Bloomberg Audio Studios, podcasts, radio news. Well, thank you for joining us. This is your first round of interviews one year into the job.
Well here as of today.
Actually, yeah, the FED minutes that were out this week suggested that a majority of the members agreed that it would be worth cutting rates in September. But I presume, given your comments after the meeting that you're waiting for more evidence that you were not among them.
So yeah, I think it made sense, or it makes sense for me to really look at some of the data that comes in the next few weeks. And I think this mandate on the inflation site's really important. I think we seem to be getting some really good movement that direction. But before we act, at least before I act or recommend acting, I think we need to see a little bit more.
Well we essentially on the path to it, in other words, of we get as predicted inflation numbers, jobs numbers in the next month. Would you agree it's time?
You know, I like the word path, and I also believe that we've seen some cooling in the labor market that also kind of works in tandem a little bit with that. Not exactly sure, I would go there just yet I think it kind of is the nature of what happened with the inflation numbers and how much of those inflation numbers were kind of supply driven that got cured, and then how much is is the policy restrictive? And I think while it's restrictive, I don't know if it's
overly restrictive. So you know, for me, policy as implies patients and I would say, let's be patient.
Well, what are you worried about? What would be the scenario that would drive inflation back up again?
So if we get any kind of spark and demand, I mean I go around the tenth district quite a bit. We still have employed numbers, unemployment numbers in the two and a half three and a half percent range. I think a lot of people are looking at how do we hire skilled labor over the next twelve months. So I still think we could see a little bit of demand pick up if we're not careful with the decisioning, at least from the tenth district standpoint. I'm a big
fan of the Beije book. I try to understand what's happening in tenth district and then try to see what's happening regionally. With the other eleven banks. And I think there's from a trend standpoint, things look pretty good. But I still think we have some time.
Well, in terms of trend, it seems that we are seeing a slowdown in salaries and wages and that people have spent a lot, if not all, of their pandemic bonuses that they got. So what are the people in your district saying, companies in your district saying about whether there would be another spark of demand?
Yeah, so there everybody seems to be pretty busy still. And I think in some cases, I would say the housing market, the healthcare market is still has a high demand factor for people skilled people, and I think, you know, the margins and some of the healthcare industry are narrowing, and so you could see some inflationary factor in some
of these areas. And I still think we've got to fix this housing supply market, and I think there's going to be more demand in that market over the next two or three years.
Well that's going to be a question is how does the FED get the housing market going again since the FED essentially put a stop to it, or do you think that's your responsibility?
So I would probably say that the rates are less impactful about buying a home today than what's happened with the cost of home through the pandemic. I mean, there were the supply issues that we had in twenty two and twenty three really show the housing market from a cost standpoint. And I think as I go around the district, the whole issue of that first time home buyer, affordable housing,
that seems to be the number one issue. So I think we've got some work to do in that area, but I think it's less rate sensitive as it is just pure cost driven.
Now you were a banker, your whole career has been in banking. What's the banking side of the ledger look like in the tenth district in terms of being able to create and supply credit both to businesses and in agriculture is a big deal, And of course that's sort of a separate banking business.
It is. So I've been to several bank association groups, I've visited with a lot of bankers one on one and with their boards. The one thing I do say is I'm actually pleased and quite proud of how the industry is adapted itself through this kind of rate policy move Since twenty two. It seems like they've adapted their funding bases, their clients, their credit side, and so earnings and capital seem to be in pretty good shape. And so I think now the conversation comes around really the
liquidity funding. We talk a lot about the discount window and how that integrates and so. But by and large, the banking industry, not just in the tent district, but by large numbers look pretty good. I don't see any black clouds forming in that regard. Now. As the monetary policy discussions continue, we'll see how it affects things like the yield curve and things like that, which I think are really important to the banking business.
Well, banks deal obviously in reserves, and right now there are a lot of them. As that comes down, what a lot of analysts say is it's going to come down unequally, especially for smaller banks. Are you worried at all about the smaller banks in your strict having liquidity problems?
I don't see that today there is. I would say that we talk a lot at the monetary policy table about the balance sheet about abundant reserve reserves. I think over time, the analytics about what abundant reserves is and then we have a really robust supervisory team that keeps
very close track of things like liquidity and reserves. There doesn't seem to be a lot of concern in the industry, and I think, frankly, maybe even after the Silicon Valley experience, I think bankers are generally a little bit more conservative on the whole liquidity metrics in their banks.
I have to ask you, I think I know the answer, but I'll let you tell me what you thought of the report that the euro of Labor Statistics put out at eight hundred and eighteen thousand fewer jobs over the twelve months to the first quarter of this year.
Yeah, So the first thing that comes to mind is are we getting the data wrong in that regard? The second is, if you look at it seems like a large number until you put it in perspective of the twelve months, and so you know, while it's a big number, it doesn't really change the path of the way I think of things when I think about monetary policy and the effect of the labor force and what's going on. I'm actually really interested in the dynamics of the labor
force really coming out of the pandemic. You know, the behaviors, the compensation structures, the demographics. I think studying those relative to the future labor force, maybe thinking a little bit about what AI generated AI does to things like productivity. I think those are important things to look at. Now we have to look at some of the data relative to what we do with policy in the labor force. But the recent print here isn't a big concern for me.
So you wouldn't agree with the argument that some make on Wall Street that the FED is behind the curve.
No, I don't really agree with that. I mean here here again, I think we've got to get as a FED better at at the data sets that we're using. I'm a new central banker. I'd like to see us move toward a more real time data set versus there still seems to be some lags, some serious lags in some of the data that we get. So using new technologies, maybe some of the AI technologies, maybe we get better
data as we move forward. But we've got to really focus on that with our economists and our and our analysts about you know, where's the data coming from and can we rely on it well?
To follow up on that as as sort of and wrap things up. We have the framework review coming up this fall. Is that number one for you? Is the data or what else would you like to see looked at? I realized generally to say what would change, but what would you like to see looked at?
So Joe Gruber is our chief economist and head of research, and his team came up with this transmission of monetary policy subject matter for this Jackson Hole event. Perfect timing. So I think we're going to some of these research All these researchers are going to release their paper soon, and I think there's going to be some really good insights into the data collection, the analytics, and how we
transmit and communicate monetary policy going forward. So I think there's going to be a very robust discussion about how that's done as we move into the future.
Well, one aspect of that that really interests people on trading desk on Wall Street is, and you would experience this as a banker. The whole financial system has changed since the Great Financial Crisis, and now everything's run on repo and you need a lot of paper out there to satisfy the banks, and you've set up all these systems to make sure it works. Has it gotten too complex?
I don't think so. I mean, look, I came from that world. You can overcomplicate it if you're not careful. I just think that community bankers understand their markets, They understand the demands that their clients have, that they understand how to move capital and credit to build their communities and regions. So I don't see the business as over complicated.
I do believe there are some things that are happening, let's say FORED like for instance, FED now, where you're going to see money moving twenty four hours, seven days a week. People are going to do business on Sundays relative to banks and the business they do with banks.
So there is some complexities in there. But I think some of the technology, some of the policies, conversations we're going to have around things like modernizing the discount window on their behalf, I think those are going to be really net ads for the banking business.
One last question on this subject, Buzzle Vazzel endgame as they call it, which we know is never going to be an endgame. But as a banker and now a central banker, what's your.
Perspective, So you know, in my former life as a community banker. It was always interesting to me, we really need to try to understand as regulators, how do we even the playing field. Capital is a big one. I've talked to bankers around my district and they believe that, look, we've got to try to figure out how to make that field equal. That you've got tangible capital ratios with small banks that are running at nine ten percent, some of the larger banks run it at you know that,
six and seven. So I think the capital conversation is an important one. I think Vice Chair bar On the Board is on his team and along with a lot of our supervisors around the Federal Reserve System, are having a very active conversation about it. I think we also have to align things like the Community Reinvestment Act to what's happening in community banks. I think those are real, big policy matters that we need to really get aligned well with the industry.