statement.
Just valuable. Thank you so much. Bill Dudley with US, a former president of New York FED. In remembrance of a life of Alan Greenspan,