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We'd like to welcome all of our viewers and listeners on Bloomberg Television and radio worldwide. And we are here in Victor, Idaho at the Rocky Mountain Economic Summit at the Bronze Buffalo Ranch at Titon Springs. And Mary Daly is joining us, the president of the San Francisco FED, and this is her district, so she's very familiar with
everything that's going on around here. Now. We have, of course followed several other speakers, including Paul McCully, who I think most of our viewers know as the former chief economist at PIMCO and a number of other important jobs. And he was talking earlier about the American dream of chicken in every pot, and he said that one thing that everybody agrees, including at the FED, is that we
all would like to have a bigger chicken. And I just want to make sure that that he's speaking for the FED.
Absolutely we were going to have a bigger chicken or a big your vegetable, whatever it is you eat it.
It's really about prosperity.
There is no part of our democracy that really doesn't want more prosperity.
And the FED is included in that.
And our job is challenging but important and good, which is we want to support prosperity, support, you know, the labor market, and do so without having.
Price stability be challenged. And that's the role of the FED.
And if we do our job well and then stay in the background, all other things are possible from the businesses and consumer's households in our economy.
Everybody asked me, what are you going to ask Mary? And I said, well, I'll wake up on Thursday morning and I'll look at the president's social media feed and that will tell me what the story of the day is. And of course he can't. He can't lay off. So I have to ask you, how is all that affecting you as a policymaker and your colleagues.
You know, our work is really important.
On the front lobby of the San Francisco FAT Head Office, we put a sign up. I put it up the very first day I became president. It says our work serves every Americans and countless global citizens, but that every American is really important. And that's the work Congress gave us, As Paul said, Congress gave us our responsibilities and our responsibilities our price stability and full employment.
We work to carry those out every time.
Our teams are the Committee, the FMC, we are laser focused on doing those responsibilities. And if you look at the headline numbers on inflation, we still have some work to do, but we are in a good place and we need to finish the job. So that's where we are and other things. You know, there have been periods of political pressure before and history serves us best as
a guide there. When you stick to your work, the work that Congress gave us, the work that is for the American people, then everything else falls into place.
So the President has obviously been sort of direct in his criticism of Chairman Pole. Jugury Secretary Scott Besson said on Bloomberg Television this week that the President is just working the refs, trying to create a favorable view of what should be done. Does that make any impression on you? Does it work to work the refs?
You know? For me, what is really important is looking at the incoming information.
How close we are? I think one of the Pauls said, you know, we're really close.
We have an economy that's working, we have solid growth, we have a solid labor market. You know, the consumers are spending, but they're you know, making their way and their families. Ultimately, what is still bothersome is not we haven't achieved price stability. And you know, I define price stability this way. I do think it's sort of an ethos part. It's when people don't have to worry about inflation. When I go out and ask people.
Across the twelfth district, across the.
Country, what's your top worry and they stop saying inflation, well, then that's going to be a victory because they suffered for too long. And remember, inflation is like the largest tax people pay.
It's an unpredictable tax.
You're on a treadmill, you earn well, you've invest in your business, and inflation eroads you're well being. So I think ultimately that's what we have to think about. And that's really enough to think about, frankly, and that's where my focus is. So other things are not distracting us from our core missions. And our core missions, as we all know, have come from Congress.
So essentially you're saying we are going to remain focused on inflation. We're not going to consider cutting rates until we are sure inflation.
I did not say that.
I have many words in her mouth to make it easier for the headline writers.
I know that, and so that's why I did not say that, so that they understand the next part of that.
No, seriously, I think right now.
When I look at the economy and policy, I see them as both in a good place. But when I look out, we really have interest rates for a significant number of years now in restrictive territory, and what we have is an underlying economy that is responding those higher interest rates.
You have growth slowing.
The frothy labor market that was pervasive after the pandemic has now moved to a more sustainable place. People are getting jobs, but firms are finding it easier to find workers and importantly keep workers so that they're not constantly on that revolving door of train and work of the worker leaves. So I think those are all good positions.
Then we have inflation coming down, and if we extract our move away from just the goods price inflations, which do show those numbers have been showing, and certainly showed in this week's print, the effect of tariffs, some of those being passed through but if you look at the other areas of inflation, you just don't see that inflation is pushing back up.
You see it gradually going down.
And housing services inflation, which has long been elevated, has been coming down over this year. Services inflation without housing has been coming down, slowly but coming down. So I see these is the result of the policy that we have in place. But at some point, if you hold the economy too tight, the reins we're in horse country. If you hold the bridle too tight, you actually end up stopping.
And if you stop, then you take the problem people.
Did have, which was inflation, and turn it into a problem that they don't have, which is the labor market. So that's why I see these two goals. The dual mandate is so critical because it gives you the kind of balance that ensures people have both things they need, opportunities in the labor market and price stability so that when they work and they invest, they can build careers and families and communities.
So let me ask you how you're thinking about the economy and what you should do right now. In the sense that this was a big data week, we had consumer prices and producer prices both come in at the headline level lower than anticipated, slowing in economy, especially service prices, but we see some under lying pressures in sectors that are affected by tariffs. A retail sales today came in stronger than expected, much stronger than expected, except for a
couple areas that would be affected by tariffs. So could you explain to this audience, and of course the guy at sixteen hundred Pennsylvania Avenue if he's listening, how you put all that together and decide when do winterest rates come down?
Well, there's always been three scenarios that were possible.
So the first.
Scenario was that we'd get the tariff effect and it would spill over into all other sectors. So if the price of a tariff good goes up, then your person cutting your hair, since we were talking about barber's earlier raises his or her prices, and suddenly you've got spillover that would make it more persistent. We haven't seen any
evidence that that's occurring. And I think that the house price inflation, the house services inflation, and the services inflation coming down reassures you that we're not getting that persistent component.
And there's two other scenarios.
One is that you get the tariff effect and it's relatively contained and it becomes a one off.
And the second is you just.
Don't see much of the effect because what happens is that as the tariffs settle in to whatever level they're going to be, you know, firms who are importing from other countries say you take half, I'll take half to the country. Then down the spy chain or the production chain, you're splitting it all the way and so that by the time it hits consumers it's a more muted impact
than what is the announced tariffs. You know, one of the pieces of evidence we have for that is that the effective teriff right as of last week was calculator around sixteen percent, but tariff revenue is only eight percent. So that tells you there's some splitting, there's some leakages, some workarounds. Companies are very innovative, they're figuring out other ways to do things, and you know, this is a global shock, and so they're all companies across the globe
are figuring it out. So when I think of that, I'm really of the mind, well, we might end up with a more muted.
Impact of tariffs than we thought, and.
Then I I've been this is something I've said publicly since you know, January, is all administrations come in not with one.
Policy, but with a slate of policies.
And you know, Paul Ryan said this this morning, and I think it's worth emphasizing the slate of policies have you know, push and pull effects, So deregulation and tax policy, tax relief, those are growth inducing policies. The tariffs could be and the immigration policy could be growth impairing policies. But we don't know yet, right and we certainly don't know thet net effect of those.
And so that's why it's.
Important to take in the information and not raise, not lower rates, excuse me, not lower rates preemptively, because we just don't have that certainty.
And then the economy is in a good place.
At the same time, you can't wait forever because if we wait too inflation gets to two percent, well then we've lost We've likely injured the economy in some way that was completely unnecessary. And so I'm of the mind that you know that the summary of economic projections we put out, which had two rate cuts for this year, I think that's a reasonable outlook to have.
Of course, we are data dependent.
If all of you who are business owners say no, Mary, the inflation's right around the corner and is going to spill over, well, then that's a different thing. It's one of the reasons Reserve Bank presidents in particular spends so much time in their communities asking questions like I asked Crystal.
This morning, what are you thinking? What are you seeing? Are you raising prices because of this? That? And she can give me.
That information, and so far I'm not hearing that that's a pervasive outcome.
Let me dig deeper into that and ask you. I know you talking to CEOs and companies all across the district all the time, what's the basic attitude most of the time. I'm told by folks at the FED that everybody's just sort of sitting on their hands right now.
Not in the West.
Maybe it's our Western spirit, but I have the nine Western states and I don't see sitting on hands behavior. I see cautious optimism. And there's a cautiousness people, aren't. You know.
What I heard originally was we're going to wait and see.
But now that the direction of travel on tariff seems to be negotiation to lower rates than we're announced on Liberation Day, and the tax policy and other things that past people are already seeing that they can work in this system. And so you know, I've been to a lot of places since January, and I've been to Alaska twice, which is at the heart of some of the changes in programs that you see. And what they are is cautiously optimistic. Come to the inter Mountain West cautiously optimistic.
California cautiously optimistic. So you know, whether I'm in the coastal part of my district, the you know, Alaska, I haven't been to a whye, but they're also cautiously optimistic. But the inter Mountain West, I think this is a You guys are always a little poster children for optimistic, but I think it's really optimistic at this point. And you know, recognizing costs may rise, other things may happen, but workers are easier to find opportunities are out there.
Maybe not taking every risk you would take if every thing was certain, but certainly not stalling out and waiting to see, you know, the growth. One of my directors put it as growth does not come to the meek.
So you have to take some risks.
To do well. When you do go to Hawaii, let me know. I know, come out and cover.
That I go all that I go regularly.
It is in the district, but I haven't been this year, but I will let you know next time.
Another question on what you're hearing from CEOs. The big question about whether we have an inflation impact from tariffs is whether companies are going to pass them along. What are the bosses out there, the people who we should have asked Crystal, what are they telling you about that?
Well, no, firms live in an equilibrium or an ecosystem like everyone else, and so the impulse, of course is to pass along any cost increase and protect margins. But there's also a recognitions that customers, consumers are exhausted, right They've been paying higher price levels and then with rising inflation, and as the economy slows, and you see this in the sentiments based for consumers, they're a little more worried
about the job markets. So they're going to be even pickier, and so you would expect retail spending to slow today. If you average the two months, you get something that looks kind of normal. But we see consumer spending over time, slowing from where it was, but not falling off a cliff. So I think that's just part of a solid economy. But it does discipline the idea that you'll just simply raise prices.
And push them completely through.
And so what we're hearing is that companies are saying they're trying to negotiate with the import country to take a little bit, the importing firms take a little bit off, and then they're trying to push it along the supply chains. They'll pass a little bit through, but unlikely to pass
the whole thing through. And importantly, in the goods sector, this is especially a parent because if at the post pandemic there was this massive, really large, significant you could see it in the data rotation of consumers to goods purchases over services purchases, and people will buying many more goods than they bought. But now their coffers are probably full. They have a lot of pelotons and other things and
so you know, bikes and things of that sort. So it's very easy for consumers to be priced sensitive on those items and then turn themselves back to services and buy experiences over goods.
And I think the goods providers are aware of that.
So whatever the impulse is, the practicality has to meet the consumer.
What is you use the words of solid economy? What to you is a solid economy? And how far do you think will be from that at the end of the year.
You know, if we see what we've been seeing, which is that we're slowed to a sustainable pace. And right now you know two percent growth is the estimate of trend. If you simply add up productivity growth and the labor force growth, so we could get more out of productivity and get a higher number. We could get more out of productivity, get a higher number. We could absolutely grow
a little faster. I wouldn't be surprised about that, but I would I don't think we need to slow precipitously to produce the last mile on inflation.
If you will, I think we can actually do it.
With this study of growth, expansion and the labor market that hovers around the current level. I wouldn't want to see more weakness in the labor market. I really wouldn't want to see that, Which is why you can't wait forever thinking that inflation is just around the corner. So we have to wait till we know, I think, you know,
clarity in central banking is overrated. We'd want, we want some clarity, but we can't wait for perfect clarity, because then we'll always be backward looking and by then it's too late.
You mentioned potential growth, which is the sum of productivity and labor force growth. The President has also got policies on labor force growth, bringing it way down. Have you seen effects on the economy in your district yet? From that?
You know, you see pockets of places where firms relied on immigration, legal immigration as well, and people have the is just a chilling effect on those markets, and so you hear it, but it's in pockets. I wouldn't say there's a broad based concern over that at this point. I think there was a lot of concern originally, but it just hasn't materialized that way, and so that's been a help. Now on we talked about labor force growth.
It is a fact that we have one of the lowest labor force participation rates in the industrialized world for men largely, but women to between twenty five and fifty four. So our industrialized competitors all have higher labor force participation rates that we do. So when we talk about labor force growth, I think we have to broaden it beyond the immigration and if immigration's gone, where our hands are tied. Really, what is the remedy for so many men in particular sitting on the sidelines.
Is there a model for what you think happens to the labor market based on the immigration policies the administration.
Has, You know, we have a way immigration has gone. It went way up and it's come way down. One of the remedies that firms use, frankly, is they increase technology so that they can use the workforce that we have and match it with technology. And you see that, you know many we've all been to hotels and convenience stores and other things where self checkout and self check in and all these things have technology solutions coming. I also think, you know, we have this Emerging Tech Economic
Research Network at the San Francisco FED. We've launched it in January twenty twenty four, and we do CEO round tables and other things around this topic. And it has been just astounding how many medium and small sized businesses are adopting generative AI or AI solutions that aren't generitive AI just planing on machine learning to augment their talent pool and actually expand their productivity with a smaller workforce that can't grow as fast.
So I think there are solutions there.
And if you could put that productivity and an invasion with some increase in the domestic labor force, then I think that could be a very win win situation for expanding our growth rate.
When personal computers came along, the productivity gains were talted. That didn't show up for quite some time. I know you followed the tech world very closely, silicon valleys in your district. When are we going to see the productivity gains from AI and how is that offset by job losses that are going to come when the computers do what some of us do.
So one of the things that are really important to know. So a little known fact. Maybe I remember it like it was yesterday, but one of my first jobs I come in as an economist. I'm a micro economist labor economist by training. But Chairman Greenspan, as you remember, was very thoughtful about productivity and he thought it was there even if we can't measure it in the statistics. The statistics are always the last to find productivity. So he
set me out. His team set me out to be the collector of anecdotal information qualitative information on this, and you could see it everywhere. Companies were testing things, they were trying to bring it to scale, etc. So the productivity improvements were there long before they ever aggregated up into the aggregate statistics. So now we're going to talk about the job issues. Well, computerization was a technology that
actually replaced workers more quickly than it augmented possibilities. Generative AI has a different component of possibility, and I think it's useful for us to remember this. So generative AI can make people who aren't as skilled in something newly minted workers people who are the best example I can find is physicians assistants. Physicians assistants can now triage people in the frontline medical places if they allow it with
generative AI assistance. So they say you sprain your ankle, well, they have a protocol that gets spit out.
Did you break your ankle? How would I know? Would I get the X ray? I put the X ray into there.
So they can do these things and it makes the physician assistant more productive right away. It doesn't mean we replace doctors, but we have a shortage of doctors, and so it's a way to give care and increased productivity and a medical profession. And you know, it's a long way from being scalable, but I think those are the kinds of experiences where generative AI has the possibility to
make us better overall. And then the biggest productivity gains come from things we don't even imagine today and we certainly don't have. So I am not evangelist for generative AI, but I'm also not a pessimist, and I think the big fact I keep keeping in my head is that that no technology in the history of technologies has ever taken reduced jobs on net.
But it does.
Change who is working and who's not and what skills are demanded. And so when I speak to younger PEO people, I say, you have an imperative to keep up with the new technology and figure out. If you're a welder, how can generative AI help you. If you're a computer coder and you're worried about your job, then learn the AI so that you can do the next job that's available. And I think that's the way we stay ahead of the job losses.
I want to ask you a pre amible question to my next question. But the first part of this is just that the President keeps saying in his tweets J. Powell should lower the interest rates today. But doesn't work that way.
Does it.
It does not well mean first say what we've already talked about several times today. But the committee is tasked the FMC is tasked by Congress with price stability and full employment. We have a diverse set of members. There's nineteen of us. We debate and discuss vigorously what we should do for the American people again those things, and
so there's two components of that that are important. All members of the committee are important and influential because they're bringing different places, whether they're reserve bank presidents and they have a different view from the context they talk to.
Whether we're just from different perspectives.
We're looking at different you know, we're looking at the same data and the same models, but we're coming to a different judgment. And of course we're always trying to look ahead. And the people who are the most you know, I've been working at the FED for a while and been a policymaker for a while now. The people who are the most valued to me on the committee. Are the people who don't agree with me? You know, I've
got Randy Quarrels here who is along. It was a colleague of mine at the Federalserve, and Randy and I would always talk in a way that I really took away.
Randy challenged my thinking.
I believe I challenged Randy's thinking, but I believe that to him to say, I know Randy challenged my thinking. I was a better policymaker because I sat with somebody who was able to challenge that thinking.
And that's how the FMC works.
And whether you're the chair and all the committee members are challenging your thinking, or you're committee member and the chair is challenging you're thinking, the collective is we share equal responsibility when we take that vote and we walk out of there. Ultimately we're all answerable to the American people.
That's what works.
And now to my question, most of your colleagues have suggested that July thirtieth meeting is too soon. There's not enough information yet. Although we got this important set of data this week, two members of the committee have already said that they could see cutting rates in July. What's your position on the next meeting.
So I'm going to tell you how I really think of this, and then I will give you a vague version of that an answer to that question. But let me just say this is how we go back and forth all the time. He wants a date, I say no, But seriously, I think we're asking the wrong question. I don't think the question is is it going to be July or September. I think the question is which the
direction of travel? And there, when you look out the direction of travel and you saw this in the summary of economic projections, is rates will be reduced consistent with the fact that inflation's coming down and we don't want to unnecessarily tighten the economy in a way that you know, hurts the labor market or growth. So that's the direction of travel. Whether it happens in July or September some
other month is really not the most relevant piece. The second most relevant piece is where will the rates settle? And there I'm very much on the camp that's going to be higher than it was in the pre pandemic era.
You know, if you thought it was two and a half in the pre pandemic era, I think you have to look three or north for the nominal neutral going forward, and so that just gives us a lot of understanding of you know, we're not going back to pre pandemic rates, but some continued ongoing normalization of policy as we finish getting through the battle of high inflation and we ensure that we're trying to balance both full employment and price stability. For my own view, I think that, you know, there's
a lot more information we could collect. And the thing I was looking at between you know, should we move quicker and should we move a little less quickly has to do with where's the labor market today. You know, initial claims for unemployment insurance remain low and below expectations.
Inflation actually came in right on our.
Expectation, my expectation, and it's not surprising. There's some inflation in the good sector, and it's very encouraging that there continues to be some disinflation and other sectors. So I think we've got policy in a good place today, and we will continue to learn more about how the uncertainty
on tariffs and other things prove out. And you know, one of the big jobs we all have between now and through the rest of the year is to be out in among businesses, community groups, workers, asking what's the lived experience of the economy, and not what did you do yesterday, which is largely with the published data, tell us, but what are you going to do tomorrow? How are you planning? Are you are you building? You know, I've been doing crane counting. That's a really fascinating thing to do.
If you're like men, look at the sort and I count cranes. And if you count cranes, cranes are still going up. They're not stop and they're working. We have to look at whether they're working or they're just sitting there. So I was in Boise, Idaho, just a couple a month ago for a commencement speech, and what I saw was crane's still being constructed, going up. So there's optimism there,
and there's also continuing to work and to build. So I don't want to be too optimistic, but I'm certainly not pessimistic.
Well, you mentioned that interest rates are going to settle at a higher rate than they were.
I don't think in all likelihood, probably.
Nobody expects them to go back to zero again.
Two and a half though, I think is where they used to be as a nominal neutral.
I know somebody who got basically a two and a half percent mortgage and cheat lets me know about that all the time. Where do you think it is? This is the question that the Paul's discussed. Where is neutral?
I think, you know, my own personal view is it's I penciled in a you in.
My head of three.
But if you really are a student of any of the star variables other than the one that we name, which is two percent inflation, you know that there's a great deal of humility that comes with the estimate. So I think a better way to think about it is it's three or north of three.
I don't see a lot.
Of evidence that it's south of three, But again you have to have an open mind on these things, and the place you know it is in the economy. So right now we have interest rates much higher than three hundred basis points higher, and we still have growth coming out.
Solid, And does it sells me?
They're modestly restrictive, maybe moderately I don't know how to really dice and slice moderately versus modestly, but a little restrictive. And if the neutral rate was something like two and a half, they would be potentially much more restrictive than we're seeing them play out in the economy.
Question about I'll just go slide in a little technical question here that came up in the earlier discussion. Why does the FED look at the personal Consumption index and make that their target instead of the CPI, which is what everybody's familiar with.
So I guess it would be useful to recognize, or to say, allows everybody knows, just because we have a target variable doesn't mean we're not looking at all the other indices. When you have price stability, these indicies are all moving in the same way, and so they look really tight there next to each other. They all have a little bit of difference, but that difference is historical. It's a constant, and you can figure out that they're
all moving the same way. When you don't have price stability, you're pouring over every single aspect, not just the headline numbers, but all the different sectors, trying to understand what are the leading indicators for inflation spilling over what are the lagging ones that are already behind us?
So we should worry about them? And that's what we do.
I mean, I have pages of what we call the dashboard of inflation indicators, and the ones that have been proven most useful are actually not those headline numbers at all, but the things that are proven most useful are There's a survey that the Bureau of Labor Statistics has done which asks what percentage of prices have gone up and what percentage of firms say they're going to raise prices in the future. And then the second part of their
series is how frequently are firms changing their prices? In the heat of the seven percent inflation, firms only had one direction, I'm moving prices up, and the frequency of price changes had skyrocketed relative to normal. So we have this theory in economics called menu cost, meaning you all don't want to change your prices very frequently.
You have to change the menu.
Well, if you go to the local businesses out in Oakland where I live, you would see that people just took the sharpies and they just.
They just wrote through the price and then wrote a new one.
It was all in these paper and pencil kind of things because the prices was changing so much. So we don't see that happening now, and that's a good good sign. So the PCEE why did we pick it? You know, there's people might tell you different things, but here's ultimately why.
If you look at a set of statistical analysis that say what's the best predictor of underlying inflation going forward, the PCE is the most reliable predictor and it is one where it's analytically important, So it gives us a good guidance for how to follow inflation that's not moved around by idiosyncratic factors. But I will definitely offer to you if that was all we looked at, we wouldn't have the complete picture.
So we look at everything.
A couple of questions on prices. Chaos in Washington. We all have seen that for the last couple of months, and yet the stock market keeps going up and up and up. How do you think about asset prices? How does that play into your view of inflation and what you need to do in terms of policy.
Well, it's one variable, one financial variable in an array of financial variables that we take in. All of this is inputs to my thinking about how loose or tight our monetary policy and conditions. Financial conditions, not just monetary policy. And the stock market moves around for a variety of reasons. The mag seven is very hot and that continues to be Other stocks are building as well. But if you step back now, I think of this as just another
measure of optimism or lack thereof in the economy. And if the stock market was very much out of line with what I hear when I go and talk to businesses, then I would have more concern. But right now I hear is a reflection of the optimism people have in the economy. I mean, I have the benefit of not living in Washington, and it gives you some distance, and so I spend more time with businesses and communities, and people aren't as I think. They don't read the news
every day. They actually work on their business every day. And so when you work on your business every day, you're looking at do I have a demand for my products? How much does it cost to get the inputs I need? What are the opportunities for expansion than I see? And I do see that there is that cautious optimism, and that's reflected in the stock market as well.
Now there are questions about how the bond market reacts to all of this, and how you affect the bond market were some of us are old enough to remember the bond vigilantes, and that's a very good analogy for out here in the West. Are you worried that they will affect the economy if you do something that they
don't like? We saw yesterday a big increase in interest rates, market, interest rates at the longer end, spreads, corporate spreads when it was felt that the president was going to fire J. Powle. How closely do you watch that and how does that figure it?
You know, certainly you watch the bond market. And what I'm seeing now is volatility as opposed to some significant change in how investors are pricing things. I mean that volatility that you mentioned yesterday went it went down and then up again, you know, and so it goes up and then goes down again. So my eye on longer periods of time than the daily the daily bond movements,
and I think that's really important. Right now, we have, you know, financial conditions that are slightly restrictive to growth, and I think that's going to That's something that I'm keep in my eye on. If they got overly loose, then we would have to take into account that into account. But I just don't see that happening, and so many factors affect the bond market, not just the fad. It's really we are often seen as the center of the
attention there, but that's really not I think true. There's lots of things that affected, including, you know, issueing for the treasury, global factors, negotiations between countries on fiscal policy, geopolitical issues, and so I don't overread the bond market because that that actually is a perilous outcome.
Another price question that I'm sure you get wherever you go is how much do house prices weigh on you? And is it your fault that nobody's buying houses because interest rates are too high? Which would be the follow up question to that would be what's it going to take to get housing going again?
So I think this is a terrific question, but one that when discussions I've been in, people have certain aspects of the facts, and I think we all will know this, but I'm want to put it together in the ecosystem.
So we came.
Into at the pre pandemic twenty nineteen, we had a housing shortage, a significant housing shortage. Then of course the pandemic made the housing shortage worse, and we build bigger and bigger homes because people want it bigger and bigger homes, but at the cost of smaller homes. So then interest rates rise, and rightly so to combat high inflation. And now people have the problem of higher priced homes and
now high interest rates. But what I have seen as interest rates have started to normalize last year is builders are coming off the sidelines. They're getting started, so they don't want to overbuild. Part of the reason we have a housing shortage is because there were a lot of builders scarred after the global financial crisis, and they don't
want to get in that position again. So we have a lot of pent up demand for homes, especially starter homes, the ones that you know, most new families want to go to, and importantly retired retiring people who want to live close to their grandkids but don't want a mansion anymore. You know, they don't want something that can support a family of for they want something that supports a family of two. So that's a problem we need to solve, and I'm seeing localities try to solve this. So do
interest rates matter for housing demand? Absolutely, will lower interest rates solve the housing shortage? No, you need you need some more resolved locally and maybe nationally, that's not our side of the house. And fortunately and the ultimately do I do I worry about high interest rates? Yes, because but that's not because of a specific sector, but because they're an indication that inflation.
Rows and now we have to get it back.
When price stability is restored, then we can have the rate at neutral and we can proceed on. And ultimately, what I hope for is next year we come around and nobody asked me about inflation because it's now in the background.
We have price stability, and we are able to.
Make decisions based on the other things like what's the best growth industry, how do I do things like your crystal was talking about, grow my business past that legacy on so that my family can inherit it. So those are the kinds of things we want people to think about.
I'm going to ask one more question and we'll do a couple of audience questions. We've talked a lot about tariffs, but what's your modeling showing you about the effect of the budget bill that just passed?
You know, it's really early days, and again I'm going to put us back to something that was we talked about earlier in the Sessions, but also I mentioned what's really important is the net net of all of these policies, and so you need to know what is the growth impetus, how does it stack up, what's the time You know, bills that are tax policy, will they give relief immediately? Bills that are investment policies, those take time to work themselves out, as Paul said this morning. So this just
there's a timing issue. And then of course we have the tariffs and the uncertainty there, and we have immigration. And what's really going to be important for the economy, both for the growth and.
For inflation, is how does this sort itself out?
And does the timing support those policies together or does the timing off and we end up with things that are growth constraining before we get growth relief.
Those are the.
Things that I have to keep looking on as a policy maker.
But it's early days on all of this.